4752 Federal Register / Vol. 76, No. 17 / Wednesday, January 26, 2011 / Proposed Rules 

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

2See Dodd-Frank Wall Street Reform and 

Consumer Protection Act, Public Law 111–203, 124 

Stat. 1376 (2010). The text of the Dodd-Frank Act 

may be accessed at http://www.cftc.gov/ 

LawRegulation/OTCDERIVATIVES/index.htm. 

3Section 1a(20) of the Act defines the term 

‘‘exempt commodity’’ to mean a commodity that is 

not an excluded commodity or an agricultural 

commodity. Section 1a(19) defines the term 

‘‘excluded commodity’’ to mean, among other 

things, an interest rate, exchange rate, currency, 

credit risk or measure, debt or equity instrument, 

measure of inflation, or other macroeconomic index 

or measure. Although the term ‘‘agricultural 

commodity’’ is not defined in the Act, CEA section 

1a(9) enumerates a non-exclusive list of agricultural 

commodities. The Commission issued a notice of 

rulemaking proposing a definition for the term 

‘‘agricultural commodity’’ on October 26, 2010. 75 

FR 65586. Although broadly defined, exempt 

commodity futures contracts are often viewed as 

energy and metals products. 

4Section 737 of the Dodd-Frank Act, which 

amended section 4a of the Act, became effective on 

July 21, 2010. 

5The Commission may implement the two phases 

in various ways. It may, for example, pursuant to 

this notice of proposed rulemaking, adopt a single 

final regulation with two implementation 

provisions, or it may adopt two separate final 

regulations. 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Parts 1, 150 and 151 

RIN 3038–AD15 and 3038–AD16 

Position Limits for Derivatives 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: Title VII of the Dodd-Frank 

Wall Street Reform and Consumer 

Protection Act of 2010 (‘‘Dodd-Frank 

Act’’) requires the Commodity Futures 

Trading Commission (‘‘Commission’’ or 

‘‘CFTC’’) to establish position limits for 

certain physical commodity derivatives. 

The Commission is proposing to 

simultaneously establish position limits 

and limit formulas for certain physical 

commodity futures and option contracts 

executed pursuant to the rules of 

designated contract markets (‘‘DCM’’) 

and physical commodity swaps that are 

economically equivalent to such DCM 

contracts. In compliance with the 

requirements of the Dodd-Frank Act, the 

CFTC is also proposing aggregate 

position limits that would apply across 

different trading venues to contracts 

based on the same underlying 

commodity. The Commission is 

proposing to establish position limits in 

two phases: The first phase would 

involve adopting current DCM spotmonth limits, while the second phase 

would involve establishing non-spotmonth limits based on open interest 

levels as well as establishing 

Commission-determined spot-month 

limits. The proposal includes 

exemptions for bona fide hedging 

transactions and for positions that are 

established in good faith prior to the 

effective date of specific limits that 

could be adopted pursuant to final 

regulations. This notice of rulemaking 

also proposes new account aggregation 

standards, visibility regulations that are 

similar to current reporting obligations 

for large bona fide hedgers, and new 

regulations establishing requirements 

and standards for position limits and 

accountability rules that are 

implemented by registered entities. The 

Commission solicits comment on any 

aspect of the proposal. The Commission 

also solicits comment on particular 

issues throughout the preamble. 

DATES: Comments must be received on 

or before March 28, 2011. 

ADDRESSES: You may submit comments, 

identified by RIN numbers 3038–AD15 

and 3038–AD16, by any of the following 

methods: 

• Agency Web site, via its Comments 

Online process: http:// 

comments.cftc.gov. Follow the 

instructions for submitting comments 

through the Web site. 

• Mail: David A. Stawick, Secretary of 

the Commission, Commodity Futures 

Trading Commission, Three Lafayette 

Centre, 1155 21st Street, NW., 

Washington, DC 20581. 

• Hand Delivery/Courier: Same as 

mail above. 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow 

instructions for submitting comments. 

All comments must be submitted in 

English, or if not, accompanied by an 

English translation. Comments will be 

posted as received to www.cftc.gov. You 

should submit only information that 

you wish to make available publicly. If 

you wish the Commission to consider 

information that is exempt from 

disclosure under the Freedom of 

Information Act, a petition for 

confidential treatment of the exempt 

information may be submitted according 

to the procedure established in § 145.9 

of the Commission’s regulations (17 CFR 

145.9). 

The Commission reserves the right, 

but shall have no obligation, to review, 

pre-screen, filter, redact, refuse or 

remove any or all of your submission 

from http://www.cftc.gov that it may 

deem to be inappropriate for 

publication, such as obscene language. 

All submissions that have been redacted 

or removed that contain comments on 

the merits of the rulemaking will be 

retained in the public comment file and 

will be considered as required under the 

Administrative Procedure Act and other 

applicable laws, and may be accessible 

under the Freedom of Information Act. 

FOR FURTHER INFORMATION CONTACT: 

Stephen Sherrod, Acting Deputy 

Director, Market Surveillance, (202) 

418–5452, ssherrod@cftc.gov, or Bruce 

Fekrat, Senior Special Counsel, Office of 

the Director, (202) 418–5578, 

bfekrat@cftc.gov, Division of Market 

Oversight, Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1155 21st Street, NW., Washington, DC 

20581. 

SUPPLEMENTARY INFORMATION: 

I. Position Limits for Physical 

Commodity Futures and Swaps 

A. Background 

The Commodity Exchange Act (‘‘CEA’’ 

or ‘‘Act’’) of 1936,1 as amended by Title 

VII of the Dodd-Frank Act,2 includes 

provisions imposing clearing and trade 

execution requirements on standardized 

derivatives as well as comprehensive 

recordkeeping and reporting 

requirements that extend to all swaps, 

as defined in CEA section 1a(47). Newly 

amended section 4a(a)(1) of the Act 

authorizes the Commission to extend 

position limits beyond futures and 

option contracts to swaps traded on a 

DCM or swap execution facility (‘‘SEF’’), 

swaps that are economically equivalent 

to DCM futures and option contracts 

with position limits, and swaps not 

traded on a DCM or SEF that perform or 

affect a significant price discovery 

function (‘‘SPDF’’) with respect to 

regulated entities. Further, new section 

4a(a)(5) of the Act requires aggregate 

position limits for swaps that are 

economically equivalent to DCM futures 

and option contracts with CFTC-set 

position limits. Similarly, new section 

4a(a)(6) of the Act requires the 

Commission to apply position limits on 

an aggregate basis to contracts based on 

the same underlying commodity across: 

(1) DCMs; (2) with respect to foreign 

boards of trade (‘‘FBOTs’’), contracts that 

are price-linked to a DCM or SEF 

contract and made available from within 

the United States via direct access; and 

(3) SPDF swaps. 

Sections 4a(a)(2)(B) and 4a(a)(3) of the 

Act charge the Commission with setting 

spot-month, single-month and allmonths-combined limits for DCM 

futures and option contracts on exempt 

and agricultural commodities 3 within 

180 and 270 days, respectively, of the 

Dodd-Frank Act’s enactment.4 In this 

notice of rulemaking, the Commission is 

proposing to establish limits required by 

Congress in amended CEA section 4a in 

two phases, which could involve 

multiple final regulations or different 

implementation dates.5 In the first 


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6See Position Reports for Physical Commodity 

Swaps, 75 FR 67258, November 2, 2010 (proposing 

position reports on economically equivalent swaps 

from clearing organizations, their members and 

swap dealers). 

7 7 U.S.C. 6a(a)(3). 

8Unlike swaps that are economically equivalent 

to DCM futures and option contracts with position 

limits, the Commission is not required to develop 

or establish position limits for SPDF swaps at the 

same time that it develops or establishes position 

limits for DCM futures and option contracts. The 

Commission intends to propose in a subsequent 

notice of rulemaking a process by which swaps that 

perform or affect a significant price discovery 

function with respect to regulated entities can be 

identified. 

9 75 FR 67258, at 67260 (discussing the scope of 

directly and indirectly linked swaps). 

10See 75 FR 67258, at 62758. 

11See section 3 of the Act, 7 U.S.C. 5. 

transitional phase the Commission 

proposes to establish spot-month 

position limits at the levels currently 

imposed by DCMs. This first phase 

would include related provisions, such 

as proposed regulation 151.5, pertaining 

to bona fide hedging, and proposed 

§ 151.7, pertaining to account 

aggregation standards. During the 

second phase the Commission proposes 

to establish single-month and allmonths-combined position limits and to 

set Commission-determined spot-month 

position limits. 

As discussed in further detail below, 

phased implementation is possible 

because spot-month position limits are 

based on available information: DCMs 

currently set spot-month position limits 

based on their own estimates of 

deliverable supply. Spot-month limits 

can, therefore, be implemented by the 

Commission relatively expeditiously. In 

contrast, most non-spot-month position 

limits, as set by the Commission 

previously and as proposed herein, are 

based on open interest levels. Because 

the Commission was barred under the 

Commodity Futures Modernization Act 

of 2000 from collecting regular data or 

regulating most swaps markets, the 

Commission does not currently have the 

open interest and market structure data 

necessary to establish non-spot-month 

position limits. The Commission has 

proposed regulations that would permit 

it to gather positional data on physical 

commodity swaps on a regular basis.6

Because the Commission will not be 

able to implement a comprehensive 

system for gathering swap positional 

data for some time, this notice of 

proposed rulemaking does not propose 

to determine the numerical non-spotmonth position limits for exempt and 

agricultural commodity derivatives 

resulting from the application of the 

open interest formulas in proposed 

§ 151.4. Rather, this notice of 

rulemaking provides for the 

determination of such limits when the 

Commission receives data regarding the 

levels of open interest in the swap 

markets to which these limits will 

apply. 

The Commission anticipates fixing 

initial position limits pursuant to the 

formulas proposed herein through the 

issuance of a Commission order. As 

proposed, CFTC-set position limits after 

the transitional period would be recalculated every year based on the 

formulas set forth in proposed § 151.4, 

subject to any changes to the formulas 

that may be proposed and adopted 

based on the Commission’s surveillance 

of the markets for referenced contracts. 

In this regard, as discussed in further 

detail below, the proposed position 

visibility regulations, which would 

effectuate reporting requirements that 

are similar to current reporting 

requirements for large bona fide 

hedgers, may facilitate evaluating the 

efficacy and appropriateness of the 

proposed position limit framework if 

adopted. 

B. Statutory Authority 

1. Section 4a of the Act 

The Dodd-Frank Act preserves the 

Commission’s broad authority to set 

position limits. Thus, for example, 

section 4a(a)(1) of the Act expressly 

permits the Commission to set ‘‘different 

limits for, among other things, different 

commodities, markets, futures, or 

delivery months * * *’’ Under new CEA 

section 4a(a)(7), the Commission also 

has authority to exempt persons or 

transactions from any position limits it 

establishes. 

New section 4a(a)(3) of the Act 

expressly directs the Commission to set 

such limits at levels that would serve, 

to the maximum extent practicable, in 

its discretion: 

(i) To diminish, eliminate, or prevent 

excessive speculation as described under this 

section; 

(ii) To deter and prevent market 

manipulation, squeezes, and corners; 

(iii) To ensure sufficient market liquidity 

for bona fide hedgers; and 

(iv) To ensure that the price discovery 

function of the underlying market is not 

disrupted.7

This provision incorporates the 

Commission’s historical approach to 

setting limits, and is harmonious with 

the congressional directive in section 

4a(a)(1) of the Act that the Commission 

set position limits to prevent or 

minimize price disruptions that could 

be caused by excessive speculative 

trading. 

Section 4a(a)(5) of the Act requires the 

Commission to develop, concurrently 

with position limits for DCM futures 

and option contracts, position limits for 

swaps that are economically equivalent 

to such contracts. Section 4a(a)(5) of the 

Act requires such position limits, when 

developed, to be adopted 

simultaneously.8 The defined term 

‘‘referenced contract’’ in proposed 

§ 151.1, through its reference to the core 

futures contracts listed in proposed 

§ 151.2 (‘‘core referenced futures 

contracts’’ or ‘‘151.2-listed contract’’), 

identifies the ‘‘economically equivalent’’ 

derivatives that would be subject to the 

concurrent development, simultaneous 

establishment and aggregate 

implementation requirements of CEA 

section 4a. Referenced contracts are 

defined as derivatives (1) that are 

directly or indirectly linked to the price 

of a 151.2-listed contract, or (2) that are 

based on the price of the same 

commodity for delivery at the same 

location(s) as that of a 151.2-listed 

contract, or another delivery location 

with substantially the same supply and 

demand fundamentals as the delivery 

location of a 151.2-listed contract.9 The 

second part of the definition of 

referenced contract therefore proposes 

to include derivatives that are settled to 

a price series that is not based on, but 

is nonetheless highly correlated to, the 

price of a 151.2-listed contract. 

Proposed § 151.2, in turn, enumerates 

28 core physical delivery DCM futures 

contracts that would be subject to the 

Commission’s proposed position limit 

framework. Generally, the 151.2-listed 

contracts were selected either because 

such contracts have high levels of open 

interest and significant notional value or 

because they otherwise may provide a 

reference price for a significant number 

of cash market transactions.10

A primary mission of the CFTC is to 

foster fair, open and efficient 

functioning of the commodity 

derivatives markets.11 Critical to 

fulfilling this statutory mandate is 

protecting market users and the public 

from undue burdens that may result 

from ‘‘excessive speculation.’’ 

Specifically, section 4a of the Act, as 

amended by the Dodd-Frank Act, 

provides that: 

‘‘Excessive speculation in any commodity 

under contracts of sale of such commodity 

for future delivery [(or swaps traded on or 

subject to the rules of a designated contract 

market or swap execution facility, or swaps 

that perform a significant price discovery 

function with respect to a registered entity)] 

* * * causing sudden or unreasonable 

fluctuations or unwarranted changes in the 

price of such commodity, is an undue and 

unnecessary burden on interstate commerce 

in such commodity. For the purpose of 

diminishing, eliminating, or preventing such 


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12Section 4a(a)(1) of the Act, 7 U.S.C. 6a(a)(1). 

13Consistent with the congressional findings and 

objectives, the Commission has previously set 

position limits without finding that an undue 

burden of interstate commerce has occurred or is 

likely to occur, and in so doing has expressly stated 

that such additional determinations by the 

Commission were not necessary in light of the 

congressional findings in section 4a of the Act. In 

its 1981 rulemaking to require all exchanges to 

adopt position limits for commodities for which the 

Commission itself had not established limits, the 

Commission stated: 

‘‘As stated in the proposal, the prevention of large 

and/or abrupt price movements which are 

attributable to the extraordinarily large speculative 

positions is a congressionally endorsed regulatory 

objective of the Commission. Further, it is the 

Commission’s view that this objective is enhanced 

by the speculative position limits since it appears 

that the capacity of any contract to absorb the 

establishment and liquidation of large speculative 

positions in an orderly manner is related to the 

relative size of such positions, i.e., the capacity of 

the market is not unlimited.’’ 

Establishment of Speculative Position Limits, 46 

FR 50938, Oct. 16, 1981 (adopting then regulation 

1.61 (now part of regulation 150.5)). 

14See 7, U.S. Fed. Trade Commission, Report of 

the Federal Trade Commission on the Grain Trade: 

Effects of Future Trading 293–94 (1926). For 

example, the Federal Trade Commission concluded: 

The very large trader by himself may cause 

important fluctuations in the market. If he has the 

necessary resources, operations influenced by the 

idea that he has such power are bound to cause 

abnormal fluctuations in prices. Whether he is more 

often right than wrong and more often successful 

than unsuccessful, and whether influenced by a 

desire to manipulate or not, if he is large enough 

he can cause disturbances in the market which 

impair its proper functioning and are harmful to 

producers and consumers. 

The FTC recommended that limits be placed on 

trading, particularly on the amount of open interest 

that could be held by any one trader. Similarly, 

based on its study of price fluctuations in the wheat 

market, the Department of Agriculture urged 

Congress to provide the Grain Futures 

Administration (GFA), which had been created by 

the Grain Futures Act, with the authority to impose 

position limits. See Fluctuations in Wheat Futures, 

S. Doc. No. 69–135 (1st Sess. 1926); see also 

Speculative Position Limits in Energy Futures 

Markets: Hearing Before the U.S. Commodity 

Futures Trading Commission (July 28, 2009) 

(statement of Dan M. Berkovitz, General Counsel, 

U.S. Commodity Futures Trading Commission), 

available at http://www.cftc.gov/PressRoom/ 

SpeechesTestimony/2009/ 

berkovitzstatement072809.html. 

15The report accompanying the 1935 bill that 

became the Act stated ‘‘the fundamental purposes 

of the measure is to insure fair practice and honest 

dealing on the commodity exchanges and to 

provide a measure of control over those forms of 

speculative activity which too often demoralize the 

markets to the injury of producers and consumers 

and the exchanges themselves. H.R. Rep. No. 74– 

421, at 1 (1935), accompanying H.R. 6772. 

14See 7, U.S. Fed. Trade Commission, Report of 

the Federal Trade Commission on the Grain Trade: 

Effects of Future Trading 293–94 (1926). For 

example, the Federal Trade Commission concluded: 

The very large trader by himself may cause 

important fluctuations in the market. If he has the 

necessary resources, operations influenced by the 

idea that he has such power are bound to cause 

abnormal fluctuations in prices. Whether he is more 

often right than wrong and more often successful 

than unsuccessful, and whether influenced by a 

desire to manipulate or not, if he is large enough 

he can cause disturbances in the market which 

impair its proper functioning and are harmful to 

producers and consumers. 

The FTC recommended that limits be placed on 

trading, particularly on the amount of open interest 

that could be held by any one trader. Similarly, 

based on its study of price fluctuations in the wheat 

market, the Department of Agriculture urged 

Congress to provide the Grain Futures 

Administration (GFA), which had been created by 

the Grain Futures Act, with the authority to impose 

position limits. See Fluctuations in Wheat Futures, 

S. Doc. No. 69–135 (1st Sess. 1926); see also 

Speculative Position Limits in Energy Futures 

Markets: Hearing Before the U.S. Commodity 

Futures Trading Commission (July 28, 2009) 

(statement of Dan M. Berkovitz, General Counsel, 

U.S. Commodity Futures Trading Commission), 

available at http://www.cftc.gov/PressRoom/ 

SpeechesTestimony/2009/ 

berkovitzstatement072809.html. 

15The report accompanying the 1935 bill that 

became the Act stated ‘‘the fundamental purposes 

of the measure is to insure fair practice and honest 

dealing on the commodity exchanges and to 

provide a measure of control over those forms of 

speculative activity which too often demoralize the 

markets to the injury of producers and consumers 

and the exchanges themselves. H.R. Rep. No. 74– 

421, at 1 (1935), accompanying H.R. 6772. 

16S. Rep. No. 93–1131, 93rd Cong., 2d Sess. 

(1974). 

burden, the Commission shall * * * 

proclaim and fix such limits on the amount 

of trading which may be done or positions 

which may be held by any person * * * as 

the Commission finds are necessary to 

diminish, eliminate or prevent such burden. 

***’’ 12

Congress has declared that sudden or 

unreasonable price fluctuations 

attributable to ‘‘excessive speculation’’ 

create an ‘‘undue and unnecessary 

burden’’ on interstate commerce and 

directed that the Commission shall 

establish limits on the amounts of 

positions which may be held as it finds 

necessary to ‘‘diminish, eliminate, or 

prevent’’ such burden. As the plain 

reading of the statutory text indicates, 

the prevention of sudden or 

unreasonable changes in price 

attributable to large speculative 

positions, even without manipulative 

intent, is a congressionally-endorsed 

regulatory objective of the Commission. 

The Commission is not required to 

find that an undue burden on interstate 

commerce resulting from excessive 

speculation exists or is likely to occur 

in the future in order to impose position 

limits. Nor is the Commission required 

to make an affirmative finding that 

position limits are necessary to prevent 

sudden or unreasonable fluctuations or 

unwarranted changes in prices or 

otherwise necessary for market 

protection. Rather, the Commission may 

impose position limits prophylactically, 

based on its reasonable judgment that 

such limits are necessary for the 

purpose of ‘‘diminishing, eliminating, or 

preventing’’ such burdens on interstate 

commerce that the Congress has found 

result from excessive speculation. A 

more restrictive reading would be 

contrary to the congressional findings 

and objectives as embodied in section 

4a of the Act.13

2. Legislative History and Discussion 

The relevant legislative history, 

including the congressional debates and 

studies preceding the enactment of the 

CEA, gives further evidence to the broad 

mandate conferred on the Commission 

pursuant to CEA section 4a. Throughout 

the 1920s and into the 1930s, a series of 

studies and reports found that large 

speculative positions in the futures 

markets for grain, even without 

manipulative intent, can cause 

‘‘disturbances’’ and ‘‘wild and erratic’’ 

price fluctuations. To address such 

market disturbances, Congress was 

urged to adopt position limits to restrict 

speculative trading notwithstanding the 

absence of ‘‘the deliberative purpose of 

manipulating the market.’’ 14 In 1936, 

based upon such reports and testimony, 

Congress provided the Commodity 

Exchange Authority (the predecessor of 

the Commission) with the authority to 

impose Federal speculative position 

limits. In doing so, Congress expressly 

acknowledged the potential for market 

disruptions resulting from excessive 

speculative trading and the need for 

measures to prevent or minimize such 

occurrence.15

The basic statutory mandate in 

section 4a of the Act to establish 

position limits to prevent ‘‘undue 

burdens’’ associated with ‘‘excessive 

speculation’’ has remained unchanged— 

and has been reaffirmed by Congress 

several times—over the past seven 

decades. In 1974, when Congress 

created the Commission as an 

independent regulatory agency, it 

reiterated the purpose of the Act to 

prevent fraud and manipulation and to 

control speculation.16 In connection 

with another major overhaul of the Act, 

the Commodity Futures Modernization 

Act of 2000, Congress expressly 

authorized exchanges to use position 

accountability as an alternative means 

to limit speculative positions. However, 

Congress did not alter the Commission’s 

mandate in CEA section 4a to establish 

position limits to prevent such undue 

burdens on interstate commerce. Then, 

in the CFTC Reauthorization Act of 


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17Food, Conservation and Energy Act of 2008, 

Public Law 110–246, 122 Stat. 1624 (June 18, 2008). 

