96704 Federal Register / Vol. 81, No. 251 / Friday, December 30, 2016 / Proposed Rules 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Parts 1, 15, 17, 19, 37, 38, 140, 

150 and 151 

RIN 3038–AD99 

Position Limits for Derivatives 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Reproposal. 

SUMMARY: The Commodity Futures 

Trading Commission (‘‘Commission’’ or 

‘‘CFTC’’) is reproposing rules to amend 

part 150 of the Commission’s 

regulations concerning speculative 

position limits to conform to the Wall 

Street Transparency and Accountability 

Act of 2010 (‘‘Dodd-Frank Act’’) 

amendments to the Commodity 

Exchange Act (‘‘CEA’’ or ‘‘Act’’). The 

reproposal would establish speculative 

position limits for 25 exempt and 

agricultural commodity futures and 

option contracts, and physical 

commodity swaps that are 

‘‘economically equivalent’’ to such 

contracts (as such term is used in 

section 4a(a)(5) of the CEA). In 

connection with establishing these 

limits, the Commission is reproposing to 

update some relevant definitions; revise 

the exemptions from speculative 

position limits, including for bona fide 

hedging; and extend and update 

reporting requirements for persons 

claiming exemption from these limits. 

The Commission is also reproposing 

appendices to part 150 that would 

provide guidance on risk management 

exemptions for commodity derivative 

contracts in excluded commodities 

permitted under the revised definition 

of bona fide hedging position; list core 

referenced futures contracts and 

commodities that would be 

substantially the same as a commodity 

underlying a core referenced futures 

contract for purposes of the definition of 

location basis contract; describe and 

analyze fourteen fact patterns that 

would satisfy the reproposed definition 

of bona fide hedging position; and 

present the reproposed speculative 

position limit levels in tabular form. In 

addition, the Commission proposes to 

update certain of its rules, guidance and 

acceptable practices for compliance 

with Designated Contract Market 

(‘‘DCM’’) core principle 5 and Swap 

Execution Facility (‘‘SEF’’) core 

principle 6 in respect of exchange-set 

speculative position limits and position 

accountability levels. Furthermore, the 

Commission is reproposing processes 

for DCMs and SEFs to recognize certain 

positions in commodity derivative 

contracts as non-enumerated bona fide 

hedges or enumerated anticipatory bona 

fide hedges, as well as to exempt from 

position limits certain spread positions, 

in each case subject to Commission 

review. Separately, the Commission is 

reproposing to delay for DCMs and SEFs 

that lack access to sufficient swap 

position information the requirement to 

establish and monitor position limits on 

swaps. 

DATES: Comments must be received on 

or before February 28, 2017. 

ADDRESSES: You may submit comments, 

identified by RIN number 3038–AD99, 

by any of the following methods: 

• CFTC Web site: http://

comments.cftc.gov; 

• Mail: 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 http://

www.cftc.gov. You should submit only 

information that you wish to make 

available publicly. If you wish the 

Commission to consider information 

that may be exempt from disclosure 

under the Freedom of Information Act, 

a petition for confidential treatment of 

the exempt information may be 

submitted according to the procedures 

established in CFTC regulations at 17 

CFR part 145. 

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, Senior Economist, 

(202) 418–5452, ssherrod@cftc.gov, Riva 

Spear Adriance, Senior Special Counsel, 

(202) 418–5494, radriance@cftc.gov, 

Hannah Ropp, Surveillance Analyst, 

202–418–5228, hropp@cftc.gov, or 

Steven Benton, Industry Economist, 

(202) 418–5617, sbenton@cftc.gov, 

Division of Market Oversight; or Lee 

Ann Duffy, Assistant General Counsel, 

202–418–6763, lduffy@cftc.gov, Office 

of General Counsel, in each case at the 

Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1155 21st Street NW., Washington, DC 

