Potential Framework for DCM Review
of Non-enumerated Hedges

¢ For any “non-enumerated” hedge exemption granted
by the DCM, the DCM would provide a notice to the
Commission:
identifying that a non-enumerated hedge exemption had
been granted:

including the DCM’s conclusion as to the size of the
party's exposure to the non-enumerated position or
strategy; and

the size of the exemption granted.

n.b., such notice must be subject to complete confidentiality.


Potential Framework for DCM Review
of Non-enumerated Hedges

¢ Things not addressed by this approach:
The “economically appropriate” test;
Cross-commodity hedging;
The “five-day” rule; and

Form 204 and other filing requirements.


Potential Framework for DCM Review
of Non-enumerated Hedges

Process

¢ The application procedure would essentially follow
current process taking advantage of DCM resources
and expertise:

an annual application describing activities and needs (which
may be supplemented if needs increase);

analysis by the DCM of the application, including separate
analyses of the party’s exposure and the appropriateness of
the position or strategy as a hedge;

a letter issued by the DCM approving, denying or
conditionally approving the exemption application; and

a limit established for positions on that DCM.


Potential Framework for DCM Review
of Non-enumerated Hedges

* The party receiving the DCM “non-enumerated”
hedge exemption could exceed federal speculative
limits up to the amount of exposure validated by the
DCM, using either DCM, SEF or OTC positions
(provided that the use of DCM or SEF positions does
not exceed any applicable DCM or SEF limit, or
involve “double-dipping”).


Potential Framework for
DCM Review of Non-enumerated Hedges

Ronald S. Oppenheimer
On behalf of
The Commercial Energy Working Group

Energy and Environmental Markets Advisory Committee Meeting
July 29, 2015


Potential Framework for DCM Review
of Non-enumerated Hedges

Certainty

Reliance on DCM determinations needs to have certainty
to be effective.

If the Commission or its staff does not agree that a
particular “non-enumerated” position or strategy qualifies
as hedge exempt, its treatment should only be changed
prospectively and by Commission action, affording
interested parties an opportunity to participate in the
process.


Potential Framework for DCM Review
of Non-enumerated Hedges

Benefits

Avoids resource duplication.

Capitalizes on:

The depth and breadth of Designated Contract Markets
(‘DCMs”) experience in evaluating hedging strategies; and

DCM active oversight of market participant positions,
particularly in the front month.

Is not disruptive to current end-user hedging practices.

Provides flexibility for market innovation and evolution --
a vehicle for end-users to present new or unique risk-
reducing facts and circumstances and make the case for
an exemption in an expeditious manner.


Potential Framework for DCM Review
of Non-enumerated Hedges

Way forward — 3 Steps

The Commission would:

refine the list of enumerated hedges to include those positions and
strategies that have been described in comment letters in this
rulemaking;

advise that the positions and strategies for which DCMs have
historically granted exemptions under their existing rules also
qualify for exemptions under Section 4a of the CEA, as amended
by the Dodd-Frank Act; and

determine that a hedge exemption issued by a DCM to a party to
exceed position limits on that DCM in connection with a specified
position or strategy that is “non-enumerated” may be relied upon
by that party to exceed federal speculative position limits.

The appropriate procedural vehicle to make that
determination could be a rule, order, no-action letter, statutory
interpretation, exemption or other.