18 Dodd-Frank Act, Public Law 111–203, 737, 124 

Stat. 1376 (2010). The Dodd-Frank Act amendments 

to section 4a of the Act became effective upon the 

date of enactment of the Dodd-Frank Act. 

19Section 4a(a)(2) of the Act provides that the 

Commission, in setting position limits, must do so 

in accordance with the standards set forth in CEA 

section 4a(a)(1). 7 U.S.C. 6a(a)(2). 

20Senator Lincoln (then the Chair to the Senate 

Agriculture Committee) stated that amended section 

4a ‘‘will grant broad authority to the [Commission] 

to once and for all set aggregate position limits 

across all markets on non-commercial market 

participants * * * I believe the adoption of 

aggregate position limits will help bring some 

normalcy back to our markets and reduce some of 

the volatility we have witnessed over the last few 

years.’’ 156 Cong. Rec. S5919 (daily ed. July 15, 

2010) (statement of Sen. Lincoln). 

21See 46 FR 50938. 

22See Fluctuations in Wheat Futures, S. Doc. No. 

69–135 (1st Sess. 1926); and 7 U.S. Fed. Trade 

Commission, Report of the Federal Trade 

Commission on the Grain Trade: Effects of Future 

Trading 293–94 (1926); see also Thomas A. 

Hieronymus, Economics of Futures Trading 313 

(1971) (‘‘Limits on speculative positions have met 

with a high degree of trade acceptance and only 

recently has the size of some of the limits began to 

be called into question. The general notion is that 

no one man should be allowed to have such a 

position or trade in such volume that he could push 

the price around with his sheer bulk’’). 

23By way of illustration, after the silver futures 

market crisis during late 1979 to early 1980, 

commonly referred to as ‘‘the Hunt Brothers silver 

manipulation,’’ the Commission concluded that 

‘‘[t]he recent events in silver suggest that the 

capacity of any futures market to absorb large 

positions in an orderly manner is not unlimited.’’ 

Subsequently, the Commission adopted regulation 

1.61, which required all exchanges to adopt and 

submit for Commission approval position limits in 

active futures markets for which no exchange or 

Commission limits were then in effect. More 

recently, Congress, in response to high prices and 

volatility in commodity prices generally, and 

energy prices in particular, extended the 

Commission’s authority to set limits to significant 

price discovery contracts traded on exempt 

commercial markets. Food, Conservation and 

Energy Act of 2008, Public Law 110–246, 122 Stat. 

1624 (June 18, 2008). 

24 46 FR 50938. 

25See Speculative Position Limits—Exemptions 

from Commission Rule 1.61, 56 FR 51687, October 

15, 1991; and Speculative Position Limits— 

Exemptions from Commission Rule 1.61, 57 FR 

29064, June 30, 1992. 

26Because individual markets have knowledge of 

positions on their own facilities, it is difficult for 

them to assess the full impact of a trader’s positions 

on the greater market. 

27These comments may be accessed at http://

www.cftc.gov/LawRegulation/DoddFrankAct/OTC_

26_PosLimits.html. 

2008,17 Congress, among other things, 

expanded the Commission’s authority to 

set position limits to significant price 

discovery contracts on exempt 

commercial markets. 

Finally, as outlined above, pursuant 

to the Dodd-Frank Act, Congress 

significantly expanded the 

Commission’s authority and mandate to 

establish position limits beyond futures 

and option contracts to include, for 

example, economically equivalent 

derivatives.18 Congress expressly 

directed the Commission to set limits in 

accordance with the standards set forth 

in sections 4a(a)(1) and 4a(a)(3) of the 

Act,19 thereby reaffirming the 

Commission’s authority to establish 

position limits as it finds necessary in 

its discretion to address excessive 

speculation.20 As noted earlier, section 

4a(a)(3) of the Act expressly sets forth 

the Commission’s broad discretion in 

setting position limits under section 

4a(a)(1), and the necessary 

considerations in setting such limits. 

Section 4a(a)(3) effectively incorporates 

the Commission’s historical approach to 

setting limits,21 and is harmonious with 

the congressional directive in section 

4a(a)(1) of the Act that the Commission 

set position limits in its discretion to 

prevent or minimize burdens that could 

be caused by excessive speculative 

trading. 

Large concentrated positions in the 

physical commodity markets can 

potentially facilitate price distortions 

given that the capacity of any market to 

absorb the establishment and 

liquidation of large positions in an 

orderly manner is related to the size of 

such positions relative to the market 

and the market’s structure and is, 

therefore, not unlimited.22

Concentration of large positions in one 

or a few traders’ accounts can also 

create the unwarranted appearance of 

appreciable liquidity and market depth 

which, in fact, may not exist. Trading 

under such conditions can result in 

sudden changes to commodity prices 

that would otherwise not prevail if 

traders’ positions were more evenly 

distributed among market 

participants.23 Position limits address 

these risks through ensuring the 

participation of a minimum number of 

traders that are independent of each 

other and have different trading 

objectives and strategies. 

The Commission currently sets and 

enforces position limits with respect to 

certain agricultural products. For metals 

and energy commodities, in 1981 the 

Commission began to require exchangeset limits, with a Commission approval 

process, for any active futures markets 

without existing Commission or 

exchange limits.24 This framework was 

significantly scaled back in 1991, after 

which the Commission began to 

approve exchange accountability 

provisions in place of position limits.25

Such accountability provisions took 

effect with respect to certain metals 

derivatives in 1992, and with respect to 

energy and soft agricultural derivatives 

in 2001. Currently, the Commission 

authorizes DCMs to set position limits 

and accountability rules to protect 

against manipulation and congestion 

and price distortions. The proliferation 

of economically-equivalent instruments 

trading in multiple trading venues, 

however, warrants extension of the 

Commission-set position limits beyond 

agricultural products to metals and 

energy commodities. The Commission 

anticipates that this market trend will 

continue as, consistent with the 

regulatory structure established by the 

Dodd-Frank Act, economically 

equivalent derivatives based on exempt 

and agricultural commodities are 

executed pursuant to the rules of 

multiple DCMs and SEFs and other 

Commission registrants. Under these 

circumstances, uniform position limits 

should be established across such 

venues to prevent regulatory arbitrage 

and ensure a level playing field for all 

trading venues. Because it has the 

authority to gather data and impose 

regulations across trading venues, the 

Commission is uniquely situated to 

establish uniform position limits and 

related requirements for all 

economically equivalent derivatives.26

A uniform approach would also 

encourage better risk management and 

could reduce systemic risk. Despite 

centralized clearing arrangements 

employed by DCMs to reduce systemic 

risk, a levered market participant can 

still take a very large speculative 

position across multiple venues. The 

proposed position limit framework 

would reduce the ability of such levered 

entities to take such positions and to 

cause systemic risk. 

As noted above, in setting position 

limits to guard against excessive 

speculation, the Commission, pursuant 

to the factors enumerated in section 

4a(a)(3) of the Act, has endeavored to 

maximize the objectives of preventing 

excessive speculation, deterring and 

preventing market manipulation, and 

ensuring that markets remain 

sufficiently liquid so as to afford end 

users and producers of commodities the 

ability to hedge commercial risks and to 

promote efficient price discovery. 

C. Public Comments in Advance of 

Commission Action 

As with other forthcoming notices of 

rulemaking proposing regulations to 

implement the Dodd-Frank Act, the 

Commission accepted public comments 

in advance of issuing this release. The 

Commission has received approximately 

350 public comments as of December 

16, 2010.27 The Commission has 

reviewed these comments and 

considered them in drafting the 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2
4756 Federal Register / Vol. 76, No. 17 / Wednesday, January 26, 2011 / Proposed Rules 

28See Federal Speculative Position Limits for 

Referenced Energy Contracts and Associated 

Regulations, 75 FR 4144, at 4146, January 26, 2010, 

withdrawn 75 FR 50950, August 18, 2010. 

29See 75 FR 67258. 30The Commission has made public all meetings 

that Commission staff has held with outside 

organizations in connection with the 

implementation of the Dodd-Frank Act, including, 

for each meeting, a list of attendees and a summary 

of the meeting. This information may be accessed 

at http://www.cftc.gov/LawRegulation/DoddFrank

Act/ExternalMeetings/otc_meetings.html. 

31The term ‘‘spot month’’ does not refer to a 

month of time. Rather, it is the trading period 

immediately preceding the delivery period for a 

physically-delivered futures contract and cashsettled swaps and futures contracts that are linked 

to the physically-delivered contract. The length of 

this period may thus vary depending on the 

referenced contract, as described in proposed 

regulation 151.3. 

proposed regulations. The majority of 

commenters submitted letters 

advocating the view that position limits 

should be set at one percent of the total 

annual world production for a given 

commodity. Several expressed views on 

a single issue, notably the importance of 

preventing market manipulation. 

The view most commonly expressed 

by certain other commenters, including 

the CME Group, Electric Power Supply 

Association, Futures Industry 

Association, Morgan Stanley, and 

National Gas Supply Association, was 

opposition to a provision that resulted 

in the ‘‘crowding out’’ of speculative 

positions. A ‘‘crowding out’’ provision 

would have limited the ability of a 

trader that hedges or acts as a swap 

dealer to take on speculative positions 

once certain positional thresholds were 

exceeded.28 A concern raised by the 

commenters was related to the 

unintended consequence of excluding 

knowledgeable traders, or traders that 

needed to hold speculative positions, 

from the commodity derivatives 

markets. The Commission has 

determined to not propose a ‘‘crowding 

out’’ provision at this time. 

Several commenters addressed bona 

fide hedging exemptions to position 

limits. Some of these commenters, for 

example the CME Group, presented the 

view that the Commission should adopt 

a broad definition for bona fide 

positions that would cover ‘‘all nonspeculative’’ positions. Morgan Stanley 

recommended that the Commission 

‘‘exercise its discretion to interpret 

[s]ection 4(a)(c)(2), including the term 

‘economically appropriate’, broadly to 

permit products and services similar to 

[risk management products offered by 

swap dealers] to qualify as bona fide 

hedging transactions or positions.’’ The 

National Grain and Feed Association 

(‘‘NGFA’’) presented the view that the 

Commission ‘‘should use its authority to 

grant hedge exemptions to financial 

institutions, index funds, hedge funds 

or other nontraditional participants in 

agricultural futures markets extremely 

sparingly and only if it can be 

demonstrated clearly that such 

exemptions will not harm contract 

performance for traditional hedgers.’’ 

The NGFA further recommended that 

the Commission ‘‘‘look through’ swap 

transactions and allow hedge 

exemptions to be granted only for that 

portion of swap dealers’ business where 

the swap dealers’ counterparties are 

entities that otherwise would have 

qualified for a hedge exemption.’’ The 

Commission has seriously considered 

these views on the bona fide hedging 

exemption in light of the express 

language of the Act. The Commission 

has accordingly determined to propose 

a definition of bona fide hedging in 

proposed § 151.5(a)(1)(iv) that provides 

for an exemption for a non-bona fide 

swap counterparty only if such swap 

transaction or position represents cash 

market transactions and offsets its bona 

fide counterparty’s cash market risks. 

Several commenters, including the 

CME Group, Electric Power Supply 

Association, Futures Industry 

Association, GDF Suez Energy, Morgan 

Stanley, and NextEra Energy Power 

Marketing, expressed concerns relating 

to the potential for overly strict account 

aggregation standards. The aggregation 

standards of the proposed regulations 

attempt to address some of these 

concerns by including exemptions for 

passive investments in independently 

controlled and managed commercial 

entities as well as exemptions for 

certain positions held with futures 

commission merchants and for traders 

that are passive pool participants. The 

law firm Akin Gump Strauss Hauer & 

Feld LLP, on behalf of a commodity 

trading advisor, specifically argued for 

the retention of the independent 

account controller exemption currently 

in force in part 150 of the Commission’s 

regulations, echoing the views of 

numerous commenters to the January 

2010 proposed rulemaking for position 

limits on certain energy contracts. As 

explained in more detail in the 

aggregation section of this preamble, the 

proposed regulations address the 

concern of not having an independent 

account controller exemption by 

establishing the owned non-financial 

entity exemption. Some commenters, for 

example the Electric Power Supply 

Association, Futures Industry 

Association and Morgan Stanley, argued 

that aggregation should be based solely 

on common control, with no 

consideration given to common 

ownership. At this time, the 

Commission does not see sufficient 

justification to change its longstanding 

approach of considering both control 

and ownership in its aggregation policy. 

The traditional ten percent ownership 

standard has proven to be a useful 

measure in conjunction with the control 

standard. In addition, the proposed 

owned non-financial entity exemption 

addresses situations in which the 10 

percent ownership standard has been 

exceeded but a lack of common control 

over trading decisions and strategies 

warrants disaggregation. 

The CME Group also argued that 

position limits should not be imposed 

until the Commission has gathered 

sufficient data on the physical 

commodity swap markets. In order to 

address similar concerns, the 

Commission proposed regulations in 

November 2010 that are specifically 

designed to gather positional data on 

physical commodity swaps.29 The 

Commission anticipates the collection 

of positional data to begin during the 

third quarter of 2011. Furthermore, the 

Commission is proposing to fix specific 

position limits pursuant to formulas 

proposed herein (and making other 

aspects of the proposed regulations 

effective) only after collecting positional 

data on physical commodity swaps and 

through the issuance of a Commission 

order during the first quarter of 2012, 

unless the Commission determines that 

there are certain commodities for which 

data is sufficient to implement limits 

sooner. 

In addition to review and 

consideration of public comments, 

Commission staff has held 32 meetings 

with a variety of market participants, 

including bona fide hedgers, swap 

dealers, hedge funds and several 

industry groups, to discuss position 

limits and in particular to gather 

information about the potential impact 

of limits.30 The Commission has 

considered information obtained in 

these meetings in drafting the proposed 

regulations. 

II. The Proposed Regulations 

A. Spot-Month Position Limits 

The Commission proposes definitions 

in § 151.3 that identify the spot month 31

for referenced contracts in the same 

commodity that would be subject to the 

proposed position limit framework. 

These definitions reference the dates on 

which a spot month commences and 

terminates. The definitions for the spot 

period are based on existing spot-month 

definitions set forth by DCMs for 151.2- 

listed contracts. These periods, as 

defined by the Commission, would 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2
Federal Register / Vol. 76, No. 17 / Wednesday, January 26, 2011 / Proposed Rules 4757 

32The only contracts based on a physical 

commodity that currently do not have spot-month 

limits are the COMEX mini-sized gold, silver, and 

copper contracts that are cash-settled based on the 

futures settlement prices of the physical-delivery 

contracts. The cash-settled contracts have position 

accountability provisions in the spot month rather 

than outright spot-month limits. These cash-settled 

contracts have relatively small levels of open 

interest. 

33For purposes of applying the limits, a trader 

would convert and aggregate positions in swaps on 

a futures equivalent basis. Guidance on futures 

equivalency is provided in Appendix A to the 

Commission’s proposed part 20 rulemaking on 

position reports for physical commodity swaps. 75 

FR 67258, at 67269. 

34For the ICE Futures U.S. Sugar No. 16 (SF) and 

Chicago Mercantile Exchange Class III Milk (DA), 

the Commission proposes to adopt the DCM singlemonth limits for the nearby month or first-to-expire 

referenced contract as spot-month limits. These 

contracts currently have single-month limits which 

are enforced in the spot month. 

continue into the delivery period for the 

core referenced futures contracts, which 

in turn determine the spot month for all 

referenced contracts in the same 

commodity. 

With three exceptions, the 151.2- 

listed contracts with DCM-defined spot 

months are currently subject to 

exchange-set spot-month position 

limits.32 Proposed § 151.4 would 

impose and aggregately apply spotmonth position limits for the referenced 

contracts. Consistent with the 

Commission’s longstanding policy 

regarding the appropriate level of spotmonth limits for physical delivery 

contracts, these position limits would be 

set at 25 percent of estimated 

deliverable supply. The spot-month 

limits would be adjusted annually 

thereafter. 

The proposed deliverable supply 

formula narrowly targets the trading that 

may be most susceptible to, or likely to 

facilitate, price disruptions. The formula 

seeks to minimize the potential for 

corners and squeezes by facilitating the 

orderly liquidation of positions as the 

market approaches the end of trading 

and by restricting the swap positions 

which may be used to influence the 

price of referenced contracts that are 

executed centrally. Referenced contracts 

that are based on the price of the same 

commodity but where delivery is at a 

location that is different than the 

delivery location of a 151.2-listed 

contract would not be subject to the 

proposed Federal spot-month position 

limit. Because the potential incentive 

and ability to manipulate the spotmonth delivery process to benefit a 

derivatives position providing for 

delivery at a different delivery location 

is less, Federal spot-month limits would 

apply only to futures, options and 

swaps that are directly price-linked to a 

151.2-listed core referenced contract or 

that settle to a price series that prices 

the same commodity at the same 

delivery location. Finally, the proposed 

spot-month limits would apply on an 

aggregate basis, thereby subjecting these 

economically equivalent derivatives to 

the same spot-month limits, whether or 

not they are listed for trading on a DCM, 

cleared, or uncleared. 

Proposed § 151.4 would apply spotmonth position limits separately for 

physically-delivered contracts and all 

cash-settled contracts, including cashsettled futures and swaps. A trader may 

therefore have up to the spot-month 

position limit in both the physicallydelivered and cash-settled contracts. For 

example, if the spot-month limit for a 

referenced contract is 1,000 contracts, 

then a trader may hold up to 1,000 

contracts long in the physicallydelivered contract and 1,000 contracts 

long in the cash-settled contract. A 

trader’s cash-settled contract position 

would separately be a function of the 

trader’s position in referenced contracts 

based on the same commodity that are 

cash-settled futures and swaps.33

The proposed spot-month position 

limit formula is based on the 

Commission’s longstanding approach to 

setting and overseeing spot-month 

limits and is consistent with industry 

practice and the goals of preventing 

manipulation through corners or 

squeezes. Core Principles 3 and 5 for 

DCMs address congressional concerns 

regarding potential manipulation of the 

futures market, and the Commission has 

typically evaluated compliance with 

these core principles in tandem. Core 

Principle 3 specifies that a board of 

trade shall list only contracts that are 

not readily susceptible to manipulation, 

while Core Principle 5 obligates a DCM 

to establish position limits and position 

accountability provisions where 

necessary and appropriate ‘‘to reduce 

the threat of market manipulation or 

congestion, especially during the 

delivery month.’’ 

In determining whether a physical 

delivery contract complies with Core 

Principle 3, the Commission considers 

whether the specified terms and 

conditions, considered as a whole, 

result in a deliverable supply that is 

sufficient to ensure that the contract is 

not conducive to price manipulation or 

distortion. In general, the term 

‘‘deliverable supply’’ means the quantity 

of the commodity meeting a derivative 

contract’s delivery specifications that 

can reasonably be expected to be readily 

available to short traders and saleable by 

long traders at its market value in 

normal cash marketing channels at the 

derivative contract’s delivery points 

during the specified delivery period, 

barring abnormal movement in 

interstate commerce. The establishment 

of a spot-month limit pursuant to Core 

Principle 5 is made based on the 

analysis of deliverable supplies, and the 

Acceptable Practices for this Core 

Principle state that, for physically 

delivered contracts, the spot-month 

limit should not exceed 25 percent of 

the estimated deliverable supply. 

Likewise, the guidance for DCMs in 

Commission § 150.5(b) provides that for 

physical delivery contracts, the spotmonth limit level must be no greater 

than 25 percent of the estimated spotmonth deliverable supply, calculated 

separately for each month to be listed. 

In § 151.4, the Commission proposes 

spot-month limits, for not only 

referenced contracts that are futures but 

also referenced contracts that are 

economically equivalent swaps, that 

would, during the initial 

implementation period, be set at the 

spot-month limit levels determined by 

DCMs to be equal to 25 percent of 

estimated deliverable supply.34 In the 

second phase of implementation, these 

spot-month limits would be based on 25 

percent of estimated deliverable supply 

as determined by the Commission, 

which could choose to adopt exchangeprovided estimates or, for example, in 

the case of inconsistent estimates from 

exchanges, issue its own estimates. 

Pursuant to current exchange 

procedures for updating the spot-month 

limits, exchanges initially establish and 

periodically update their limits through 

rule amendments that are filed with the 

Commission under self-certification or 

approval procedures. As part of the 

initial filing, or in response to 

subsequent inquiries from the 

Commission, the exchanges provide 

information showing how the spotmonth limits comply with the 

Commission’s regulations and 

acceptable practices. 