20581. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Background 

A. Introduction 

B. The Commission Construes CEA Section 

4a(a) To Mandate That the Commission 

Impose Position Limits 

C. Necessity Finding 

II. Proposed Compliance Date 

III. Reproposed Rules 

A. § 150.1—Definitions 

B. § 150.2—Position limits 

C. § 150.3—Exemptions 

D. § 150.5—Exchange-set speculative 

position limits and Parts 37 and 38 

E. Part 19—Reports by persons holding 

bona fide hedging positions pursuant to 

§ 150.1 of this chapter and by merchants 

and dealers in cotton 

F. § 150.7—Reporting requirements for 

anticipatory hedging positions 

G. § 150.9—Process for recognition of 

positions as non-enumerated bona fide 

hedging positions 

H. § 150.10—Process for designated 

contract market or swap execution 

facility exemption from position limits 

for certain spread positions 

I. § 150.11—Process for recognition of 

positions as bona fide hedging positions 

for unfilled anticipated requirements, 

unsold anticipated production, 

anticipated royalties, anticipated 

services contract payments or receipts, or 

anticipatory cross-commodity hedge 

positions 

J. Miscellaneous regulatory amendments 

1. Proposed § 150.6—Ongoing 

responsibility of DCMs and SEFs 

2. Proposed § 150.8—Severability 

3. Part 15—Reports—General provisions 

4. Part 17—Reports by reporting markets, 

futures commission merchants, clearing 

members, and foreign brokers 

5. Part 151—Position limits for futures and 

swaps, Commission Regulation 1.47 and 

Commission Regulation 1.48—Removal 

IV. Related Matters 

A. Cost-Benefit Considerations 

B. Paperwork Reduction Act 

C. Regulatory Flexibility Act 

V. Appendices 

A. Appendix A—Review of Economic 

Studies 

B. Appendix B—List of Comment Letters 

Cited in this Rulemaking 

I. Background 

A. Introduction 

The Commission has long established 

and enforced speculative position limits 

for futures and options contracts on 

various agricultural commodities as 

authorized by the Commodity Exchange 


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

2See 17 CFR part 150. Part 150 of the 

Commission’s regulations establishes federal 

position limits (that is, position limits established 

by the Commission, as opposed to exchange-set 

limits) on certain enumerated agricultural contracts; 

the listed commodities are referred to as 

enumerated agricultural commodities. The position 

limits on these agricultural contracts are referred to 

as ‘‘legacy’’ limits because these contracts on 

agricultural commodities have been subject to 

federal position limits for decades. See also Position 

Limits for Derivatives, 78 FR 75680 at 75723, n. 370 

and accompanying text (Dec. 12, 2013) (‘‘December 

2013 Position Limits Proposal’’). 

3See 17 CFR 150.2. 

4See 17 CFR 150.3. 

5See 17 CFR 150.4. 

6See generally December 2013 Positions Limits 

Proposal. In the December 2013 Position Limits 

Proposal, the Commission proposed to amend its 

position limits to also encompass 28 exempt and 

agricultural commodity futures and options 

contracts and the physical commodity swaps that 

are economically equivalent to such contracts. 

7The Commission previously had issued 

proposed and final rules in 2011 to implement the 

provisions of the Dodd-Frank Act regarding 

position limits and the bona fide hedge definition. 

Position Limits for Derivatives, 76 FR 4752 (Jan. 26, 

2011); Position Limits for Futures and Swaps, 76 FR 

71626 (Nov. 18, 2011). A September 28, 2012 order 

of the U.S. District Court for the District of 

Columbia vacated the November 18, 2011 rule, with 

the exception of the rule’s amendments to 17 CFR 

150.2. International Swaps and Derivatives 

Association v. United States Commodity Futures 

Trading Commission, 887 F. Supp. 2d 259 (D.D.C. 

2012). See generally the materials and links on the 

Commission’s Web site at http://www.cftc.gov/ 

LawRegulation/DoddFrankAct/Rulemakings/DF_

26_PosLimits/index.htm. The Commission issued 

the December 2013 Position Limits Proposal, among 

other reasons, to respond to the District Court’s 

decision in ISDA v. CFTC. See generally the 

materials and links on the Commission’s Web site 

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

DoddFrankAct/Rulemakings/ 

PositionLimitsforDerivatives/index.htm. 

8See CEA section 4a(a)(5), 7 U.S.C. 6a(a)(5) 

(providing that the Commission establish limits on 

economically equivalent contracts); CEA section 

4a(a)(6), 7 U.S.C. 6a(a)(6) (directing the Commission 

to establish aggregate position limits on futures, 

options, economically equivalent swaps, and 

certain foreign board of trade contracts in 

agricultural and exempt commodities (collectively, 

‘‘referenced contracts’’)). See December 2013 

Position Limits Proposal, 78 FR at 75825. Under the 

December 2013 Position Limits Proposal, 

‘‘referenced contracts’’ would have been defined as 

futures, options, economically equivalent swaps, 

and certain foreign board of trade contracts, in 

physical commodities, and been subject to the 

proposed federal position limits. The Commission 

proposed that federal position limits would apply 

to referenced contracts, whether futures or swaps, 

regardless of where the futures or swaps positions 

were established. See December 2013 Positions 

Limits Proposal, at 78 FR 75826 (proposed § 150.2). 