With respect to the existing spotmonth limits that currently are in effect 

for referenced contracts, the 

Commission notes that, irrespective of 

the manner in which a rule amendment 

is filed (by self-certification or for 

approval), Commission staff currently 

evaluates the limits for compliance with 

the requirements of Core Principle 5 and 

the criteria set out in the Commission’s 

Acceptable Practices. For physically 

delivered contracts, staff evaluates the 

information supplied by the exchange 

and other available information 

regarding the underlying commodity to 

ensure that the spot-month limit does 

not exceed 25 percent of the estimated 

deliverable supplies. For cash-settled 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2
4758 Federal Register / Vol. 76, No. 17 / Wednesday, January 26, 2011 / Proposed Rules 

35Food, Conservation and Energy Act of 2008, 

Public Law 110–246, 122 Stat. 1624 (June 18, 2008). 

contracts, staff evaluates the information 

supplied by the exchanges and 

independently assesses the nature of the 

market underlying the cash-settlement 

calculation, including the depth and 

breadth of trading in that market, to 

determine the ability of a trader to exert 

market power and influence the cashsettlement price, with the aim of having 

a spot-month limit level that effectively 

limits a trader’s incentive to exercise 

such market power. 

With respect to cash-settled contracts, 

proposed § 151.4 incorporates a 

conditional-spot-month limit that 

permits traders without a hedge 

exemption to acquire position levels 

that are five times the spot-month limit 

if such positions are exclusively in cashsettled contracts and the trader holds 

physical commodity positions that are 

less than or equal to 25 percent of the 

estimated deliverable supply. The 

proposed limit maximizes the 

objectives, enumerated in section 

4a(a)(3) of the Act, of deterring 

manipulation and excessive speculation 

while ensuring market liquidity and 

efficient price discovery by establishing 

a higher limit for cash-settled contracts 

as long as such positions are decoupled 

from large physical commodity holdings 

and the positions in physical delivery 

contracts which set or affect the value 

of cash-settled positions. The 

conditional-spot-month position limit 

generally tracks exchange-set position 

limits currently implemented for certain 

cash-settled energy futures and swaps. 

For example, the NYMEX Henry Hub 

Natural Gas Last Day Financial Swap, 

the NYMEX Henry Hub Natural Gas 

Look-Alike Last Day Financial Futures, 

and the ICE Henry LD1 swap are all 

cash-settled contracts subject to a 

conditional-spot-month limit that, with 

the exception of the requirement that a 

trader not hold large cash commodity 

positions, is identical in structure to the 

limit proposed herein. 

This proposed conditional spotmonth position limit formula is 

consistent with Commission guidance. 

The Acceptable Practices for Core 

Principle 5 state that a spot-month 

position limit may be necessary if the 

underlying cash market is small or 

illiquid such that traders can disrupt the 

cash market or otherwise influence the 

cash-settlement price to profit on a 

futures position. In these cases, the limit 

should be set at a level that minimizes 

the potential for manipulation or 

distortion of the futures contract or the 

underlying commodity’s price. With 

respect to cash-settled contracts where 

the underlying product is a physical 

commodity with limited supplies where 

a trader can exert market power 

(including agricultural and exempt 

commodities), the Commission has 

viewed the specification of a spotmonth limit to be an essential term and 

condition of such contracts in order to 

ensure that they are not readily 

susceptible to manipulation, which is 

the Core Principle 3 requirement, and to 

satisfy the requirements of Core 

Principle 5 and the Acceptable Practices 

thereunder. In practice, for cash-settled 

contracts on agricultural and exempt 

commodities where a trader’s market 

power is of concern, the practice has 

been to set the spot-month limit at some 

percentage of calculated deliverable 

supply. Limiting a trader’s position at 

the expiration of cash-settled contracts 

diminishes the incentive to exert market 

power to manipulate the cashsettlement price or index to advantage a 

trader’s position in the cash-settlement 

contract. Accordingly, the Commission 

has viewed the presence of a spotmonth speculative limit as a key feature 

of such cash-settlement contracts, along 

with the design of the cash-settlement 

index, in ensuring that such contracts 

are not readily susceptible to 

manipulation and thus satisfy the 

requirements of Core Principles 3 and 5. 

In view of the above, the Commission 

generally has required that, to comply 

with Core Principles 3 and 5, all futures 

contracts based on agricultural or 

exempt commodities, because they have 

finite supplies and are subject to price 

distortion and manipulation, must have 

a spot-month limits, irrespective of 

whether the contract specifies physical 

delivery or cash settlement. In addition, 

the establishment of position limits on 

swaps is consistent with congressional 

guidance in the CFTC Reauthorization 

Act of 2008.35 That legislation amended 

the CEA by, among other things, adding 

core principles in new section 2(h)(7) 

governing swaps that were significant 

price discovery contracts traded on 

electronic trading facilities operating in 

reliance on the exemption in section 

2(h)(3) of the Act. The 2008 legislation 

amended the Act to impose certain selfregulatory responsibilities with respect 

to such swaps through core principles, 

including a core principle that required 

the adoption of position limits or 

position accountability levels where 

necessary and appropriate. The CFTC 

Reauthorization Act, thus, recognized 

the appropriateness of treating certain 

swaps and futures contracts in the same 

manner, thereby authorizing the 

imposition of position limits on such 

swaps (which are cash-settled 

contracts). 

In order to facilitate the annual 

calculations of spot-month position 

limits, the Commission proposes to 

require each DCM that lists a referenced 

physical delivery contract to submit, on 

an annual basis, an estimate of 

deliverable supply to the Commission. 

This estimate would include supplies 

that are available through standard 

marketing channels at market prices 

prevailing during the relevant spot 

months. Deliverable supply would not 

include supplies that could be procured 

at unreasonably high prices or diverted 

from non-standard locations. 

Deliverable supply would also not 

include supply that is committed for 

long-term agreements and would 

therefore not be available to fulfill the 

delivery obligations arising from current 

trading. The Commission would 

consider the DCM’s estimate in 

conjunction with analyzing its own data 

and reviewing position limit related 

DCM filings, and make a final 

determination as to deliverable supply. 

In making this determination, the 

Commission would weigh more heavily 

the highest monthly values of past 

deliverable supply, provided it did not 

occur in particularly unusual market 

conditions, over a reasonable time 

period to estimate the largest deliverable 

supply. 

The Commission invites comments on 

all aspects of its proposed spot-month 

position limit framework. For example, 

how broadly or narrowly should the 

Commission consider what constitutes 

deliverable supply? Should the 

Commission adopt the proposed 

conditional-spot-month limits or adopt 

a uniform spot-month limit? 

Alternatively, should the conditionalspot-month limit be set at a higher level 

relative to the level of deliverable 

supply? If so, why? 

B. Non-Spot-Month Position Limits 

1. Open Interest Formula 

While the Commission proposes to set 

spot-month limits in the transitional 

implementation period, the Commission 

would impose non-spot-month position 

limits only in the second phase of 

implementation. In contrast to spotmonth position limits which are set as 

a function of deliverable supply, the 

class and aggregate single-month and 

all-months-combined position limits, as 

proposed, would be tied to a specific 

percentage of overall open interest for a 

particular referenced contract in the 

aggregate or on a per class basis. Under 

the proposed regulations, there are two 

classes of contracts in connection with 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2
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36See Revision of Federal Speculative Position 

Limits, 57 FR 12766, April 13, 1992; and Revision 

of Federal Speculative Position Limits and 

Associated Rules, 64 FR 24038, at 24039, May 5, 

1999. 

37See 57 FR 12766, at 12771. 38See 75 FR 67258. 

non-spot-month limits. One class is 

comprised of all futures and option 

contracts executed pursuant to the rules 

of a DCM. The second class is 

comprised of all swaps. 

In addition to an aggregate singlemonth and all-months-combined 

position limit that would apply across 

classes, the proposed regulations would 

apply single-month and all-monthscombined position limits to each class 

separately. Class limits would ensure 

that market power is not concentrated in 

any one submarket, and that a trader is 

not flat in the aggregate while holding 

excessively large offsetting positions in 

any one submarket. Class and aggregate 

position limits based on a percentage of 

open interest may help prevent any 

single speculative trader from acquiring 

excessive market power. The formula 

proposed herein is intended to ensure 

that no single speculator can constitute 

more than 10 percent of a market, as 

measured by open interest, up to 25,000 

contracts of open interest, and 2.5 

percent thereafter.36

Proposed § 151.4 proposes to use the 

futures position limits formula (the 10, 

2.5 percent formula) to determine nonspot-month position limits for 

referenced contracts. The 10, 2.5 percent 

formula is identified in current 

Commission § 150.5(c)(2). Given the 

level of open interest in the futures 

markets and the likely level of open 

swaps based on data available to the 

Commission, this formula would yield 

high position limits that nonetheless 

would prevent a speculative trader from 

acquiring excessively large positions 

and thereby would help prevent 

excessive speculation and deter and 

prevent market manipulation, squeezes, 

and corners. The resultant limits are 

purposely designed to be high in order 

to ensure sufficient liquidity for bona 

fide hedgers and avoid disrupting the 

price discovery process given the 

limited information the Commission has 

with respect to the size of the physical 

commodity swap markets.37

As discussed further below, for the 

agricultural futures contracts 

enumerated in current § 150.2, the 

Commission is proposing legacy limits 

that would retain the all-monthscombined limits for such contracts and 

would make the single-month limits 

equal to the all-months-combined 

limits. 

The Commission emphasizes that 

market data can support a range of 

acceptable speculative position limits. 

The Commission currently obtains DCM 

futures and option positional data under 

parts 15 through 19 and 21 of its 

regulations, which derive their statutory 

authority in significant part from 

sections 4a, 4g and 4i of the CEA. With 

regard to swaps, the Commission 

receives limited positional data for 

cleared swaps that are significant price 

discovery contracts under part 36 of its 

regulations and limited positional data 

on certain swaps that are cleared, but 

not traded, by registered derivatives 

clearing organizations. While the 

Commission requires additional, 

reliable, and verifiable swaps data to 

enforce the position limits proposed 

herein, the Commission believes that it 

has sufficient data to set the overall 

concentration-based percentages for the 

position limits. The Commission 

intends to finalize regulations that 

would provide it with comprehensive 

positional data on physical commodity 

swaps, and would use such data to fix 

numerical position limits through the 

application of the proposed openinterest-based position limit formula.38

The trader visibility requirements of 

§ 151.6, as described below, establish 

levels that trigger reporting 

requirements similar to reports that 

certain hedgers currently submit 

pursuant to ’04 reports under part 19 of 

the Commission’s regulations. These 

reporting requirements aim to make the 

physical and derivatives portfolios of 

the largest traders in referenced 

contracts visible to the Commission. 

This information would generally allow 

the Commission to understand large 

traders’ trading activities and to assess 

the appropriateness of the speculative 

position limits set forth in the proposed 

part 151. The Commission would then 

potentially be able to, among other 

things, more readily identify instances 

where a trader’s large positions create 

an ability to manipulate the market and 

cause sudden price changes or 

distortions. Moreover, the position 

visibility-related reports could 

potentially enable the Commission to 

perform some econometric analyses of 

the impact of speculative positions on 

price formation in referenced contracts. 

The position visibility levels that trigger 

reporting obligations are not intended to 

function as safe harbors from any charge 

of manipulation or excessive 

speculation. Visibility levels are in no 

way intended to imply that positions at 

or near such levels cannot constitute 

excessive speculation or be used to 

manipulate prices or for other wrongful 

purposes. 

The Commission solicits comment as 

to whether the traditional 10, 2.5 

percent formula should be uniformly 

applied to all referenced contracts as is 

being proposed. If not, why? In 

particular, given that single-month and 

all-months-combined position limits are 

not currently in place for energy and 

metals markets, should the Commission 

consider setting limits initially on these 

commodities at some higher level, such 

as a 10, 5 percent formula based on 

open interest, in order to best ensure 

that hedging activities or price 

discovery are not negatively affected? 

With respect to class limits, the 

Commission specifically solicits 

comment on whether additional classes, 

such as separate class categories for 

cleared and uncleared swaps, should be 

adopted to ensure that large positions 

that result in excessive concentration of 

positions in a submarket are not 

acquired? 

2. Calculation of Open Interest 

Under the proposed position limit 

framework, there are six possible nonspot-month position limits: Aggregate 

all-months-combined and single-month 

limits; futures class all-monthscombined and single-month limits; and 

swaps class all-months-combined and 

single-month limits. In each case, 

single-month limits are proposed to 

equal all-months-combined limit levels. 

The Commission is proposing this 

approach in order to lessen the 

complexity of the limits and hence 

compliance burdens. The Commission 

is also proposing this approach, which 

would result in higher single-month 

limits, to incorporate a calendar spread 

exemption within the single-month 

limits (including an across crop year 

spread exemption) and remove the 

calendar spread exemption which 

would no longer be needed. 

As discussed above, the Commission 

proposes to set non-spot-month position 

limits as a function of open interest. The 

general formula would set non-spotmonth position limits as the sum of 10 

percent of the first 25,000 contracts of 

open interest base and 2.5 percent of the 

open interest base beyond 25,000 

contracts. All open interest base 

calculations would be derived from 

month-end open interest values. The 

open interest bases would be utilized to 

determine the average all-monthscombined open interest which, in turn, 

would be the basis for the six non-spotmonth position limits. Under proposed 

§ 151.4(e), the average all-monthscombined open interest would be the 

average of the relevant all-months open 

interest base for a calendar year. The 

open interest base levels would be 


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4760 Federal Register / Vol. 76, No. 17 / Wednesday, January 26, 2011 / Proposed Rules 

39See 75 FR 4144, at 4153. A list of contracts that 

illustrate how open interest values would be 

calculated is available at http://www.cftc.gov/ 

LawRegulation/DoddFrankAct/Rulemakings/ 

DF_26_PosLimits/index.htm. The list enumerates 

the types of referenced contracts’ open interest that 

would roll up into a 151.2-listed contract’s open 

interest for the purpose of determining overall open 

interest levels. Once swap open interest data for 

swaps that are referenced contracts is collected, the 

open interest value for such swaps would also be 

rolled up into the related 151.2-listed futures 

contract’s open interest along with the open interest 

of other related referenced contracts. 

40CME Group Petition for Amendment of 

Commodity Futures Trading Commission 

Regulation (April 6, 2010), available at http:// 

www.cftc.gov/LawRegulation/DoddFrankAct/ 

Rulemakings/DF_26_PosLimits/index.htm. The 

CME petition was premised on the Commission’s 

past reliance on open interest levels for setting 

position limits and the increase in open interest 

levels of the contracts listed in the petition. 

41The scope of contracts subject to position limits 

under section 4a(a)(2) includes physical commodity 

futures and options contracts traded on a DCM, 

other than excluded commodities. 

calculated in the same manner 

described in the Commission’s January 

2010 release proposing position limits 

for certain referenced energy 

contracts.39

Cleared referenced swap contract 

open interest would be based on monthend open interest figures provided to 

the Commission by clearing 

organizations. The Commission 

proposes to determine the uncleared 

swap open interest based on the monthend average for the sum of swap dealer 

positions in all months in uncleared 

referenced swap contracts. In order to 

determine a swap dealer’s position in all 

months in uncleared referenced swap 

contracts, the Commission would 

undertake a four-step process. First, the 

Commission would determine a single 

swap dealer’s net exposure by 

counterparty by referenced contract 

month. Second, the Commission would 

add the swap dealer’s net counterparty 

exposures in the same referenced 

contract month on an absolute basis to 

determine the swap dealer’s open 

interest for the referenced contract 

single month. Third, the Commission 

would combine the swap dealer’s 

positions in the referenced contract 

month in order to determine its 

contribution to the uncleared swap 

single-month open interest. Finally, the 

Commission would combine the swap 

dealer’s positions in single referenced 

contract months. At month end, this 

sum would constitute that swap dealer’s 

contribution to the uncleared referenced 

swap contract all-months open interest 

(and the aggregate all-months referenced 

contract open interest). For example, a 

swap dealer with the following 

referenced contract portfolio would 

contribute 2,000 contracts to the allmonths uncleared swap open interest, 

1,000 from each counterparty, based on 

positions of 1,100, 500, and 400 

contracts for the January, February, and 

March referenced single contract 

months respectively: 

Net position January 

referenced contract 

Net position February 

referenced contract 

Net position March 

referenced contract 

Counterparty 1 ............................................................................. ¥600 ¥200 ¥200 

Counterparty 2 ............................................................................. +500 ¥300 ¥200 

3. Legacy Position Limits 

The proposed regulations would 

retain the all-months-combined position 

limits for enumerated agricultural 

commodities in current § 150.2 as an 

exception to the general open interest 

based formula. The single-month limit 

would be increased to the same level as 

the legacy all-months-combined limit, 

with the elimination of the calendar 

month spread exemption. 

The Commission requests comment 

on whether the legacy position limits 

should be retained or treated as other 

derivatives are treated under this 

proposal, and if so, whether the levels 

should be increased, to the following 

amounts requested in an April 6, 2010 

petition to the Commission by the 

Chicago Board of Trade 40: 

Contract Single 

month 

All 

months 

Corn (and Mini-Corn) 20,500 33,000 

Soybeans (and MiniSoybeans) ............. 10,000 15,000 

Wheat (and MiniWheat) ................... 9,000 12,000 

Soybean Oil .............. 6,500 8,000 

If so adopted, should the limits on 

wheat at the Minneapolis Grain 

Exchange and the Kansas City Board of 

Trade also be increased to the level 

proposed for the wheat contract at the 

Chicago Board of Trade, consistent with 

the Commission’s historical approach to 

setting limits for wheat contracts? 

C. Exemptions for Referenced Contracts 

Proposed § 151.5 establishes 

exemptions from position limits for 

bona fide hedging transactions or 

positions as directed by the Dodd-Frank 

Act specifically for exempt and 

agricultural commodities. The 

referenced contracts subject to the 

proposed position limit framework 

would be subject to the bona fide 

provisions of proposed § 151.5 and 

would no longer be subject to § 1.3(z), 

which would be retained only for 

excluded commodities. § 1.47 and § 1.48 

would be removed by this notice of 

proposed rulemaking. 

Section 4a(c)(1) of the Act authorizes 

the Commission to define bona fide 

hedging transactions or positions 

‘‘consistent with the purposes of the 

Act.’’ By its terms, the section places no 

restriction on the Commission’s ability 

to define bona fide hedging for swaps. 

Congress also directed the Commission, 

in amended CEA section 4a(c)(2), to 

adopt a definition for bona fide hedging 

transactions or positions for purposes of 

setting position limits pursuant to 

section 4a(a)(2), which refers only to 

futures contracts or options.41 A 

definition of bona fide hedging that 

would exclude swaps would deny a 

commercial end-user the option of 

offsetting price risks with swaps (as 

opposed to futures) pursuant to a bona 

fide hedge exemption. Accordingly, 

pursuant to section 4a(c)(1) and (c)(2), 

the Commission is proposing a 

definition for bona fide hedging 

transactions and positions that would 

apply to all referenced contracts, 

including swaps, as opposed to 

referenced futures and option contracts 

only. 

The statutory definition of a bona fide 

hedge in section 4a(c)(2) generally 

follows the existing definition in 

Commission § 1.3(z)(1), except: (1) The 

directive requires all bona fide hedging 

transactions and positions to represent a 

substitute for a physical market 

transaction; and (2) as discussed above, 

the directive provides an explicit 

exemption for a trader to reduce the 

risks of swap positions, provided the 

counterparty to the swap transaction 

would have qualified for a bona fide 

hedging transaction exemption or the 

risk reducing positions offset a swap 

that qualifies as a bona fide hedging 

transaction. 

The definition of bona fide hedging in 

§ 1.3(z) of the Act provides that a bona 

fide hedging transaction or position in a 

futures contract normally represents a 

substitute for a physical market 


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Federal Register / Vol. 76, No. 17 / Wednesday, January 26, 2011 / Proposed Rules 4761 

transaction; thus, the current definition 

is no longer consistent with amended 

CEA section 4a(c)(2). The plain text of 

the new statutory definition of bona fide 

hedging recognizes bona fide hedging 

for derivatives that are subject to this 

rulemaking only if such transactions or 

positions represent cash market 

transactions and offset cash market 

risks, as opposed to the acceptance of 

bona fide hedging transactions and 

positions as activity that normally, but 

not necessarily, represents a substitute 

for cash market transactions or 

positions. 

Proposed § 151.5(a)(2) incorporates 

the current requirements of Commission 

§ 1.3(z)(2) for enumerated hedging 

transactions. Proposed § 151.5(a)(2)(iv) 

also provides an exemption for agents 

contractually responsible for the 

merchandising of cash positions with a 

person who owns the commodity or 

holds the cash market commitment 

being offset. This agent provision is 

consistent with Commission § 1.3(z)(3) 

and § 1.47. 

In this regard, should the Commission 

grant an exemption to an agent that is 

not responsible for the merchandising of 

the cash positions, but is linked to the 

production of the physical commodity, 

for example, if the agent is the provider 

of crop insurance? 

Proposed § 151.5(b) establishes 

reporting requirements for a trader upon 

exceeding a position limit. The trader is 

required to submit information not later 

than 9:00 a.m. on the business day 

following the day the limits were 

exceeded. The reports would support 

hedgers’ need for large referenced 

contract positions and would give the 

Commission the ability to verify the 

positions were a bona fide hedge. 

With respect to the frequency of filing 

such reports, should the Commission 

only require reports to be submitted 

either when a trader’s position either 

first exceeds a limit or when a trader’s 

hedging need increases, with a monthly 

summary while the trader’s position 

remains in excess of the limit? 

Proposed § 151.5(c) specifies 

application and approval requirements 

for traders seeking an anticipatory hedge 

exemption, incorporating the current 

requirements of Commission § 1.48. As 

is the case under current § 1.48, a 

trader’s maximum sales and purchases 

shall not exceed the lesser of the 

approved exemption amount or the 

trader’s current actual unsold 

anticipated production or current 

unfilled anticipated requirements. In 

addition, the proposed regulations 

require an anticipatory hedger to file a 

supplement to an application at least 

annually or whenever the anticipatory 

hedging needs increase beyond that in 

the most recent filing. 

Proposed § 151.5(d) establishes 

additional reporting requirements for a 

trader that exceeds the position limits to 

reduce the risks of certain swap 

transactions, discussed above. Should 

the Commission only require such 

reports to be submitted when the 

trader’s position either first exceeds a 

limit or the hedging need increases, 

with a monthly summary while the 

trader’s position remains in excess of 

the limit? 

Proposed § 151.5(e) specifies 

recordkeeping requirements for traders 

that acquire positions in reliance on 

bona fide hedge exemptions, as well as 

for swap counterparties for which a 

counterparty represents that the 

transaction would qualify as a bona fide 

hedging transaction. Swap dealers 

availing themselves of a hedge 

exemption would be required to 

maintain a list of such counterparties 

and make that list available to the 

Commission upon request. Proposed 

§ 151.5(g) and (h) provide procedural 

documentation requirements for such 

swap participants. 

Proposed § 151.5(f) requires a cross 

hedger to provide conversion 

information, as well as an explanation 

of the methodology used to determine 

such conversion information, between 

the commodity exposure and the 

referenced contracts used in hedging. 

Proposed § 151.5(i) requires reports by 

bona fide hedgers to be filed for each 

business day, up to and including the 

day after the trader’s position level is 

below the position limit that was 

exceeded. 

Proposed § 151.5(j) provides that a 

swap counterparty with respect to bona 

fide hedging transactions may establish 

a position in excess of the position 

limits, offset that position, and then reestablish a position in excess of the 

position limits. For example, this 

provision permits a swap participant 

who has reduced the risk of swaps using 

a position in futures contracts (that 

would otherwise violate a position 

limit) to offset those futures contracts 

and subsequently, if necessary, reestablish a position in excess of class 

position limits in another venue in 

order to once again reduce the risk of 

the swap transactions. 

D. Position Visibility 

Based on its analysis of the proposed 

limits as applied to futures and option 

contract positions and cleared swaps for 

which the Commission has open 

interest data, the Commission does not 

anticipate that the number of traders 

with positions in referenced base and 

precious metals and referenced energy 

contracts, as further discussed below in 

the Cost-Benefit and Paperwork 

Reduction Act sections of this release, 

would constitute a significant segment 

of the affected markets, in contrast to 

the number of traders with positions in 

referenced agricultural contracts. 

Recognizing this, the Commission 

proposes to establish, in addition to the 

position limits discussed above, 

position visibility regulations for 

referenced contracts other than 

referenced agricultural contracts, 

pursuant to the Commission’s authority 

to establish reporting requirements 

under section 4t of the Act, as added by 

the Dodd-Frank Act, and reporting 

requirements necessary for the 

establishment and enforcement of 

position limits under sections 4a and 

8a(5) of the Act. The proposed visibility 

regulations would set position visibility 

reporting levels and establish reporting 

requirements for all traders exceeding 

those levels. The reporting regulations 

aim to make the physical and 

derivatives portfolios of the largest 

traders in referenced contracts visible to 

the Commission. 

The position visibility regime would 

improve the Commission’s ability to 

monitor the positions of the largest 

traders in the markets for referenced 

base and precious metals and referenced 

energy contracts and the effects on the 

markets of those large positions and 

their associated physical commodity 

and derivatives portfolios. The data for 

referenced contracts and related 

portfolios that the Commission would 

receive pursuant to the position 

visibility regulations would allow the 

Commission to better analyze the nature 

of the largest traders’ positions in 

referenced contracts. 

The Commission has set the visibility 

levels and its estimates on the number 

of traders they would capture based on 

data it currently receives on the futures 

and swaps markets. The Commission 

may revisit these levels as it begins to 

receive more data on the swaps markets. 

The Commission proposes to set the 

visibility reporting levels for referenced 

base and precious metals and referenced 

energy contracts where it anticipates 

approximately 20 unique owners over 

the course of a year would exceed such 

levels. Given their importance to the 

national economy, the Commission 

proposes to set visibility levels for the 

NYMEX Light Sweet Crude Oil (CL) and 

Henry Hub Natural Gas (NG) referenced 

contracts at a relatively lower level 

designed to capture approximately 30 

unique owners over the course of a year. 

Proposed § 151.6 would require 

traders with positions above visibility 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2
4762 Federal Register / Vol. 76, No. 17 / Wednesday, January 26, 2011 / Proposed Rules 

42See 75 FR 4144, at 4146. 

levels in referenced base and precious 

metals and energy commodities to 

submit additional information about 

cash market and derivatives activity, 

including data relating to substantially 

the same commodity, such as 

commodities that are different grades or 

formulations of the same basic 

commodity. Proposed § 151.6(c) would 

require additional information, through 

a 402S filing, on a trader’s uncleared 

swaps in substantially the same 

commodity. Proposed § 151.6(d) would 

require the reportable trader to submit 

information about cash market positions 

in substantially the same commodity, as 

described in proposed § 151.5(b), 

through 404 and 404A filings. 

The Commission solicits comment on 

whether position visibility requirements 

should also be imposed on referenced 

agricultural contracts. 

E. Aggregation of Accounts 

Proposed § 151.7 would establish 

account aggregation standards 

specifically for positions in referenced 

contracts. Under the proposed 

standards, the Federal position limits in 

referenced contracts would apply to all 

positions in accounts in which any 

trader, directly or indirectly, has an 

ownership or equity interest of 10 

percent or greater or, by power of 

attorney or otherwise, controls trading. 

These standards for aggregation are 

consistent with the standards delineated 

in the Acceptable Practice to DCM Core 

Principle 5 in Appendix B to part 38 of 

the Commission’s regulations. Proposed 

§ 151.7 would also treat positions held 

by two or more traders acting pursuant 

to an express or implied agreement or 

understanding the same as if the 

positions were held by, or the trading of 

the positions were done by, a single 

trader. Proposed § 151.7 would require 

a trader to aggregate positions in 

multiple accounts or pools, including 

passively managed index funds, if those 

accounts or pools had identical trading 

strategies. 

Proposed § 151.7(c) establishes a 

limited exemption for positions in pools 

in which a person that is a limited 

partner, shareholder or similar person 

has an ownership or equity interest of 

between 10 percent and 25 percent, if 

the person does not have control over or 

knowledge of the pool’s trading. 

Proposed § 151.7(e) establishes a limited 

exemption for the positions of futures 

commission merchants in certain 

discretionary accounts, if they maintain 

only minimum control over trading in 

the relevant account and if the trading 

decisions of that account are 

independent from trading decisions in 

the futures commission merchants’ 

other accounts. Finally, proposed 

§ 151.7(f) establishes a limited 

exemption for entities to disaggregate 

the positions of an independently 

controlled and managed trader that is 

not a financial entity, defined as an 

owned non-financial entity, in which it 

has an ownership or equity interest of 

10 percent or greater, and it provides a 

non-exhaustive description of indicia 

that demonstrate independent control 

and management to the Commission. In 

all three cases, the exemption would 

only become effective upon the 

Commission’s approval of an 

application described in proposed 

§ 151.7(g). 

In the aggregation standards currently 

in force in part 150 of the Commission’s 

regulations, eligible entities (a broad 

group that includes banks, insurance 

companies, mutual funds, commodity 

pool operators and commodity trading 

advisors) are permitted to disaggregate 

positions pursuant to a self-executing 

independent account controller 

framework. Part 150 also provides 

expansive disaggregation provisions for 

commodity pool operators, limited 

partners and other pool participants as 

well as for futures commission 

merchants. 

These disaggregation exceptions may 

be incompatible with the proposed 

Federal position limit framework and 

used to circumvent its requirements. 

Given that the proposed framework sets 

high position levels that are reflective of 

the largest positions held by market 

participants, permits for the netting of 

positions for like referenced contracts 

within each applicable position limit, 

and includes a conditional-spot-month 

limit for cash-settled contracts and 

exemptions for bona fide hedging 

(either directly or as a result of the lookthrough provision), allowing traders to 

establish a series of positions each near 

a proposed position limit, without 

aggregation, may not be appropriate. In 

addition, the self-executing nature of the 

exemptions creates an insufficient and 

inefficient verification regime and 

ultimately diminishes the Commission’s 

ability to properly perform its market 

surveillance responsibilities. 

Thus, the proposed aggregation 

standards differ in several respects from 

the current standards in part 150. The 

proposed regulations would require 

aggregation for a passive pool 

participant with a 10 percent or greater 

ownership or equity interest (unless the 

pool operator had proper information 

barriers in place and the pool 

participant did not have control over the 

pool’s trading decisions). By 

comparison, under current part 150, a 

passive pool participant would 

aggregate its positions only if it was also 

a principal or affiliate of the pool 

operator. The proposed regulations 

would require aggregation for any 

passive pool participant with a 25 

percent or greater ownership or equity 

interest, with no possibility for 

disaggregation, whereas current part 150 

only follows such an approach for pools 

with operators that are exempt from 

registration under § 4.13. The proposed 

regulations would also require 

aggregation for positions in accounts or 

pools with identical trading strategies, 

which part 150 currently lacks, in order 

to prevent circumvention of the 

aggregation requirements by, for 

example, a trader seeking a large longonly position in a given commodity 

through specific positions in multiple 

pools. 

In addition, the proposed regulations 

do not retain the independent account 

controller exemption of part 150. The 

regulations proposed in January of 2010 

to establish position limits for 

referenced energy contracts also did not 

include an independent account 

controller framework; they included 

only a very narrow exemption thereto 

for certain passive pool participants.42

Many commenters to the January 2010 

proposed regulations expressed 

opposition to such strict standards, 

arguing that they would force 

aggregation of positions in situations 

where meaningful control, management 

and information barriers demonstrated 

sufficient independence to warrant 

disaggregation. The current regulations 

address some of these concerns by 

establishing a limited exemption for 

owned non-financial entities. 

The owned non-financial entity 

exemption would allow an entity to 

disaggregate (1) the positions of a nonfinancial entity in which it owns a 10 

percent or greater ownership or equity 

interest from (2) its own directly held or 

controlled positions and the positions 

attributed to it (through the general 10 

percent ownership standard or other 

aggregation requirements of the 

proposed regulations), if it can 

demonstrate that the owned nonfinancial entity is independently 

controlled and managed. This limited 

exemption aims to allow disaggregation 

primarily in the case of a conglomerate 

or holding company that merely has a 

passive ownership interest in one or 

more non-financial operating 

companies. In such cases, the operating 

companies may have complete trading 

and management independence and 

operate at such a distance from the 

holding company that it would not be 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2
Federal Register / Vol. 76, No. 17 / Wednesday, January 26, 2011 / Proposed Rules 4763 

43The Commission understands that changes in 

option deltas could increase the net level of a 

person’s pre-enactment position. 

44Relevant for these purposes, CEA section 

1a(40), as amended by the Dodd-Frank Act, would 

define registered entity to include DCMs and SEFs. 

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

46See Section 151.11(d)(1)(ii) of these proposed 

regulations. As explained in section C of this 

release, the definition of bona fide hedge 

transaction or position contained in section 4a(c)(2) 

of the Act does not, by its terms, apply to excluded 

commodities. 

47See Clarification of Certain Aspects of Hedging 

Definition, 52 FR 27195, Jul. 20, 1987; and Risk 

Management Exemptions From Speculative Position 

Limits Approved under Commission Regulation 

1.61, 52 FR 34633, Sept. 14, 1987. 

appropriate to aggregate positions. Two 

of the criteria proposed as indicia of 

independence are similar to those 

currently contained in part 150, namely 

the requirements that the entity have no 

knowledge of the owned non-financial 

entity’s trading decisions (along with, in 

the proposed regulations, the reverse 

requirement that the owned nonfinancial entity have no knowledge of 

the entity’s trading decisions) and that 

the owned non-financial entity have 

written policies and procedures to 

protect such knowledge. Two other 

proposed indicia not found in current 

part 150, requiring separate employees 

and risk management systems, would 

provide further evidence of the owned 

non-financial entity’s independence. As 

mentioned above, the indicia described 

in proposed § 151.7(f) are not meant to 

form an exhaustive list; under the 

proposed application process described 

in 151.7(g), a departure from the selfexecuting exemption of part 150, the 

applying entity could describe for the 

Commission any other relevant 

circumstances that would warrant 

disaggregation. 

The Commission solicits comments 

on all aspects of its account aggregation 

regulations. In particular, the 

Commission solicits comments on the 

appropriateness of the definition of 

owned non-financial entities and the 

criteria used to determine the 

independence of such entities. The 

Commission also solicits comments on 

whether and under what circumstances 

the Commission should grant 

exemptions from account aggregation 

under its exemptive authority under 

section 4a(a)(7) of the Act. 

F. Preexisting Positions and Exemptions 

Consistent with the good faith 

exemption in section 4a(b)(2) of the Act, 

the Commission will provide a limited 

exemption for positions in DCM 

contracts for future delivery or option 

contracts that are in excess of a position 

limit in proposed § 151.2, provided that 

they were established in good faith prior 

to the effective date of a position limit 

set by rule, regulation or order. Such 

persons would not be allowed to enter 

into new, additional contracts in the 

same direction but could take up 

offsetting positions and thus reduce 

their total combined net position.43

Persons who established a net position 

below the speculative limit for a 

contract for future delivery prior to the 

enactment of a regulation would be 

permitted to acquire new positions. 

However, consistent with Commission 

practice, the Commission would 

calculate the combined position of a 

person based on any position 

established prior to enactment of a 

position limit rule, regulation or order 

plus any new position. 

In contrast to futures and option 

contracts, the proposed regulations 

would not apply position limits to 

Dodd-Frank Act pre-effective date 

swaps. The Commission is proposing 

this broad exemption since swaps 

generally may be appreciably longer 

lived than futures contracts thereby 

giving rise to concerns that position 

limits affecting pre-effective date swaps 

may unnecessarily disrupt position 

hedging through swap positions. The 

Commission would allow pre-effective 

date swaps to be netted with posteffective date swaps for the purpose of 

complying with position limits. 

The Commission has previously 

granted certain swap dealers hedge 

exemptions under current § 1.47, 

without regard to the purposes or 

hedging needs of swap dealer 

counterparties. The Commission intends 

to permit such swap dealers to continue 

to manage the risk of a swap portfolio 

that exists at the time of implementation 

of the proposed regulations. No new 

swaps will be covered by the 

exemption. 

In this regard, the Commission seeks 

comment on what additional reporting 

requirements, if any, it should impose 

on swap dealers that were granted a 

hedge exemption. 

G. Foreign Boards of Trade 

Proposed § 151.8 would provide that 

the aggregate position limits in 

proposed § 151.4 apply to a trader’s 

positions in referenced contracts 

executed on, or pursuant to the rules of, 

a foreign board of trade, subject to the 

following conditions. First, the FBOT 

contract, agreement, or transaction must 

settle against the price of a contract 

executed or cleared pursuant to the 

rules of a registered entity. Second, the 

FBOT must make such linked contracts 

available to its members or other 

participants located in the United States 

by direct access to its electronic trading 

and order matching system. 

H. Registered Entity Position Limits 

Proposed § 151.11 requires registered 

entities 44 to establish position limits for 

reference contracts that are at a level no 

higher than the position limits specified 

in proposed § 151.4. Proposed 

§ 151.11(c) and (d)(1)(i) would require 

registered entities to follow the same 

account aggregation and bona fide 

exemption standards set forth by 

proposed § 151.5 and § 151.7 with 

respect to exempt and agricultural 

commodities. 

For excluded commodities,45

consistent with current DCM practice, 

registered entities would have the 

discretion to establish position 

accountability levels in lieu of position 

limits. Registered entities may impose 

position accountability rules in lieu of 

position limits only if either: The open 

interest in a contract is less than 5,000; 

or the contract involves a major 

currency; or involves an excluded 

commodity that has the following three 

characteristics: (1) An average daily 

open interest of 50,000 or more 

contracts, (2) an average daily trading 

volume of 100,000 or more contracts, 

and (3) a highly liquid cash market. 

With respect to excluded 

commodities, consistent with the 

current DCM practice, registered entities 

may provide for exemptions from their 

position limits for ‘‘bona fide hedging.’’ 

The term ‘‘bona fide hedging,’’ as used 

with respect to excluded commodities, 

shall be defined in accordance with 

amended CFTC § 1.3(z).46 Additionally, 

consistent with the current DCM 

practice, registered entities may 

continue to provide exemptions for 

‘‘risk-reducing’’ and ‘‘risk-management’’ 

transactions or positions consistent with 

existing Commission guidelines.47

Finally, though the Commission is 

removing the procedure to apply to the 

Commission for bona fide hedge 

exemptions for non-enumerated 

transactions or positions under 

§ 1.3(z)(3), the Commission will 

continue to recognize prior Commission 

determinations under that section, and 

registered entities may recognize nonenumerated hedge transactions subject 

to Commission review. 

I. Delegation 

Proposed § 151.12 delegates certain of 

the Commission’s proposed part 151 

authority to the Director of the Division 

of Market Oversight and to other 

employee or employees as designated by 

the Director. The delegated authority 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2
4764 Federal Register / Vol. 76, No. 17 / Wednesday, January 26, 2011 / Proposed Rules 

extends to: (1) Determining open 

interest levels for the purpose of setting 

non-spot-month position limits; 

(2) granting an exemption relating to 

bona fide hedging transactions; and 

(3) providing instructions or 

determining the format, coding 

structure, and electronic data 

transmission procedures for submitting 

data records and any other information 

required under proposed part 151. The 

purpose of this delegation provision is 

to facilitate the ability of the 

Commission to respond to changing 

market and technological conditions 

and thus ensure timely and accurate 

data reporting. In this regard, the 

Commission specifically requests 

comments on whether determinations of 

open interest or deliverable supply 

should be adopted through Commission 

orders. 

III. Related Matters 

A. Cost-Benefit Analysis 

Section 15(a) of the Act requires that 

the Commission, before promulgating a 

regulation under the Act or issuing an 

order, consider the costs and benefits of 

its action. By its terms, CEA section 

15(a) does not require the Commission 

to quantify the costs and benefits of a 

new regulation or determine whether 

the benefits of the regulation outweigh 

its costs. Rather, CEA section 15(a) 

simply requires the Commission to 

‘‘consider the costs and benefits’’ of its 

action. 

CEA section 15(a) specifies that costs 

and benefits shall be evaluated in light 

of the following considerations: 

(1) Protection of market participants and 

the public; (2) efficiency, 

competitiveness, and financial integrity 

of futures markets; (3) price discovery; 

(4) sound risk management practices; 

and (5) other public interest 

considerations. Accordingly, the 

Commission could, in its discretion, 

give greater weight to any of the five 

considerations and could, in its 

discretion, determine that, 

notwithstanding its costs, a particular 

regulation was necessary or appropriate 

to protect the public interest or to 

effectuate any of the provisions or to 

accomplish any of the purposes of the 

Act. 

The proposed position limits and 

their concomitant limitation on trading 

activity could impose certain general 

but significant costs. Overly restrictive 

position limits could cause unintended 

consequences by decreasing speculative 

activity and therefore liquidity in the 

markets for the referenced contracts, 

impairing the price discovery process in 

these markets, and encouraging the 

migration of speculative activity and 

perhaps price discovery to markets 

outside of the Commission’s 

jurisdiction. The outside spot-month 

position limits that would likely result 

from the application of the 10, 2.5 

percent open interest formula, as 

proposed, are intended as high levels 

that speculators are likely to acquire in 

order to avoid disrupting or interfering 

with beneficial speculative trading. 

Congress has charged the Commission 

with establishing position limits on 

traders in certain physical commodity 

derivatives. In CEA section 4a(a)(3), 

Congress directed the Commission to 

establish such position limits in order to 

achieve, to the maximum extent 

practicable, in the Commission’s 

discretion, the following objectives: To 

diminish, eliminate, or prevent 

excessive speculation; to deter and 

prevent market manipulation; while 

ensuring sufficient market liquidity for 

bona fide hedgers and protecting the 

price discovery function of commodity 

derivatives. Insofar as the provisions of 

the proposed part 151 effectuate these 

goals, then the market and the public as 

a whole would benefit. 

In section 4a of the Act, Congress 

determined that excessive speculation 

in ‘‘any commodity under contracts of 

sale of such commodity for future 

delivery * * * or swaps that perform a 

significant price discovery function 

with respect to regulated entities 

causing sudden or unreasonable 

fluctuations or unwarranted changes in 

the price of such commodity, is an 

undue and unnecessary burden on 

interstate commerce.’’ In section 4a(a)(3) 

of the Act, Congress charged the 

Commission with the task of setting 

position limits designed to diminish, 

eliminate, or prevent ‘‘excessive 

speculation.’’ Accordingly, the 

speculative position limit framework 

established by the Commission would 

be expected to benefit the public and 

the markets regulated by the 

Commission by diminishing, 

eliminating, or preventing the undue 

burdens on interstate commerce that 

result from excessive speculation in 

markets regulated by the Commission. 

In addition, the proposed visibility 

levels and associated reporting 

requirements of proposed § 151.6 would 

enable the Commission to better 

understand generally the portfolio 

compositions, including bona fide 

hedging needs, of the largest position 

holders of referenced contracts. This 

data would enable the Commission to 

determine whether to readjust the 

speculative position limits to continue 

to ensure the statutory objectives are 

met. Visibility reports would allow the 

Commission to have a better sense of the 

relative distribution of speculative 

versus non-speculative positions and 

activity, as well as the nature and effect 

of the largest speculative traders in 

referenced contracts. 

Section 4a(a)(3) of the Act also 

charges the Commission with setting 

position limits designed to ‘‘deter and 

prevent market manipulation.’’ The 

limitation on a trader’s ability to take a 

very large position, not justified by a 

bona fide hedging need, may reduce a 

trader’s ability to manipulate a market. 

By reducing a trader’s ability to 

manipulate a market, a position limit 

regime would prevent manipulation and 

therefore avoid the resulting price 

distortions, economic harm, and 

misallocation of resources. In addition, 

the visibility levels and associated 

reporting obligations, as proposed in 

§ 151.6, would provide the Commission 

greater visibility into the portfolios of 

large speculative traders, thereby 

potentially facilitating early regulatory 

intervention when potential 

manipulative conduct or price 

distortions are detected. 

In addition to reducing the undue 

burdens arising from excessive 

speculation and manipulation, by 

reducing the ability of a market 

participant to gain very large 

speculative exposure in referenced 

contracts, proposed part 151 would 

encourage better risk management, 

reduce the likelihood of default, and 

may thereby reduce systemic risk. 

Although futures markets employ 

centralized clearing arrangements that 

reduce systemic risk, a very large 

speculative position taken by a levered 

participant across futures markets, other 

trading facilities, and in over-thecounter derivatives can result in a 

default risk not properly accounted for 

by any one trading venue or 

counterparty. The proposed regulations 

may therefore promote the financial 

integrity of the markets and protect the 

public by reducing systemic risk insofar 

as the provisions of the proposed part 

151 would reduce the likelihood of such 

levered entities to generate systemic risk 

by either limiting their ability to amass 

a very large speculative position or by 

making such entities more visible to the 

Commission pursuant to proposed 

§ 151.6. 

The Commission invites public 

comment on its cost-benefit 

considerations. Commenters are also 

invited to submit any data or other 

information that they may have 

quantifying or qualifying the costs and 

benefits of proposed part 151. 


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

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

50 7 U.S.C. 12(a)(1). 

51 5 U.S.C. 552a. 

52The Commission staff’s estimates concerning 

the wage rates are based on salary information for 

the securities industry compiled by the Securities 

Industry and Financial Markets Association 

(‘‘SIFMA’’). The $78.61 per hour is derived from 

figures from a weighted average of salaries and 

bonuses across different professions from the 

SIFMA Report on Management & Professional 

Earnings in the Securities Industry 2010, modified 

to account for an 1800-hour work-year and 

multiplied by 1.3 to account for overhead and other 

benefits. The wage rate is a weighted national 

average of salary and bonuses for professionals with 

the following titles (and their relative weight): 

‘‘programmer (senior)’’ (30% weight); ‘‘programmer’’ 

(30%); ‘‘compliance advisor (intermediate);’’ (20%), 

‘‘systems analyst;’’ (10%); and ‘‘assistant/associate 

general counsel’’ (10%). 

53The capital/start-up cost component of 

‘‘annualized capital/start-up, operating, and 

maintenance costs’’ is based on an initial capital/ 

start-up cost that is straight-line depreciated over 

five years. 

B. The Regulatory Flexibility Act 

The Regulatory Flexibility Act (RFA), 

5 U.S.C. 601 et seq., requires that 

agencies consider the impact of their 

regulations on small businesses. The 

requirements related to the proposed 

amendments fall mainly on registered 

entities, exchanges, futures commission 

merchants, swap dealers, clearing 

members, foreign brokers, and large 

traders. The Commission has previously 

determined that exchanges, futures 

commission merchants and large traders 

are not ‘‘small entities’’ for the purposes 

of the RFA.48 Similarly, swap dealers, 

clearing members, foreign brokers and 

traders would be subject to the proposed 

regulations only if carrying or holding 

large positions. Accordingly, the 

Chairman, on behalf of the Commission, 

hereby certifies, pursuant to 5 U.S.C 

605(b), that the actions proposed to be 

taken herein would not have a 

significant economic impact on a 

substantial number of small entities. 

C. Paperwork Reduction Act 

1. Overview 

The Paperwork Reduction Act 

(‘‘PRA’’) 49 imposes certain requirements 

on Federal agencies in connection with 

their conducting or sponsoring any 

collection of information as defined by 

the PRA. Certain provisions of the 

proposed regulations would result in 

new collection of information 

requirements within the meaning of the 

PRA. An agency may not conduct or 

sponsor, and a person is not required to 

respond to, a collection of information 

unless it displays a currently valid 

control number. The Office of 

Management and Budget (‘‘OMB’’) has 

not yet assigned a control number to the 

new collections associated with these 

proposed regulations. Therefore, the 

Commission is submitting this proposal 

to OMB for review in accordance with 

44 U.S.C. 3507(d) and 5 CFR 1320.11. 

The title for this proposed collection of 

information is ‘‘Part 151—Position Limit 

Framework for Referenced Contracts’’ 

(OMB control number 3038–NEW). 

If adopted, responses to this 

collection of information would be 

mandatory. The Commission will 

protect proprietary information 

according to the Freedom of Information 

Act and 17 CFR part 145, headed 

‘‘Commission Records and Information.’’ 

In addition, the Commission 

emphasizes that section 8(a)(1) of the 

Act strictly prohibits the Commission, 

unless specifically authorized by the 

Act, from making public ‘‘data and 

information that would separately 

disclose the business transactions or 

market positions of any person and 

trade secrets or names of customers.’’ 50

The Commission also is required to 

protect certain information contained in 

a government system of records 

pursuant to the Privacy Act of 1974.51

Under the proposed regulations, 

market participants with positions in 

referenced contracts, as defined in 

proposed § 151.2, would be subject to 

the position limit framework established 

by proposed part 151. Proposed part 151 

prescribes reporting requirements for 

traders claiming compliance with the 

conditional spot-month position limit 

(proposed § 151.4(a)(2)), reporting 

requirements for DCMs that list a 

referenced contract (proposed 

§ 151.4(c)), traders claiming a bona fide 

hedging exemption (proposed § 151.5(b) 

and (c)), traders claiming a bona fide 

hedge that does not involve the same 

quantity or commodity as the quantity 

or commodity associated with positions 

in referenced contracts that are used to 

hedge risk (proposed § 151.5(f)), traders 

claiming a bona fide swap counterparty 

exemption (proposed § 151.5(d)), traders 

with positions above a visibility level 

(proposed § 151.6(a)), and entities 

seeking an exemption to mandatory 

account aggregation regulations 

(proposed § 151.7(g)). In addition to 

these reporting requirements, proposed 

§ 151.5(e) and (g) specify recordkeeping 

requirements for traders who receive 

bona fide hedge exemptions, as well as 

for swap counterparties for which the 

transaction would qualify as a bona fide 

hedging transaction. 

2. Information Provided and 

Recordkeeping Duties 

Proposed § 151.4(a)(2) provides for a 

special conditional spot-month limit for 

traders under certain conditions, 

including the submission of a 

certification that the trader meets the 

required conditions. These certifications 

would be filed within a day after the 

trader exceeds a conditional spot-month 

limit. 

The Commission anticipates that 

approximately one-hundred traders a 

year will submit conditional spot-month 

limit certifications. The Commission 

estimates that these one-hundred 

entities would incur a total burden of 

2,400 annual labor hours resulting in a 

total of $189,000 in annual labor costs 52

and $1 million in annualized capital 

and start-up costs 53 and annual total 

operating and maintenance costs. 

Proposed § 151.4(c) requires that 

DCMs submit an estimate of deliverable 

supply by the 31st of December of each 

calendar year for each referenced 

contract that is subject to a spot-month 

position limit and listed or executed 

pursuant to the rules of the DCM. The 

Commission estimates that this 

proposed reporting regulation will affect 

approximately six entities annually 

resulting in a total marginal burden, 

across all of these entities, of 6,000 

annual labor hours and $55,000 in 

annualized capital and start-up costs 

and annual total operating and 

maintenance costs. 

Proposed § 151.5 sets forth the 

application procedure for bona fide 

hedgers and counterparties to bona fide 

hedging swap transactions that seek an 

exemption from the proposed 

Commission-set federal position limits 

for referenced contracts. If a bona fide 

hedger seeks to claim an exemption 

from position limits because of cash 

market activities, then the hedger would 

submit a 404 filing pursuant to 

proposed § 151.5(b). The 404 filing 

would be submitted when the bona fide 

hedger claims an exemption or when its 

hedging needs increase. Parties to bona 

fide hedging swap transactions would 

be required to submit a 404S filing to 

qualify for a hedging exemption, which 

would also be submitted when the bona 

fide hedger claims an exemption or 

when its hedging needs increase. If a 

bona fide hedger seeks an exemption for 

anticipated commercial production or 

anticipatory commercial requirements, 

then the hedger would submit a 404A 

filing pursuant to proposed § 151.5(c). 

The 404A filing would be submitted at 

least ten days in advance of the date that 

transactions and positions would be 

established that would exceed a 

position limit. Further, on an annual 

basis or whenever a trader’s anticipated 

hedge requirements exceed the amount 

of the most recent 404A filing, 


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54For the visibility level-related 404 and 404A 

filing requirements, the estimated burden is based 

on reporting duties not already accounted for in the 

burden estimate for those submitting 404 or 404A 

filings pursuant to proposed regulation 151.5. For 

many of these firms, the experience and 

infrastructure developed submitting or preparing to 

submit a 404 or 404A filing under proposed 

regulation 151.5 would reduce the marginal burden 

imposed by having to submit filings under 

proposed regulation 151.6. 

whichever is earlier, the trader would be 

required to file a supplemental report 

updating the information provided in 

the most recent 404A filing. Traders 

hedging commercial activity (or hedging 

swaps that in turn hedge commercial 

activity) that does not involve the same 

quantity or commodity as the quantity 

or commodity associated with positions 

in referenced contracts that are used to 

hedge shall submit the conversion 

methodology and information along 

with the appropriate 404, 404A, or 404S 

filing. The Commission anticipates that 

the compliance cost associated with all 

of these filings will be substantial, 

particularly in the case of the 404S 

filings, which may require the collection 

and storage of information on 

counterparties that firms have hitherto 

not conducted. 

The Commission estimates that these 

bona fide hedging-related reporting 

requirements would affect 

approximately two hundred entities 

annually and result in a total burden of 

approximately $37.6 million across all 

of these entities, of 168,000 annual labor 

hours resulting in a total of $13.2 

million in annual labor costs and $25.4 

million in annualized capital and startup costs and annual total operating and 

maintenance costs. 404 filings proposed 

reporting regulations would affect 

approximately ninety entities annually 

resulting in a total burden, across all of 

these entities, of 108,000 total annual 

labor hours and $11.7 million in 

annualized capital and start-up costs 

and annual total operating and 

maintenance costs. 404A filings 

proposed reporting regulations would 

affect approximately sixty entities 

annually resulting in a total burden, 

across all of these entities, of 6,000 total 

annual labor hours and $4.2 million in 

annualized capital and start-up costs 

and annual total operating and 

maintenance costs. 404S filings 

proposed reporting regulations would 

affect approximately forty-five entities 

annually resulting in a total burden, 

across all of these entities, of 54,000 

total annual labor hours and $9.5 

million in annualized capital and startup costs and annual total operating and 

maintenance costs. 

Proposed § 151.5(e) specifies 

recordkeeping requirements for traders 

who claim bona fide hedge exemptions. 

These recordkeeping requirements 

include ‘‘complete books and records 

concerning all of their related cash, 

futures, and swap positions and 

transactions and make such books and 

records, along with a list of swap 

counterparties.’’ Proposed § 151.5(g) and 

(h) provide procedural documentation 

requirements for those availing 

themselves of a bona fide hedging 

transaction exemption. These firms 

would be required to document a 

representation and confirmation by at 

least one party that the swap 

counterparty is relying on a bona fide 

hedge exemption, along with a 

confirmation of receipt by the other 

party to the swap. Paragraph (h) of 

Section 151.5 also requires that the 

written representation and confirmation 

be retained by the parties and available 

to the Commission upon request. The 

marginal impact of this requirement is 

limited because of its overlap with 

existing recordkeeping requirements 

under § 15.03. The Commission 

estimates that bona fide hedging-related 

proposed recordkeeping regulations 

would affect approximately onehundred and sixty entities resulting in 

a total burden, across all of these 

entities, of 40,000 total annual labor 

hours and $10.4 million in annualized 

capital and start-up costs and annual 

total operating and maintenance costs. 

Proposed § 151.6 would require those 

traders with positions exceeding 

visibility levels in referenced base and 

precious metals and energy 

commodities to submit additional 

information about cash market and 

derivatives activity in substantially the 

same commodity. Proposed § 151.6(b) 

would require the submission of a 401 

filing which would provide basic 

position information on the position 

exceeding the visibility level. Proposed 

§ 151.6(c) would require additional 

information, through a 402S filing, on a 

trader’s uncleared swaps in 

substantially the same commodity. 

Proposed § 151.6(d) would require the 

reportable trader to submit information 

about cash market positions or 

anticipated commercial requirements or 

production in substantially the same 

commodity, as described in proposed 

§ 151.5(b) and (c), through a 404 or 

404A filing, respectively. All of the 

proposed 151.6 reports would be 

submitted on a monthly basis for as long 

as a trader exceeds a visibility level. 

The Commission estimates that 

visibility level-related proposed 

reporting regulations will affect 

approximately one-hundred and forty 

entities annually resulting in a total 

burden, across all of these entities, of 

30,400 annual labor hours resulting in a 

total of $2.4 million in annual labor 

costs and $27.3 million in annualized 

capital and start-up costs and annual 

total operating and maintenance costs. 

Proposed 401 filing reporting 

regulations would affect approximately 

one-hundred and forty entities annually 

resulting in a total burden, across all of 

these entities, of 168,000 total annual 

labor hours and $15.4 million in 

annualized capital and start-up costs 

and annual total operating and 

maintenance costs. Proposed 402S filing 

reporting regulations would affect 

approximately seventy entities annually 

resulting in a total burden, across all of 

these entities, of 5,600 total annual labor 

hours and $4.9 million in annualized 

capital and start-up costs and annual 

total operating and maintenance costs. 

Proposed visibility level-related 404 

filing reporting regulations 54 would 

affect approximately sixty entities 

annually resulting in a total burden, 

across all of these entities, of 4,800 total 

annual labor hours and $4.2 million in 

annualized capital and start-up costs 

and annual total operating and 

maintenance costs. Proposed visibility 

level-related 404A filing reporting 

regulations would affect approximately 

forty entities annually resulting in a 

total burden, across all of these entities, 

of 3,200 total annual labor hours and 

$2.8 million in annualized capital and 

start-up costs and annual total operating 

and maintenance costs. 

Proposed § 151.7 concerns the 

aggregation of trader accounts. Proposed 

§ 151.7(g) would provide for a 

disaggregation exemption for: (1) A 

limited partner, shareholder or similar 

person with an ownership or equity 

interest of between 10 percent and 25 

percent in a pool, if the trader does not 

have control over or knowledge of a 

pool’s trading; (2) futures commission 

merchants that meet certain 

independent trading requirements; and 

(3) an independently controlled and 

managed trader, that is not a financial 

entity, in which another entity has an 

ownership or equity interest of 10 

percent or greater. In all three cases, the 

exemption would become effective 

upon the Commission’s approval of an 

application described in proposed 

§ 151.7(g). These applications for 

exemptions would be submitted at the 

time a trader claims an exemption and 

within thirty calendar days of January 1 

of each year following the initial 

application for exemption. The 

Commission estimates that these 

proposed reporting regulations will 

affect approximately sixty entities 

resulting in a total burden, across all of 

these entities, of 300,000 annual labor 


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Federal Register / Vol. 76, No. 17 / Wednesday, January 26, 2011 / Proposed Rules 4767 

hours and $9.9 million in annualized 

capital and start-up costs and annual 

total operating and maintenance costs. 

3. Comments on Information Collection 

The Commission invites the public 

and other federal agencies to comment 

on any aspect of the reporting and 

recordkeeping burdens discussed above. 

Pursuant to 44 U.S.C. 3506(c)(2)(B), the 

Commission solicits comments in order 

to: (1) Evaluate whether the proposed 

collections of information are necessary 

for the proper performance of the 

functions of the Commission, including 

whether the information will have 

practical utility; (2) evaluate the 

accuracy of the Commission’s estimate 

of the burden of the proposed 

collections of information; (3) determine 

whether there are ways to enhance the 

quality, utility, and clarity of the 

information to be collected; and (4) 

minimize the burden of the collections 

of information on those who are to 

respond, including through the use of 

automated collection techniques or 

other forms of information technology. 

Comments may be submitted directly 

to the Office of Information and 

Regulatory Affairs, by fax at (202) 395– 

6566 or by e-mail at 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 

17 CFR Part 1 

Brokers, Commodity futures, 

Consumer protection, Reporting and 

recordkeeping requirements. 

17 CFR Part 150 

Commodity futures, Cotton, Grains. 

17 CFR Part 151 

Position limits, Bona fide hedging, 

Referenced contracts. 

In consideration of the foregoing, 

pursuant to the authority contained in 

the Commodity Exchange Act, the 

Commission hereby proposes to amend 

chapter I of title 17 of the Code of 

Federal Regulations as follows: 

PART 1—GENERAL REGULATIONS 

UNDER THE COMMODITY EXCHANGE 

ACT 

1. The authority citation for part 1 is 

revised to read as follows: 

Authority: 7 U.S.C. 1a, 2, 5, 6, 6a, 6b, 6c, 

6d, 6e, 6f, 6g, 6h, 6i, 6j, 6k, 6l, 6m, 6n, 6o, 

6p, 7, 7a, 7b, 8, 9, 12, 12a, 12c, 13a, 13a–1, 

16, 16a, 19, 21, 23, and 24, as amended by 

Title VII of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act, Pub. L. 

111–203, 124 Stat. 1376 (2010). 

2. Amend § 1.3(z) as follows: 

a. Amend the heading in paragraph (z) 

by adding ‘‘for excluded commodities’’ 

after the phrase ‘‘positions.’’ 

b. Amend paragraph (z)(1) 

introductory text by removing the 

phrase ‘‘transactions or positions in a 

contract for future delivery on any 

contract market, or in a commodity 

option’’ after the phrase ‘‘Bona fide 

hedging transactions or positions shall 

mean,’’ and by adding, in its place, the 

phrase ‘‘any agreement, contract or 

transaction in an excluded commodity 

on a registered entity, as that term is 

defined in Section 1a(40) of the Act.’’ 

c. Amend paragraph (z)(1) concluding 

text by removing ‘‘and §§ 1.47 and 1.48 

of the regulations.’’ 

d. Amend paragraph (z)(2)(i) by 

removing the phrase ‘‘commodity for 

future delivery on a contract market’’ 

after ‘‘Sales of any’’ and by adding, in its 

place, the phrase ‘‘agreement, contract or 

transaction in a excluded commodity on 

a registered entity.’’ 

e. Amend paragraph (z)(2)(i)(B) by 

removing the phrase ‘‘future during the 

five last trading days of that future’’ and 

by adding, in its place, the phrase 

‘‘agreement, contract or transaction 

during the five last trading days.’’ 

f. Amend paragraph (z)(2)(ii) by 

removing the phrase ‘‘commodity for 

future delivery on a contract market’’ 

after ‘‘Purchases of any’’ and by adding, 

in its place, the phrase ‘‘agreement, 

contract or transaction in a excluded 

commodity on a registered entity.’’ 

g. Amend paragraph (z)(2)(ii)(C) by 

removing the phrase ‘‘one future’’ and by 

adding, in its place, the phrase 

‘‘agreement, contract or transaction.’’ 

h. Amend paragraph (z)(2)(iii) by 

removing the phrase ‘‘for future delivery 

on a contract market’’ after ‘‘Offsetting 

sales and purchases’’ and by adding, in 

its place, the phrase ‘‘in any agreement, 

contract or transaction in a excluded 

commodity on a registered entity.’’ 

i. Amend paragraph (z)(2)(iii) by 

removing the phrase ‘‘future during the 

five last trading days of that future’’ and 

by adding, in its place, the phrase 

‘‘agreement, contract or transaction 

during the five last trading days.’’ 

j. Redesignate paragraph (z)(2)(iv) as 

paragraph (z)(2)(v). 

k. Amend newly redesignated 

paragraph (z)(2)(v) by removing the 

phrase ‘‘for future delivery described in 

paragraphs (z)(2)(i), (z)(2)(ii) and 

(z)(2)(iii)’’ and by adding, in its place, 

the phrase ‘‘described in paragraphs 

(z)(2)(i), (z)(2)(ii), (z)(2)(iii) and 

(z)(2)(iv).’’ 

l. Amend newly redesignated 

paragraph (z)(2)(v) by removing the 

phrase ‘‘for future delivery’’ after the 

phrase ‘‘fluctuations in value of the 

position’’ and by adding, in its place, the 

phrase ‘‘in any agreement, contract or 

transaction.’’ 

m. Amend newly redesignated 

paragraph (z)(2)(v) by removing the 

phrase ‘‘positions in any one future shall 

not be maintained during the five last 

trading days of that future’’ and by 

adding, in its place, the phrase 

‘‘positions in any agreement, contract or 

transaction shall not be maintained 

during the five last trading days.’’ 

n. Add new paragraph (z)(2)(iv) and 

revise paragraph (z)(3) to read as 

follows: 

§ 1.3 Definitions. 

* * * * * 

(z) * * * 

(2) * * * 

(iv) Purchases or sales by an agent 

who does not own or has not contracted 

to sell or purchase the offsetting cash 

commodity at a fixed price, provided 

that the person is responsible for the 

merchandising of the cash positions 

which is being offset and the agent has 

a contractual arrangement with the 

person who owns the commodity or 

holds the cash market commitment 

being offset. 

* * * * * 

(z)(3) Non-Enumerated cases. A 

registered entity may recognize, 

consistent with the purposes of this 

section, transactions and positions other 

than those enumerated in paragraph (2) 

of this section as bona fide hedging. 

Prior to recognizing such nonenumerated transactions and positions, 

the registered entity shall submit such 

rules for Commission review under 

section 5c of the Act and § 40 of this 

chapter. 

* * * * * 

§ 1.47 [Removed and Reserved] 

3. Remove and reserve § 1.47. 

§ 1.48 [Removed and Reserved] 

4. Remove and reserve § 1.48. 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2
4768 Federal Register / Vol. 76, No. 17 / Wednesday, January 26, 2011 / Proposed Rules 

PART 150—[REMOVED AND 

RESERVED] 

5. Remove and reserve part 150. 

6. Add part 151 to read as follows: 

PART 151—LIMITS ON POSITIONS 

Sec. 

151.1 Definitions. 

151.2 Core referenced futures contracts. 

151.3 Referenced contract spot months. 

151.4 Position limits for referenced 

contracts. 

151.5 Exemptions for referenced contracts. 

151.6 Position visibility. 

151.7 Aggregation of positions. 

151.8 Foreign boards of trade. 

151.9 Preexisting positions. 

151.10 Form and manner of reporting and 

submitting information or filings. 

151.11 Registered entity position limits. 

151.12 Delegation of authority to the 

Director of the Division of Market 

Oversight. 

Appendix A to Part 151 

Authority: 7 U.S.C. 1a, 2, 5, 6, 6a, 6c, 6f, 

6g, 6t, 12a, 19, as amended by Title VII of the 

Dodd-Frank Wall Street Reform and 

Consumer Protection Act, Pub. L. 111–203, 

124 Stat. 1376 (2010). 

§ 151.1 Definitions. 

As used in this part— 

Basis contract means an agreement, 

contract or transaction that is cash 

settled based on the difference in price 

of the same commodity (or substantially 

the same commodity) at different 

delivery points; 

Calendar spread contract means a 

cash settled agreement, contract or 

transaction that represents the 

difference between the settlement price 

in one or a series of contract months of 

an agreement, contract or transaction 

and another contract month’s or another 

series of contract months’ settlement 

price for the same agreement, contract 

or transaction. 

Contracts of the same class mean 

referenced contracts based on the same 

commodity that are: 

(1) Futures or option contracts 

executed pursuant to the rules of a 

designated contract market; or 

(2) Cleared or uncleared swaps. 

Commodity index contract means an 

agreement, contract or transaction that 

is not a basis or spread contract, based 

on an index comprised of prices of 

commodities that are not the same nor 

substantially the same, provided that, a 

commodity index contract that 

incorporates the price of a commodity 

underlying a referenced contract’s 

commodity which is used to circumvent 

speculative position limits shall be 

considered to be a referenced contract 

for the purpose of applying the position 

limits of § 151.4. 

Core referenced futures contract 

means a futures contract that is listed in 

§ 151.2. 

Entity means a ‘‘person’’ as defined in 

section 1a of the Act. 

Excluded commodity means an 

‘‘excluded commodity’’ as defined in 

section 1a of the Act. 

Financial entity means any entity 

that, regardless of any asset or capital 

threshold or any other condition in 

section 1a(18) of the Act, is an entity 

identified in section 1a(18)(A)(i) 

through (iv), (vi), (viii) through (x) and 

(B)(ii) of the Act. 

Futures contract class means 

referenced contracts that are based on 

the same commodity and are futures 

and option contracts executed pursuant 

to the rules of a designated contract 

market. 

Intercommodity spread contract 

means a cash-settled agreement, 

contract or transaction that represents 

the difference between the settlement 

price of a referenced contract and the 

settlement price of another contract, 

agreement, or transaction that is based 

on a different commodity. 

Owned non-financial entity means 

any entity that is not a financial entity 

and in which another entity directly or 

indirectly has a 10 percent or greater 

ownership or equity interest. 

Referenced contract means, on a 

futures equivalent basis with respect to 

a particular core referenced futures 

contract, a futures listed in § 151.2, or a 

referenced paired futures contract, 

option contract, swap or swaption, other 

than a basis contract or contract on a 

commodity index. 

Referenced paired futures contract, 

option contract, swap or swaption 

means, respectively, an open futures 

contract, option contract, swap or 

swaption that is: 

(1) Directly or indirectly linked, 

including being partially or fully settled 

on, or priced at a differential to, the 

price of any core referenced futures 

contract; or 

(2) Directly or indirectly linked, 

including being partially or fully settled 

on, or priced at a differential to, the 

price of the same commodity for 

delivery at the same location, or at 

locations with substantially the same 

supply and demand fundamentals, as 

that of any core referenced futures 

contract. 

Spot month means, for referenced 

contracts based on a commodity 

identified in § 151.3, the spot month 

corresponding to the spot month of the 

core futures contract that overlies the 

same commodity. 

Spot-month, single-month, and allmonths-combined position limits mean, 

for referenced contracts based on a 

commodity identified in § 151.3, the 

position limit corresponding to the 

position limit of the core futures 

contract that overlies the same 

commodity. 

Spread contract means either a 

calendar spread contract or an 

intercommodity spread contract. 

Swap means ‘‘swap’’ as defined in 

section 1a of the Act and as further 

defined by the Commission. 

Swap contract class means referenced 

contracts that are based on the same 

commodity and are swaps. 

Swaption means an option to enter 

into a swap or a physical commodity 

option. 

Swap dealer means ‘‘swap dealer’’ as 

that term is defined in section 1a of the 

Act and as further defined by the 

Commission. 

Trader means a person that, for its 

own account or for an account that it 

controls, makes transactions in 

referenced contracts or has such 

transactions made. 

§ 151.2 Core referenced futures contracts. 

(a) Agricultural commodities. The 

core referenced futures contracts 

include: 

(1) ICE Futures U.S. Cocoa (CC) 

contract based on a trading unit of 10 

metric tons delivered at licensed 

warehouses in the Port of New York 

District, Delaware River Port District, 

Port of Hampton Roads, Port of Albany, 

or Port of Baltimore; 

(2) ICE Futures U.S. Coffee C (KC) 

contract based on a trading unit of 

37,500 pounds delivered at the Port of 

New York District, the Port of New 

Orleans, the Port of Houston, the Port of 

Bremen/Hamburg, the Port of Antwerp, 

the Port of Miami, or the Port of 

Barcelona; 

(3) Chicago Board of Trade Corn (C) 

contract based on a trading unit of 5,000 

bushels delivered at Chicago and Burns 

Harbor, Indiana Switching District, 

Lockport-Seneca Shipping District, 

Ottawa-Chillicothe Shipping District, or 

Peoria-Pekin Shipping District; 

(4) ICE Futures U.S. Cotton No. 2 (CT) 

contract based on a trading unit of 

50,000 pounds net weight delivered at 

Galveston, Texas; Houston, Texas; New 

Orleans, Louisiana; Memphis, 

Tennessee, or Greenville/Spartanburg, 

South Carolina; 

(5) Chicago Mercantile Exchange 

Feeder Cattle (FC) contract based on a 

trading unit of 50,000 pounds priced 

based on the CME Feeder Cattle Index 

or any other contract based on a sample 

of feeder cattle sales transactions in 

Colorado, Iowa, Kansas, Missouri, 

Montana, Nebraska, New Mexico, North 


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Dakota, Oklahoma, South Dakota, Texas, 

and Wyoming; 

(6) ICE Futures U.S. FCOJ–A (OJ) 

contract based on a trading unit of 

15,000 pounds delivered at licensed 

warehouses in Florida, New Jersey, and 

Delaware; 

(7) Chicago Mercantile Exchange Lean 

Hog (LH) contract based on a trading 

unit of 40,000 pounds priced based on 

the CME Lean Hog Index; 

(8) Chicago Mercantile Exchange Live 

Cattle (LC) contract based on a trading 

unit of 40,000 pounds delivered at 

livestock yards in Wray, Colorado, 

Worthing, South Dakota; Syracuse, 

Kansas; Tulia, Texas; Columbus, 

Nebraska; Dodge City, Kansas; Amarillo, 

Texas; Norfolk, Nebraska; North Platte, 

Nebraska; Ogallala, Nebraska; Pratt, 

Kansas; Texhoma, Oklahoma; or Clovis, 

New Mexico; 

(9) Chicago Mercantile Exchange 

Class III Milk (DA) contract based on a 

trading unit of 200,000 pounds priced 

based on the USDA Class III price for 

milk; 

(10) Chicago Board of Trade Oats (O) 

contract based on a trading unit of 5,000 

bushels delivered at Chicago Switching 

District, the Burns Harbor, Indiana 

Switching District, Minneapolis, St. 

Paul, Minnesota Switching Districts, 

Duluth Minnesota, or Superior, 

Wisconsin; 

(11) Chicago Board of Trade Rough 

Rice (RR) contract based on a trading 

unit of 200,000 pounds delivered at 

warehouses in the Arkansas counties of 

Craighead, Jackson, Poinsett, Woodruff, 

Cross, St. Francis, Lonoke, Prairie, 

Monroe, Jefferson, Arkansas, or DeSha; 

(12) Chicago Board of Trade Soybeans 

(S) contract based on a trading unit of 

5,000 bushels delivered at Chicago and 

Burns Harbor, Indiana Switching 

District, Lockport-Seneca Shipping 

District, Ottawa-Chillicothe Shipping 

District, Peoria-Pekin Shipping District, 

Havana-Grafton Shipping District, or St. 

Louis-East St. Louis and Alton 

Switching Districts; 

(13) Chicago Board of Trade Soybean 

Meal (SM) contract based on a trading 

unit of 100 short tons shipped from 

plants located in the Central Territory, 

Northeast Territory, Mid South 

Territory, Missouri Territory, Eastern 

Iowa Territory, or Northern Territory; 

(14) Chicago Board of Trade Soybean 

Oil (BO) contract based on a trading unit 

of 60,000 pounds delivered at 

warehouses located in the Illinois 

Territory, Eastern Territory, Eastern 

Iowa Territory, Southwest Territory, 

Western Territory or Northern Territory; 

(15) ICE Futures U.S. Sugar No. 11 

(SB) contract based on a trading unit of 

112,000 pounds delivered at a port in 

the country of origin or in the case of 

landlocked countries, at a berth or 

anchorage in the customary port of 

export for the countries of Argentina, 

Australia, Barbados, Belize, Brazil, 

Colombia, Costa Rica, Dominican 

Republic, El Salvador, Ecuador, Fiji 

Islands, French Antilles, Guatemala, 

Honduras, India, Jamaica, Malawi, 

Mauritius, Mexico, Mozambique, 

Nicaragua, Peru, Republic of the 

Philippines, South Africa, Swaziland, 

Taiwan, Thailand, Trinidad, United 

States, and Zimbabwe; 

(16) ICE Futures U.S. Sugar No. 16 

(SF) contract based on a trading unit of 

112,000 pounds delivered at New York, 

Baltimore, Galveston, New Orleans, or 

Savannah; 

(17) Chicago Board of Trade Wheat 

(W) contract based on a trading unit of 

5,000 bushels delivered at Chicago 

Switching District, the Burns Harbor, 

Indiana Switching District, the 

Northwest Ohio Territory, on Ohio 

River, on Mississippi River or the 

Toledo, Ohio Switching District, or the 

St. Louis-East St. Louis and Alton 

Switching Districts; 

(18) Minneapolis Grain Exchange 

Hard Red Spring Wheat (MWE) contract 

based on a trading unit of 5,000 bushels 

delivered at elevators located in 

Minneapolis/St. Paul, Red Wing, 

Duluth/Superior, Minnesota; 

(19) Kansas City Board of Trade Hard 

Winter Wheat (KW) contract based on a 

trading unit of 5,000 bushels delivered 

at elevators in Kansas City, Missouri/ 

Kansas; Hutchinson, Kansas; Salina/ 

Abilene, Kansas; or Wichita, Kansas. 

(b) Metals. The core referenced 

futures contracts include: 

(1) Commodity Exchange, Inc. Gold 

(GC) contract based on a trading unit of 

100 troy ounces delivered at Exchangelicensed warehouses; 

(2) Commodity Exchange, Inc. Silver 

(SI) contract based on a trading unit of 

5,000 troy ounces delivered at 

Exchange-licensed warehouses; 

(3) Commodity Exchange, Inc. Copper 

(HG) contract based on a trading unit of 

25,000 pounds delivered at licensed 

warehouses; 

(4) New York Mercantile Exchange 

Palladium (PA) contract based on a 

trading unit of 100 troy ounces 

delivered at licensed warehouses; and 

(5) New York Mercantile Exchange 

Platinum (PL) contract based on a 

trading unit of 50 troy ounces pounds 

delivered at licensed warehouses. 

(c) Energy commodities. The core 

referenced futures contracts include: 

(1) New York Mercantile Exchange 

Light Sweet Crude Oil (CL) contract 

based on a trading unit of 1,000 U.S. 

barrels (42,000 gallons) delivered at the 

Cushing crude oil storage complex in 

Cushing, Oklahoma; 

(2) New York Mercantile Exchange 

New York Harbor No. 2 Heating Oil 

(HO) contract based on a trading unit of 

1,000 U.S. barrels (42,000 gallons) 

delivered at an ex-shore facility in New 

York Harbor; 

(3) New York Mercantile Exchange 

New York Harbor Gasoline Blendstock 

(RB) contract based on a trading unit of 

1,000 U.S. barrels (42,000 gallons) 

delivered at an ex-shore facility in New 

York Harbor; and 

(4) New York Mercantile Exchange 

Henry Hub Natural Gas (NG) contract 

based on a trading unit of 10,000 

million British thermal units (mmBtu) 

delivered at the Henry Hub pipeline 

interchange in Erath, Louisiana. 

§ 151.3 Referenced contract spot months. 

(a) Agricultural commodities. For 

referenced contracts based on 

agricultural commodities, the spot 

month shall be the period of time 

commencing: 

(1) At the close of business on the 

business day prior to the first notice day 

for any delivery month and terminating 

at the end of the delivery month for the 

following contracts: 

(i) ICE Futures U.S. Cocoa (CC) 

contract; 

(ii) ICE Futures U.S. Coffee C (KC) 

contract; 

(iii) ICE Futures U.S. Cotton No. 2 

(CT) contract; 

(iv) ICE Futures U.S. FCOJ–A (OJ) 

contract; 

(2) At the close of business three 

business days prior to the first trading 

day in the delivery month and 

terminating at the end of the delivery 

month for the following contracts: 

(i) Chicago Board of Trade Corn (C) 

contract; 

(ii) Chicago Board of Trade Oats (O) 

contract; 

(iii) Chicago Board of Trade Rough 

Rice (RR) contract; 

(iv) Chicago Board of Trade Soybeans 

(S) contract; 

(v) Chicago Board of Trade Soybean 

Meal (SM) contract; 

(vi) Chicago Board of Trade Soybean 

Oil (BO) contract; 

(vii) Chicago Board of Trade Wheat 

(W) contract; 

(viii) Minneapolis Grain Exchange 

Hard Red Spring Wheat (MW) contract; 

(ix) Kansas City Board of Trade Hard 

Winter Wheat (KW) contract; 

(3) At the close of business two 

business days after the fifteenth 

calendar day of the contract month or 

the first business day after the fifteenth 

should the fifteenth day be a nonbusiness day and terminating at the end 


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of the delivery month for the following 

contracts: 

(i) ICE Futures U.S. Sugar No. 11 (SB) 

contract; 

(ii) ICE Futures U.S. Sugar No. 16 (SF) 

contract; 

(4) At the close of business on the 

business day immediately preceding the 

last five business days of the contract 

month and terminating at the end of the 

delivery month for the Chicago 

Mercantile Exchange Live Cattle (LC) 

contract; 

(5) At the close of business on the 

eleventh day prior to the last trading 

day and terminating on the last day of 

trading for the contract month for the 

following contracts: 

(i) Chicago Mercantile Exchange 

Feeder Cattle (FC) contract; 

(ii) Chicago Mercantile Exchange 

Class III Milk (DA) contract; 

(6) At the period commencing at the 

close of business on the fifth day prior 

to the last trading day and terminating 

at the end of the delivery month for the 

Chicago Mercantile Exchange Lean Hog 

(LH) contract. 

(b) Metals. The spot month shall be 

the period of time commencing at the 

close of business on the business day 

prior to the first notice day for any 

delivery month and terminating at the 

end of the delivery month for the 

following contracts: 

(1) Commodity Exchange, Inc. Gold 

(GC) contract; and 

(2) Commodity Exchange, Inc. Silver 

(SI) contract. 

(3) Commodity Exchange, Inc. Copper 

(HG) contract; 

(4) New York Mercantile Exchange 

Palladium (PA) contract; and 

(5) New York Mercantile Exchange 

Platinum (PL) contract. 

(c) Energy commodities. The spot 

month shall be the period of time 

commencing at the close of business 

three business days prior to the last day 

of trading in the underlying referenced 

futures contract and terminating at the 

end of the delivery period for the 

following contracts: 

(1) New York Mercantile Exchange 

Light Sweet Crude Oil (CL) contract; 

(2) New York Mercantile Exchange 

New York Harbor No. 2 Heating Oil 

(HO) contract; 

(3) New York Mercantile Exchange 

New York Harbor Gasoline Blendstock 

(RB) contract; and 

(4) New York Mercantile Exchange 

Henry Hub Natural Gas (NG) contract. 

§ 151.4 Position limits for referenced 

contracts. 

(a) Spot-month position limits. Except 

as provided in paragraph (h) of this 

section for initial spot-month position 

limits, or as otherwise authorized by 

§ 151.5, no trader may hold or control 

positions, separately or in combination, 

net long or net short, in referenced 

contracts in the same commodity when 

such positions are in excess of: 

(1) For physical delivery referenced 

contracts, a spot-month position limit 

that shall be one-quarter of the 

estimated spot-month deliverable 

supply for a core referenced futures 

contract in the same commodity as fixed 

by the Commission pursuant to 

paragraph (c) of this section; or 

(2) For cash-settled referenced 

contracts, a spot-month position limit, 

equal to the level fixed by paragraph 

(a)(1) of this section, or a conditionalspot-month position limit, that is five 

times the spot-month position limit 

fixed by paragraph (a)(1) of this section, 

provided that the trader: 

(i) For cash-settled contracts in the 

spot month, shall not hold or control 

positions exceeding the level of any 

single month position limit; 

(ii) Does not hold or control positions 

in the physical delivery referenced 

contract based on the same commodity 

that is in such contract’s spot month; 

(iii) Does not hold or control cash or 

forward positions in the referenced 

contract’s spot month in an amount that 

is greater than one-quarter of the 

deliverable supply in the referenced 

contract’s underlying commodity 

deliverable at the location or locations 

specified in the core referenced futures 

contract in the same commodity; and 

(iv) Has submitted a certification to 

the Commission, in the form and 

manner provided for in § 151.10, that 

the trader meets the conditions of 

paragraphs (a)(2)(ii) and (iii) of this 

section. 

(b) Limited application of spot-month 

position limits. Spot-month position 

limits shall only apply to positions in 

physical delivery or cash settled 

referenced contracts with delivery 

locations that match the delivery 

locations of a core referenced futures 

contracts in the same commodity. 

(c) Deliverable supply. 

(1) For the purpose of applying the 

spot-month position limit or conditional 

spot-month-position limit in paragraph 

(a) of this section, the Commission shall 

set the levels of deliverable supply in 

accordance with the procedure in 

paragraph (h) of this section. 

(2) Each designated contract market 

shall submit to the Commission an 

estimate of deliverable supply by the 

31st of December of each calendar year 

for each physical delivery referenced 

contract that is subject to a spot-month 

position limit and listed or executed 

pursuant to the rules of the designated 

contract market. 

(3) The estimate submitted under 

paragraph (c)(2) of this section shall be 

accompanied by a description of the 

methodology used to derive the estimate 

along with any statistical data 

supporting the designated contract 

market’s estimate of deliverable supply. 

(4) In fixing spot-month position 

limits under paragraph (a)(1) of this 

section, the Commission shall rely on 

the estimate provided under paragraph 

(c)(2) of this section unless the 

Commission determines to rely on its 

own estimate of deliverable supply. 

(d) Non-spot position limits. Except as 

otherwise authorized in § 151.5, no 

person may hold or control positions, 

separately or in combination, net long or 

net short, in referenced contracts in the 

same commodity when such positions, 

in all months combined (including the 

spot month) or in a single month, are in 

excess of: 

(1) An all-months-combined aggregate 

and single-month position limits, fixed 

by the Commission at 10 percent of the 

first 25,000 contracts of average allmonths-combined aggregated open 

interest, as calculated by the 

Commission pursuant to paragraph (e) 

of this section, with a marginal increase 

of 2.5 percent thereafter; 

(2) A class all-months-combined and 

single-month position limit, fixed by the 

Commission, for referenced contracts 

that are contracts of the same class, at 

a level equal to the all-monthscombined aggregate position limit. 

(3) Legacy position limits. Except as 

otherwise authorized by § 151.5, no 

trader may hold or control positions, 

separately or in combination, net long or 

net short, in referenced contracts in the 

same commodity for the commodities 

enumerated below, when such 

positions, in all-months-combined or in 

a single-month, are in excess of the 

following position limits: 

Referenced contract Position limits 

Chicago Board of Trade 

Corn (C) contract .............. 22,000 

Chicago Board of Trade 

Oats (O) contract .............. 2,000 

Chicago Board of Trade Soybeans (S) contract ............ 10,000 

Chicago Board of Trade 

Wheat (W) contract ........... 6,500 

Chicago Board of Trade Soybean Oil (BO) contract ...... 6,500 

Chicago Board of Trade Soybean Meal (SM) contract .. 6,500 

Minneapolis Grain Exchange 

Hard Red Spring Wheat 

(MW) contract ................... 6,500 

ICE Futures U.S. Cotton No. 

2 (CT) contract .................. 5,000 


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Referenced contract Position limits 

Kansas City Board of Trade 

Hard Winter Wheat (KW) 

contract ............................. 6,500 

(e) Aggregated open interest 

calculations. For the purpose of 

determining the speculative position 

limits in paragraph (d) of this section 

and in accordance with the procedure in 

paragraph (h) the Commission shall 

determine: 

(1) For determining aggregate and 

class all-month-combined and singlemonth position limits under paragraph 

(d) of this section, the average allmonths-combined aggregate open 

interest, is the sum for a calendar year 

of values obtained under paragraphs 

(e)(2) and (e)(3) of this section, then 

divided by 12, for the twelve months 

prior to the effective date. 

(2) The all-months futures open 

interest is, at month end, the sum of all 

of a referenced contract’s all-monthscombined open futures and option 

contract (on a delta adjusted basis) open 

interests across all designated contract 

markets; 

(3) The all-months swaps open 

interest, at month end, the sum of all of 

a referenced contract’s all-monthscombined open swaps and swaptions 

open interest, combining, open interest 

attributed to cleared and uncleared 

swaps and swaptions, where the 

uncleared all-months-combined swap 

open interest shall be the absolute sum 

of all swap dealers’ net uncleared open 

swaps and swaptions exposures by 

counterparty and by single referenced 

contract month. 

(f) Netting of positions. (1) For 

referenced contracts in the spot month, 

a trader’s positions in physical delivery 

and cash-settled contracts are calculated 

separately and traders can have up to 

the spot-month position limit in both 

the physically delivered and cash 

settled contracts unless the cash settled 

contract positions are held pursuant to 

the conditional-spot-month position 

limit. 

(2) For the purpose of applying nonspot-month position limits, a trader’s 

position shall be combined and the net 

resulting position shall be applied 

towards determining the trader’s 

aggregate single-month and all-monthscombined position. 

(3) For the purpose of applying nonspot-month class limits, a trader’s 

position in contracts of the same class 

shall be combined and the net resulting 

position shall be applied towards 

determining the trader’s class singlemonth and all-months-combined 

position. 

(g) Additional provisions. In 

determining or calculating all levels and 

limits under this section, a resulting 

number shall be rounded up to the 

nearest hundred contracts. 

(h) Process for fixing and publishing 

position limits. (1) With the exception of 

initial position limits, the Commission 

shall fix position limits under this part 

by January 31st of each calendar year; 

(2) The initial spot-month position 

limits for referenced contracts shall be 

as provided in Appendix A to this part. 

(3) The initial spot-month, singlemonth and all-months-combined 

position limits must be made effective 

pursuant to a Commission order and 

may be made on any date. 

(4) The Commission shall publish 

position limits on the Commission’s 

Web site at http://www.cftc.gov prior to 

making such limits effective, and such 

limits, other than initial limits, shall 

become effective on the 1st day of 

March immediately following the fixing 

date and shall remain effective up until 

and including the last day of the 

immediately following February. 

§ 151.5 Exemptions for referenced 

contracts. 

(a) Bona fide hedging transactions or 

positions. 

(1) Any trader that complies with the 

requirements of this section may exceed 

the position limits set forth in § 151.4 to 

the extent that a transaction or position 

in a referenced contract: 

(i) Represents a substitute for 

transactions made or to be made or 

positions taken or to be taken at a later 

time in a physical marketing channel; 

(ii) Is economically appropriate to the 

reduction of risks in the conduct and 

management of a commercial enterprise; 

and 

(iii) Arises from the potential change 

in the value of— 

(A) Assets that a person owns, 

produces, manufactures, processes, or 

merchandises or anticipates owning, 

producing, manufacturing, processing, 

or merchandising; 

(B) Liabilities that a person owns or 

anticipates incurring; or 

(C) Services that a person provides or 

purchases, or anticipates providing or 

purchasing; or 

(iv) Reduces risks attendant to a 

position resulting from a swap that— 

(A) Was executed opposite a 

counterparty for which the transaction 

would qualify as a bona fide hedging 

transaction pursuant to paragraph 

(a)(1)(i) through (a)(1)(iii) of this section; 

or 

(B) Meets the requirements of 

paragraphs (a)(1)(i) through (a)(1)(iii) of 

this section. Notwithstanding the 

foregoing, no transactions or positions 

shall be classified as bona fide hedging 

for purposes of § 151.4 unless such 

transactions or positions are established 

and liquidated in an orderly manner in 

accordance with sound commercial 

practices and the provisions of 

paragraph (a)(2) of this section have 

been satisfied. 

(2) Enumerated Hedging 

Transactions. The definition of bona 

fide hedging transactions and positions 

in paragraph (a)(1) of this section 

includes the following specific 

transactions and positions: 

(i) Sales of any commodity underlying 

referenced contracts which do not 

exceed in quantity: 

(A) Ownership or fixed-price 

purchase of the contract’s underlying 

cash commodity by the same person; or 

(B) Unsold anticipated production of 

the same commodity, which may not 

exceed one year for referenced 

agricultural contracts, by the same 

person provided that no such position is 

maintained in any referenced contract 

during the five last trading days of that 

referenced contract. 

(ii) Purchases of referenced contracts 

which do not exceed in quantity: 

(A) The fixed-price sale of the 

contract’s underlying cash commodity 

by the same person; 

(B) The quantity equivalent of fixedprice sales of the cash products and byproducts of such commodity by the 

same person; or 

(C) Unfilled anticipated requirements 

of the same cash commodity, which 

may not exceed one year for referenced 

agricultural contracts, for processing, 

manufacturing, or feeding by the same 

person, provided that such transactions 

and positions in the five last trading 

days of any referenced contract do not 

exceed the person’s unfilled anticipated 

requirements of the same cash 

commodity for that month and the next 

succeeding month. 

(iii) Offsetting sales and purchases in 

referenced contracts which do not 

exceed in quantity that amount of the 

same cash commodity which has been 

bought and sold by the same person at 

unfixed prices basis different delivery 

months of the referenced contract, 

provided that no such position is 

maintained during the five last trading 

days of any referenced contract. 

(iv) Purchases or sales by an agent 

who does not own or has not contracted 

to sell or purchase the offsetting cash 

commodity at a fixed price, provided 

that the person is responsible for the 

merchandising of the cash positions 

which is being offset and the agent has 

a contractual arrangement with the 

person who owns the commodity or 


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holds the cash market commitment 

being offset. 

(v) Sales and purchases in referenced 

contracts described in paragraphs 

(a)(2)(i), (a)(2)(ii), (a)(2)(iii), and 

(a)(2)(iv) of this section may also be 

offset other than by the same quantity of 

the same cash commodity, provided that 

the fluctuations in value of the position 

in referenced contracts are substantially 

related to the fluctuations in value of 

the actual or anticipated cash position, 

and provided that the positions shall 

not be maintained during the five last 

trading days of any referenced contract. 

(b) Information on cash market 

commodity activities. Any trader with a 

position that exceeds the position limits 

set forth in § 151.4 pursuant to 

paragraph (a) of this section shall 

submit to the Commission a 404 filing, 

in the form and manner provided for in 

§ 151.10, containing the following 

information with respect to such 

position: 

(1) The cash market commodity 

hedged, the units in which it is 

measured, and the corresponding 

referenced contract that is used for 

hedging the cash market commodity; 

(2) The number of referenced 

contracts used for hedging; 

(3) The entire quantity of stocks 

owned of the cash market commodity 

that is being hedged by a position in a 

referenced contract; 

(4) The entire quantity of open fixed 

price purchase commitments in the 

hedged commodity outside of the spot 

month of the corresponding referenced 

contract; 

(5) The entire quantity of open fixed 

price purchase commitments in the 

hedged commodity in the spot month of 

the corresponding referenced contract; 

(6) The entire quantity of open fixed 

price sale commitments in the hedged 

commodity outside of the spot month of 

the corresponding referenced contract; 

and 

(7) The entire quantity of open fixed 

price sale commitments in the hedged 

commodity in the spot month of the 

corresponding referenced contract. 

(c) Anticipatory hedge exemptions. 

(1) Initial statement. Any trader who 

wishes to exceed the position limits set 

forth in § 151.4 pursuant to paragraph 

(a) of this section in order to hedge 

unsold anticipated commercial 

production or unfilled anticipated 

commercial requirements connected to a 

commodity underlying a referenced 

contract, shall submit to the 

Commission a 404A filing at least ten 

days in advance of the date that such 

transactions or positions would be in 

excess of the position limits set forth in 

§ 151.4. The 404A filing shall be made 

in the form and manner provided in 

§ 151.10 and shall contain the following 

information with respect to such 

position: 

(i) The cash market commodity and 

units for which the anticipated 

production or requirements pertain; 

(ii) The dates for the beginning and 

end of the period for which the person 

claims the anticipatory hedge 

exemption is required, which may not 

exceed one year; 

(iii) The production or requirement of 

that cash market commodity for the 

three complete fiscal years preceding 

the current fiscal year; 

(iv) The anticipated production or 

requirements for the period hedged, 

which may not exceed one year; 

(v) The unsold anticipated production 

or unfilled anticipated requirements 

across the period hedged, which may 

not exceed one year; 

(vi) The referenced contract that the 

trader will use to hedge the unfilled, 

anticipated production or requirements; 

and 

(vii) The number of referenced 

contracts that will be used for hedging. 

(2) Approval. All or a specified 

portion of the unsold anticipated 

production or unfilled anticipated 

requirements described in these filings 

shall not be considered as offsetting 

positions for bona fide hedging 

transactions or positions if such person 

is so notified by the Commission within 

ten days after the Commission is 

furnished with the information required 

under this paragraph (c). 

(i) The Commission may request the 

person so notified to file specific 

additional information with the 

Commission to support a determination 

that the statement filed accurately 

reflects unsold anticipated production 

or unfilled anticipated requirements. 

(ii) The Commission shall consider all 

additional information filed and, by 

notice to such person, shall specify its 

determination as to what portion of the 

production or requirements described 

constitutes unsold anticipated 

production or unfilled anticipated 

requirements for the purposes of bona 

fide hedging. 

(3) Supplemental reports. Whenever 

the sales or purchases which a person 

wishes to consider as bona fide hedging 

of unsold anticipated production or 

unfilled anticipated requirements shall 

exceed the amounts in the most recent 

filing or the amounts determined by the 

Commission to constitute unsold 

anticipated production or unfilled 

anticipated requirements pursuant to 

paragraph (c)(2) of this section, such 

person shall file with the Commission a 

statement which updates the 

information provided in the person’s 

most recent filing, and for instances 

anticipated needs exceed the amounts 

in the most recent filing, at least ten 

days in advance of the date that person 

wishes to exceed these amounts. 

(d) Additional information from swap 

counterparties to bona fide hedging 

transactions. All persons that enter into 

swap transactions or maintain swap 

positions pursuant to paragraph 

(a)(1)(iv) of this section shall also 

submit to the Commission a 404S filing 

not later than 9:00 a.m. on the business 

day following that to which the 

information pertains. The 404S filing 

shall be done in the form and manner 

provided for in § 151.10 and shall 

contain the following information: 

(1) The commodity reference price for 

the swaps that would qualify as a bona 

fide hedging transaction or position; 

(2) The entire gross long and gross 

short quantity underlying the swaps that 

were executed in a transaction that 

would qualify as a bona fide hedging 

transaction, and the units in which the 

quantity is measured; 

(3) The referenced contract that is 

used to offset the exposure obtained 

from the bona fide hedging transaction 

or position of the counterparty; 

(4) The gross long or gross short size 

of the position used to offset the 

exposure obtained from a bona fide 

hedging transaction or position of the 

counterparty; 

(5) The gross long or gross short size 

of the position used to offset the 

exposure obtained from a bona fide 

hedging swap transaction or position 

that is in the spot month. 

(e) Recordkeeping. Traders who 

qualify for bona fide hedge exemptions 

for cash market positions, anticipatory 

hedging, and swaps opposite 

counterparties that would qualify as 

bona fide hedging transactions or 

positions shall maintain complete books 

and records concerning all of their 

related cash, futures, and swap 

positions and transactions and make 

such books and records, along with a 

list of swap counterparties, available to 

the Commission upon request. 

(f) Conversion methodology for swaps 

not involving the same commodity. In 

addition to the information required 

under this section, traders engaged in 

the hedging of commercial activity or 

positions resulting from swaps that are 

used for the hedging of commercial 

activity that does not involve the same 

quantity or commodity as the quantity 

or commodity associated with positions 

in referenced contracts that are used to 

hedge shall submit to the Commission a 

404, 404A, or 404S filing, as 


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appropriate, containing the following 

information: 

(1) Conversion information both in 

terms of the actual quantity and 

commodity used in the trader’s normal 

course of business and in terms of the 

referenced contracts that are sold or 

purchased; and 

(2) An explanation of the 

methodology used for determining the 

ratio of conversion between the actual 

or anticipated cash positions and the 

trader’s positions in referenced 

contracts. 

(g) Requirements for bona fide 

hedging swap counterparties. Upon 

entering into a swap transaction where 

at least one party is relying on a bona 

fide hedge exemption to exceed the 

position limits of § 151.4 with respect to 

such a swap: 

(1) The party not hedging a cash 

market commodity risk, or both parties 

to the swap if both parties are hedging 

a cash market commodity risk, shall: 

(i) Ask for a written representation 

from its counterparty verifying that the 

swap qualifies as a bona fide hedging 

transaction under paragraph (a)(1)(iv) of 

this section; and 

(ii) Upon receipt of such written 

representation from the counterparty, 

provide written confirmation of such 

receipt to the counterparty. 

(2) The party relying on the bona fide 

hedging exemption to enter into the 

swap transaction shall submit a written 

representation to its counterparty 

verifying that the swap qualifies as a 

bona fide hedging transaction, as 

defined in paragraph (a)(1)(iv) of this 

section. 

(h) The written representation and 

receipt confirmation described in 

paragraph (g) of this section shall be 

retained by the parties to the swap and 

provided to the Commission upon 

request. 

(i) Filing requirement for bona fide 

hedgers. Any party with cash market 

commodity risk relying on a bona fide 

hedging exemption to enter into and 

maintain a referenced contract position 

shall submit to the Commission a 404S 

filing, in the form and manner provided 

for in § 151.10, containing the 

information in paragraphs (b) and (c) of 

this section, for each business day on 

which such position was maintained, 

up to and including the day after the 

trader’s position level is below the 

position limit that was exceeded. 

(j) Positions that are maintained. For 

a swap that satisfies the requirements of 

paragraph (a) of this section, the party 

to whom the cash market commodity 

risk is transferred may itself establish, 

lift and re-establish a position in excess 

of the position limits of § 151.4 

provided that: 

(1) The party and its counterparty 

comply with the requirements of 

paragraphs (g) through (i) of this section; 

and 

(2) The party may only exceed such 

position limit to the extent and in such 

amounts that the qualifying swap 

directly offsets, and continues to offset, 

the cash market commodity risk of a 

bona fide hedging counterparty. 

§ 151.6 Position visibility. 

(a) Visibility levels. A trader holding 

or controlling, separately or in 

combination, net long or net short, 

referenced contracts in the following 

commodities when such positions in all 

months or in any single month 

(including the spot month) are in excess 

of the following position levels, shall 

comply with the reporting requirements 

of paragraphs (b) through (d) of this 

section: 

VISIBILITY LEVELS FOR REFERENCED

METALS CONTRACTS

New York Mercantile Exchange 

Copper (HG) ............................. 4,200 

New York Mercantile Exchange 

Palladium (PA) .......................... 900 

New York Mercantile Exchange 

Platinum (PL) ............................ 1,400 

New York Mercantile Exchange 

Gold (GC) .................................. 10,700 

New York Mercantile Exchange 

Silver (SI) .................................. 4,500 

VISIBILITY LEVELS FOR REFERENCED

ENERGY CONTRACTS

New York Mercantile Exchange 

Light Sweet Crude Oil (CL) ...... 22,500 

New York Mercantile Exchange 

New York Harbor Gasoline 

Blendstock (RB) ........................ 7,800 

New York Mercantile Exchange 

Henry Hub Natural Gas (NG) ... 21,000 

New York Mercantile Exchange 

New York Harbor No. 2 Heating 

Oil (HO) ..................................... 9,900 

(b) Statement of trader exceeding 

visibility level. Upon acquiring a 

position in referenced contracts in the 

same commodity that reaches or 

exceeds a visibility level, a trader shall 

submit to the Commission a 401 filing 

for the position in a referenced contract, 

separately by futures, options, swaps, or 

swaptions that comprise the position in 

the form and manner provided for in 

§ 151.10, and shall containing the 

following information: 

(1) The date on which the trader’s 

position initially reached or exceeded 

the visibility level; 

(2) Gross long and gross short 

positions on an all-months-combined 

basis (using economically reasonable 

and analytically supported deltas); 

(3) If the visibility levels are reached 

or exceeded in any single month, the 

contract month and the trader’s gross 

long and short positions in the relevant 

single month (using economically 

reasonable and analytically supported 

deltas); and 

(4) If applicable, the trader shall also 

certify that they do not hold or control 

positions subject to the filing 

requirements of paragraphs (c) and (d) 

of this section. 

(c) Related uncleared swaps position 

report. Upon acquiring a position in 

referenced contracts in the same 

commodity that reaches or exceeds a 

visibility level, a trader shall submit to 

the Commission a 402S filing for any 

uncleared swap positions that are based 

on substantially the same commodity as 

that which underlies the referenced 

contract. The 402S filing shall be done 

in the form and manner provided for in 

§ 151.10 and shall contain the following 

information for the date on which the 

trader’s position initially reached or 

exceeded the visibility level: 

(1) By commodity reference price; 

(2) By swaps or swaptions; 

(3) By open swap end dates within 30 

days, 90 days, one year or outside of one 

year from the date on which the trader’s 

position initially reached or exceeded 

the visibility level; and 

(4) Gross long and gross short 

positions on a futures equivalent basis 

in terms of the referenced contract; or 

(5) With the express written 

permission of the Commission or its 

designees, the submission of a swaps 

portfolio summary statement 

spreadsheet in digital format, only 

insofar as the spreadsheet provides at 

least the same data as that required by 

the 402S filing, may be substituted for 

the reporting requirements of the 402S 

filing. 

(d) Any trader above a visibility level 

that holds or controls cash market 

commodity positions or has anticipated 

commercial requirements or unsold 

anticipated commercial production in 

the same or substantially the same 

commodity shall submit to the 

Commission 404 and 404A filings 

respectively. Such 404 and 404A filings 

shall be done in the form and manner 

provided for in § 151.10 and shall 

contain information regarding such 

positions as described in § 151.5(b) and 

(c). Notwithstanding this requirement, a 

visible trader may alternatively, upon 

written permission by the Commission 

or its designees, submit in digital format 

a physical commodity portfolio 


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4774 Federal Register / Vol. 76, No. 17 / Wednesday, January 26, 2011 / Proposed Rules 

summary statement spreadsheet, 

provided that such spreadsheet contains 

at least the same data as that required 

by the 404 or 404A filing. 

(e) Reporting obligations imposed by 

regulations other than those contained 

in this section shall supersede the 

reporting requirements of paragraphs 

(b), (c), and (d) of this section but only 

insofar as other reporting obligations 

provide at least the same data and are 

submitted to the Commission or its 

designees at least as often as the 

reporting requirements of paragraphs 

(b), (c), and (d) of this section. 

§ 151.7 Aggregation of positions. 

(a) Positions to be aggregated. The 

position limits set forth in § 151.4 shall 

apply to all positions in accounts for 

which any trader by power of attorney 

or otherwise directly or indirectly holds 

positions or controls trading and to 

positions held by two or more traders 

acting pursuant to an expressed or 

implied agreement or understanding the 

same as if the positions were held by, 

or the trading of the position were done 

by, a single individual. 

(b) Ownership of accounts generally. 

For the purpose of applying the position 

limits set forth in § 151.4, any trader 

holding positions in more than one 

account, or holding accounts or 

positions in which the trader by power 

of attorney or otherwise directly or 

indirectly has a 10 percent or greater 

ownership or equity interest, must 

aggregate all such accounts or positions. 

(c) Ownership by limited partners, 

shareholders or other pool participants. 

(1) Except as provided in paragraphs 

(c)(2) and (c)(3) of this section, a trader 

that is a limited partner, shareholder or 

other similar type of pool participant 

with an ownership or equity interest of 

10 percent or greater in a pooled 

account or positions need not aggregate 

such pooled positions or accounts if: 

(i) The pool operator has, and 

enforces, written procedures to preclude 

the trader from having knowledge of, 

gaining access to, or receiving data 

about the trading or positions of the 

pool; 

(ii) The trader does not have direct, 

day-to-day supervisory authority or 

control over the pool’s trading 

decisions; and 

(iii) The pool operator has complied 

with the requirements of paragraph (g) 

of this section and has received an 

exemption from aggregation on behalf of 

the trader or a class of traders from the 

Commission. 

(2) A commodity pool operator having 

ownership or equity interest of 10 

percent or greater in an account or 

positions as a limited partner, 

shareholder or other similar type of pool 

participant must aggregate those 

accounts or positions with all other 

accounts or positions owned or 

controlled by the commodity pool 

operator. 

(3) Each limited partner, shareholder, 

or other similar type of pool participant 

having an ownership or equity interest 

of 25 percent or greater in a commodity 

pool must aggregate the pooled account 

or positions with all other accounts or 

positions owned or controlled by that 

trader. 

(d) Identical trading. For the purpose 

of applying the position limits set forth 

in § 151.4, any trader that holds or 

controls the trading of positions, by 

power of attorney or otherwise, in more 

than one account, or that holds or 

controls trading of accounts or positions 

in multiple pools, with identical trading 

strategies must aggregate all such 

accounts or positions. 

(e) Trading control by futures 

commission merchants. The position 

limits set forth in § 151.4 shall be 

construed to apply to all positions held 

by a futures commission merchant or its 

separately organized affiliates in a 

discretionary account, or in an account 

which is part of, or participates in, or 

receives trading advice from a customer 

trading program of a futures commission 

merchant or any of the officers, partners, 

or employees of such futures 

commission merchant or its separately 

organized affiliates, unless: 

(1) A trader other than the futures 

commission merchant or the affiliate 

directs trading in such an account; 

(2) The futures commission merchant 

or the affiliate maintains only such 

minimum control over the trading in 

such an account as is necessary to fulfill 

its duty to supervise diligently trading 

in the account; 

(3) Each trading decision of the 

discretionary account or the customer 

trading program is determined 

independently of all trading decisions 

in other accounts which the futures 

commission merchant or the affiliate 

holds, has a financial interest of 10 

percent or more in, or controls; and 

(4) The futures commission merchant 

has complied with the requirements of 

paragraph (g) of this section and has 

received an exemption from aggregation 

from the Commission. 

(f) Owned non-financial entities. An 

entity need not aggregate its positions 

with the positions of one of its owned 

non-financial entities, as defined in 

§ 151.1, if it can sufficiently 

demonstrate, in an application for 

exemption submitted under paragraph 

(g) of this section, that the owned nonfinancial entity’s trading is 

independently controlled and managed, 

indicia of which include: 

(1) The entity and its other affiliates 

have no knowledge of trading decisions 

by the owned non-financial entity, and 

the owned non-financial entity has no 

knowledge of trading decisions by the 

entity or any of the entity’s other 

affiliates; 

(2) The owned non-financial entity’s 

trading decisions are controlled by 

persons employed exclusively by the 

owned non-financial entity, who do not 

in any way share trading control with 

persons employed by the entity; 

(3) The owned non-financial entity 

maintains and enforces written policies 

and procedures to preclude the entity or 

any of its affiliates from having 

knowledge of, gaining access to, or 

receiving information or data about its 

positions, trades or trading strategies, 

including document routing and other 

procedures or security arrangements; 

and 

(4) The owned non-financial entity 

maintains a risk management system 

that is separate from the risk 

management system of the entity and 

any of its other affiliates. 

(5) Any other factors the Commission 

may consider, in its discretion, that 

indicate that the owned non-financial 

entity’s trading is independently 

controlled and managed. 

(g) Applications for exemption. (1) 

Entities seeking an exemption from the 

position limits established by the 

Commission pursuant to this section, 

shall file an initial application for an 

exemption providing as part of the 

application all information required by 

the Commission, including but not 

limited to information: 

(i) Describing the relevant 

circumstances that warrant 

disaggregation; 

(ii) Providing an independent 

assessment report on the operation of 

the policies and procedures described in 

§ 151.9(c)(1)(iii) for pool operators and 

§ 151.9(f)(3) for owned non-financial 

entities; 

(iii) Designating an office and 

employee(s) of the entity, with salaries 

and compensation that are independent 

of trading profits and losses, which shall 

be responsible for the coordination of 

aggregation rules and position limit 

compliance; 

(iv) Providing an organizational chart 

that includes the name, main business 

address, main business telephone 

number, main facsimile number and 

main e-mail address of the entity and 

each of its affiliates; 

(v) Providing the names of pertinent 

employees of the entity (trading, 

operations, compliance, risk 


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management and legal) and their work 

locations and contact information; 

(vi) Providing a description of all 

information-sharing systems, bulletin 

boards, and common e-mail addresses; 

(vii) Providing an explanation of the 

entity’s risk management system; 

(viii) Providing an explanation of how 

and to whom the trade data and position 

information is distributed, including 

which officers receive reports and their 

respective titles; and 

(ix) A signature by a representative 

duly authorized to bind the entity. 

(2) An application shall be submitted 

within the time specified by the 

Commission and in the form and 

manner provided for in § 151.10. 

§ 151.8 Foreign boards of trade. 

The aggregate position limits in 

§ 151.4 shall apply to a trader with 

positions in referenced contracts 

executed on, or pursuant to the rules of 

a foreign board of trade, provided that: 

(a) Such referenced contracts settle 

against the price (including the daily or 

final settlement price) of one or more 

contracts listed for trading on a 

registered entity; and 

(b) The foreign board of trade makes 

available such referenced contracts to its 

members or other participants located in 

the United States through direct access 

to its electronic trading and order 

matching system. 

§ 151.9 Preexisting positions. 

(a) The position limits set forth in 

§ 151.2 of this chapter may be exceeded 

to the extent that such positions remain 

open and were entered into in good 

faith prior to the effective date of any 

rule, regulation, or order that specifies 

a position limit under this part. 

(b) Swap and swaption positions 

entered into in good faith prior to the 

effective date of any rule, regulation, or 

order that specifies a position limit 

under this part may be netted with posteffective date swap and swaptions for 

the purpose of applying any position 

limit. 

(c) Swap and swaption positions 

entered into in good faith prior to the 

effective date of any rule, regulation or 

order that specifies a position limit 

under this part shall not be aggregated 

with positions in referenced contracts 

that were entered into after the effective 

date of such a rule, regulation or order. 

§ 151.10 Form and manner of reporting 

and submitting information or filings. 

Unless otherwise instructed by the 

Commission or its designees, any person 

submitting reports under this section 

shall submit the corresponding required 

filings and any other information 

required under this part to the 

Commission as follows: 

(a) Using the format, coding structure, 

and electronic data transmission 

procedures approved in writing by the 

Commission; and 

(b) Not later than 9 a.m. on the next 

business day following the reporting or 

filing obligation is incurred unless: 

(1) A 404A filing is submitted 

pursuant § 151.5(c), in which case the 

filing must be submitted at least ten 

days in advance of the date that 

transactions and positions would be 

established that would exceed a 

position limit set forth in § 151.4; 

(2) A 404 or 404S filing is submitted 

pursuant to § 151.5, in which case the 

filing must be submitted the day after a 

position limit is exceeded and all days 

the trader exceeds such levels and the 

first day after the trader’s position is 

below the position limit; 

(3) The filing is submitted pursuant to 

§ 151.6 and not under any other part 

under this title, then the 401, 402S, 404, 

or 404A filing, or their respective 

substitutes as provided for under 

§ 151.6(c)(5) and (d), shall be submitted 

after the establishment of a position 

exceeding a visibility level on the latter 

of either (i) 9 a.m. five business day after 

such time or (ii) 9 a.m. the first business 

day of the subsequent calendar month. 

If the filing is submitted pursuant to 

§ 151.6 and not under any other part 

under this title, the filing trader shall be 

required to submit a 401, 402S, 404, or 

404A filing, or their respective 

substitutes, no more often than once per 

calendar month; or 

(4) An application for exemption 

renewal is filed pursuant to 

§ 151.7(g)(1), in which case the filing 

shall be submitted within 30 calendar 

days of January 1 of each year following 

the initial application for exemption. 

§ 151.11 Registered entity position limits. 

(a) Generally. (1) Registered entities 

shall adopt, and establish rules and 

procedures for monitoring and enforcing 

spot-month, single-month, and allmonths-combined position limits with 

respect to agreements, contracts or 

transactions executed pursuant to their 

rules that are no greater than the 

position limits specified in § 151.4. 

(2) For agreements, contracts or 

transactions with no Federal limits, or 

with respect to levels of open interest to 

which no Federal limits apply, 

registered entities that are trading 

facilities shall adopt spot-month, singlemonth and all-months-combined 

position limits based on the 

methodology in 151.4, provided, 

however, that a registered entity may 

adopt, notwithstanding the 

methodology in 151.4, single-month or 

all-months-combined limit levels of 

1,000 contracts for tangible commodities 

other than energy products and 5,000 

contracts for energy products and nontangible commodities, including 

contracts on financial products. 

(3) Securities futures products. 

Position limits for securities futures 

products are specified in Part 41. 

(b) Alternatives. For a contract that is 

not subject to a Federal position limit, 

registered entities may adopt position 

accountability rules with respect to any 

agreement, contract or transaction: 

(1) On a major foreign currency, for 

which there is no legal impediment to 

delivery and for which there exists a 

highly liquid cash market; or 

(2) On an excluded commodity that is 

an index or measure of inflation, or 

other macroeconomic index or measure; 

or 

(3) On an excluded commodity that 

meets the definition of section 1.13(ii), 

(iii), or (iv) of the Act; or 

(4) On an excluded commodity having 

an average open interest of 50,000 

contracts and an average daily trading 

volume of 100,000 contracts and a 

highly liquid cash market. 

(c) Aggregation. Position limits or 

accountability rules established under 

this section shall be subject to the 

aggregation standards of § 151.7. 

(d) Exemptions. (1) Hedge 

exemptions. (i) For purposes of exempt 

and agricultural commodities, no 

designated contract market or swap 

execution facility bylaw, rule, 

regulation, or resolution adopted 

pursuant to this section shall apply to 

any position that would otherwise be 

exempt from the applicable Federal 

speculative position limits as 

determined by § 151.5; provided, 

however, that the designated contract 

market or swap execution facility may 

limit bona fide hedging positions or any 

other positions which have been 

exempted pursuant to § 151.5 which it 

determines are not in accord with sound 

commercial practices or exceed an 

amount which may be established and 

liquidated in an orderly fashion. 

(ii) For purposes of excluded 

commodities, no designated contract 

market or swap execution facility bylaw, 

rule, regulation or resolution adopted 

pursuant to this section shall apply to 

any transaction or position defined 

under § 1.3(z); provided, however, that 

the designated contract market or swap 

execution facility may limit bona fide 

hedging positions which it determines 

are not in accord with sound 

commercial practices or exceed an 

amount which may be established and 

liquidated in an orderly fashion. 


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(2) Procedure. Persons seeking to 

establish eligibility for an exemption 

must comply with the procedures of the 

designated contract market or swap 

execution facility for granting 

exemptions from its speculative 

position limit rules. In considering 

whether to permit or grant an 

exemption, a contract market or swap 

execution facility must take into 

account sound commercial practices 

and paragraph (d)(1) of this section 

apply principles while remaining 

consistent with § 151.5. 

(f) Other exemptions. Speculative 

position limits adopted pursuant to this 

section shall not apply to: 

(1) any position acquired in good faith 

prior to the effective date of any bylaw, 

rule, regulation, or resolution which 

specifies such limit; or 

(2) any person that is registered as a 

futures commission merchant or as a 

floor broker under authority of the Act, 

except to the extent that transactions 

made by such person are made on 

behalf of or for the account or benefit of 

such person. 

(g) Ongoing responsibilities. Nothing 

in this Part shall be construed to affect 

any provisions of the Act relating to 

manipulation or corners or to relieve 

any designated contract market, swap 

execution facility, or governing board of 

a designated contract market or swap 

execution facility from its responsibility 

under other provisions of the Act and 

regulations. 

§ 151.12 Delegation of authority to the 

Director of the Division of Market Oversight. 

(a) The Commission hereby delegates, 

until it orders otherwise, to the Director 

of the Division of Market Oversight or 

such other employee or employees as 

the Director may designate from time to 

time, the authority: 

(1) In § 151.4(e) for determining levels 

of open interest; 

(2) In § 151.5 for granting exemptions 

relating to bona fide hedging 

transactions; and 

(3) In § 151.10 for providing 

instructions or determining the format, 

coding structure, and electronic data 

transmission procedures for submitting 

data records and any other information 

required under this part. 

(b) The Director of the Division of 

Market Oversight may submit to the 

Commission for its consideration any 

matter which has been delegated in this 

section. 

(c) Nothing in this section prohibits 

the Commission, at its election, from 

exercising the authority delegated in 

this section. 

APPENDIX A TO PART 151 

Spot month 

Contract 

Current 

federal 

limit 

Current 

exchange 

limit 

Agricultural Contracts 

Cocoa ............................................................................................................................................................... 1,000 

Coffee .............................................................................................................................................................. 500 

Corn ................................................................................................................................................................. 600 600 

Cotton No. 2 .................................................................................................................................................... 300 300 

Feeder Cattle ................................................................................................................................................... 300 

Frozen Concentrated Orange Juice ................................................................................................................ 300 

Lean Hogs ....................................................................................................................................................... 950 

Live Cattle ........................................................................................................................................................ 450 

Milk Class III .................................................................................................................................................... 1,500 

Oats ................................................................................................................................................................. 600 600 

Rough Rice ...................................................................................................................................................... 600 

Soybeans ......................................................................................................................................................... 600 600 

Soybean Meal .................................................................................................................................................. 720 720 

Soybean Oil ..................................................................................................................................................... 540 540 

Sugar No. 11 ................................................................................................................................................... 5,000 

Sugar No. 16 ................................................................................................................................................... 1,000 

Wheat (CBOT) ................................................................................................................................................. 600 600 

Wheat, Hard Red Spring ................................................................................................................................. 600 600 

Wheat, Hard Winter ......................................................................................................................................... 600 600 

Base Metals Contracts 

Copper Grade #1 ............................................................................................................................................. 1,200 

Precious Metals Contracts 

Gold ................................................................................................................................................................. 3,000 

Palladium ......................................................................................................................................................... 650 

Platinum ........................................................................................................................................................... 150 

Silver ................................................................................................................................................................ 1,500 

Energy Contracts 

Crude Oil, Light Sweet (‘‘WTI’’) ....................................................................................................................... 3,000 

Gasoline Blendstock (RBOB) .......................................................................................................................... 1,000 

Natural Gas ...................................................................................................................................................... 1,000 

No. 2 Heating Oil, New York Harbor ............................................................................................................... 1,000 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2
Federal Register / Vol. 76, No. 17 / Wednesday, January 26, 2011 / Proposed Rules 4777 

Issued by the Commission, this 13th day of 

January 2011, in Washington, DC. 

David Stawick, 

Secretary of the Commission. 

Appendices to Position Limits for 

Derivatives—Commission Voting 

Summary and Statements of 

Commissioners 

Note: The following appendices will not 

appear in the Code of Federal Regulations 

Appendix 1—Commission Voting 

Summary 

On this matter, Chairman Gensler and 

Commissioners Dunn, Chilton and O’Malia 

voted in the affirmative; Commissioner 

Sommers voted in the negative. 

Appendix 2—Statement of Chairman 

Gary Gensler 

I support the proposed rulemaking to 

establish position limits for physical 

commodity derivatives. The CFTC does not 

set or regulate prices. Rather, the 

Commission is directed to ensure that 

commodity markets are fair and orderly to 

protect the American public. 

When the CFTC set position limits in the 

past, the agency sought to ensure that the 

markets were made up of a broad group of 

market participants with a diversity of views. 

At the core of our obligations is promoting 

market integrity, which the agency has 

historically interpreted to include ensuring 

markets do not become too concentrated. 

Position limits help to protect the markets 

both in times of clear skies and when there 

is a storm on the horizon. In 1981, the 

Commission said that ‘‘the capacity of any 

contract market to absorb the establishment 

and liquidation of large speculative positions 

in an orderly manner is related to the relative 

size of such positions, i.e., the capacity of the 

market is not unlimited.’’ 

Today’s proposal would implement 

important new authorities in the Dodd-Frank 

Act to prevent excessive speculation and 

manipulation in the derivatives markets. The 

Dodd-Frank Act expanded the scope of the 

Commission’s mandate to set position limits 

to include certain swaps. The proposal reestablishes position limits in agriculture, 

energy and metals markets. It includes one 

position limits regime for the spot month and 

another regime for single-month and allmonths combined limits. It would implement 

spot-month limits, which are currently set in 

agriculture, energy and metals markets, 

sooner than the single-month or all-monthscombined limits. Single-month and allmonths-combined limits, which currently are 

only set for certain agricultural contracts, 

would be re-established in the energy and 

metals markets and be extended to certain 

swaps. These limits will be set using the 

formula proposed today based upon data on 

the total size of the swaps and futures market 

collected through the position reporting rule 

the Commission hopes to finalize early next 

year. It is only with the passage and 

implementation of the Dodd-Frank Act that 

the Commission will have broad authority to 

collect data in the swaps market. 

It will be some time before position limits 

for single-month and all-months-combined 

can be fully implemented. In the interim, if 

a trader has a position that is above a level 

of 10 and 21⁄2; percent of futures and options 

on futures open interest in the 28 contracts 

for which the Commission is proposing 

position limits, I have directed staff to collect 

information, including using special call 

authority when appropriate, to monitor these 

large positions. Staff will brief the 

Commission and make any appropriate 

recommendations based upon existing 

authorities for the Commission’s 

consideration during its closed surveillance 

meetings at least monthly on what staff finds. 

Collecting this data relating to large traders 

with positions in the futures markets above 

such levels or points of 10 and 21⁄2; percent 

would give the Commission a better look into 

the market and help us identify potential 

concerns. For example, if a trader does not 

have a bona fide hedge exemption, we can 

look into the details of its position and its 

intentions. It may also give us additional 

information as to how the position limits in 

the proposed rulemaking would affect traders 

in these markets. 

These levels, or points, are the positions at 

which CFTC staff will brief the Commission 

under its existing authorities. They would 

not be a substitute for current position limits 

or accountability levels, and they should not 

be interpreted to be a level that will 

automatically trigger any additional 

regulatory action. 

Appendix 3—Statement of 

Commissioner Bart Chilton 

I reluctantly concur in the Commission’s 

approval of publication of notice of a 

proposed rulemaking on position limits for 

derivatives. I support the Commission’s 

issuance of a position limits proposal, but I 

do not support the timing. 

I have said repeatedly that it is of 

paramount importance to adhere to the 

deadlines imposed by Congress in the Wall 

Street Reform and Consumer Protection Act 

of 2010. Position limits is one of the 

rulemakings with an earlier target date. The 

current proposal does not meet the statutory 

time limits of imposition of limits within 180 

days from the date of enactment for energy 

and metal commodities and 270 days for 

agricultural commodities. The agency does 

not have the authority to delay these 

statutory deadlines. 

At the open Commission meeting of the 

agency on December 9, 2010, the Chairman 

indicated an intent to move forward with two 

proposals on speculative position limits and 

to move ‘‘expeditiously’’ to implement spot 

month limits. This bifurcation of spot and 

single month/aggregate rulemakings was a 

good attempt to meet the January deadline set 

by Congress. At the meeting on December 16, 

2010, however, the Commission was 

presented with a single proposed rule, with 

a 60-day comment period, addressing spot, 

single month, and aggregate limits. 

Accordingly, it is now clear that spot month 

limits will not be implemented for many 

months, at best, and single month/aggregate 

limits—and the corresponding new bona fide 

hedging rule—may take more than a year to 

implement. 

We need to address excessive speculation 

in these markets now. We already have more 

speculative positions in the commodities 

markets than ever before. There are some 

who suggest that certain commodity prices 

are currently delinked from supply and 

demand fundamentals, and are being 

impacted by excessive speculation. Should 

these conditions worsen, I will not hesitate 

to continue to criticize the delay that the 

Commission’s position limits proposed 

rulemaking exacerbates. 

I commend the position point agreement 

that the Chairman publicly directed the staff 

to undertake. This interim measure will give 

the agency a window into the ‘‘largest of the 

large’’ traders in our markets, and is an 

appropriate provisional effort as we 

transition to include the swaps market into 

our traditional surveillance systems. 

The Commission should have acted so as 

to implement position limits as directed by 

Congress, pursuant to the statutory deadlines. 

I am disappointed that it failed to do so, and 

I will continue to aggressively advocate for 

rules that will appropriately address 

excessive speculatio 

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

BILLING CODE P 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2