9See December 2013 Position Limits Proposal, 78 

FR at 75754–8. Consistent with DCM Core Principle 

5 and SEF Core Principle 6, the Commission 

proposed at § 150.5(a)(1) that for any commodity 

derivative contract that is subject to a speculative 

position limit under § 150.2, a DCM or SEF that is 

a trading facility shall set a speculative position 

limit no higher than the level specified in § 150.2. 

10See December 2013 Position Limits Proposal, 

78 FR at 75706–11, 75713–18. 

11See December 2013 Position Limits Proposal, 

78 FR at 75718. 

12See December 2013 Position Limits Proposal, 

78 FR at 75735–6. CEA section 4a(a)(1), 7 U.S.C. 

6a(a)(1), permits the Commission to exempt 

transactions normally known to the trade as 

‘‘spreads’’ from federal position limits. 

13Position Limits for Derivatives: Certain 

Exemptions and Guidance, 81 FR 38458 (June 13, 

2016) (‘‘2016 Supplemental Position Limits 

Proposal’’). 

Act (‘‘CEA’’).1 The part 150 position 

limits regime 2 generally includes three 

components: (1) The level of the limits, 

which set a threshold that restricts the 

number of speculative positions that a 

person may hold in the spot-month, 

individual month, and all months 

combined,3 (2) exemptions for positions 

that constitute bona fide hedging 

transactions and certain other types of 

transactions,4 and (3) rules to determine 

which accounts and positions a person 

must aggregate for the purpose of 

determining compliance with the 

position limit levels.5

In late 2013, the CFTC proposed to 

amend its part 150 regulations 

governing speculative position limits.6

These proposed amendments were 

intended to conform the requirements of 

part 150 to particular changes to the 

CEA introduced by the Wall Street 

Transparency and Accountability Act of 

2010 (’’Dodd-Frank Act’’).7 The 

proposed amendments included the 

adoption of federal position limits for 28 

exempt and agricultural commodity 

futures and option contracts and swaps 

that are ‘‘economically equivalent’’ to 

such contracts.8 In addition, the 

Commission proposed to require that 

DCMs and SEFs that are trading 

facilities (collectively, ‘‘exchanges’’) 

establish exchange-set limits on such 

futures, options and swaps contracts.9

Further, the Commission proposed to (i) 

revise the definition of bona fide 

hedging position (which includes a 

general definition with requirements 

applicable to all hedges, as well as an 

enumerated list of bona fide hedges),10

(ii) revise the process for market 

participants to request recognition of 

certain types of positions as bona fide 

hedges, including anticipatory hedges 

and hedges not specifically enumerated 

in the proposed bona fide hedging 

definition; 11 and (iii) revise the 

exemptions from position limits for 

transactions normally known to the 

trade as spreads.12

On June 13, 2016, the Commission 

published a supplemental proposal to 

its December 2013 Position Limits 

rulemaking.13 The supplemental 

proposal included revisions and 

additions to regulations and guidance 

proposed in 2013 concerning 

speculative position limits in response 

to comments received on that proposal, 

and alternative processes for DCMs and 

SEFs to recognize certain positions in 

commodity derivative contracts as nonenumerated bona fide hedges or 

enumerated anticipatory bona fide 

hedges, as well as to exempt from 

federal position limits certain spread 

positions, in each case subject to 

Commission review. In this regard, 

under the 2016 Supplemental Position 

Limits Proposal, certain of the 

regulations proposed in 2013 regarding 

exemptions from federal position limits 

and exchange-set position limits would 

be amended to take into account the 

alternative processes. In connection 

with those proposed changes, the 

Commission proposed to further amend 

certain relevant definitions, including to 

clearly define the general definition of 

bona fide hedging for physical 

commodities under the standards in 

CEA section 4a(c). Separately, the 

Commission proposed to delay for 

DCMs and SEFs that lack access to 

sufficient swap position information the 

requirement to establish and monitor 

position limits on swaps at this time. 

After review of the comments 

responding to both the December 2013 

Position Limits Proposal and the 2016 

Supplemental Position Limits Proposal, 

the Commission, in consideration of 

those comments, is now issuing a 

reproposal (‘‘Reproposal’’). The 

Commission invites comments on all 

aspects of this Reproposal. 

B. The Commission Preliminarily 

Construes CEA Section 4a(a) To 

Mandate That the Commission Impose 

Position Limits 

1. Introduction 

a. The History of Position Limits and the 

2011 Position Limits Rule 

As part of the Dodd-Frank Act, 

Congress amended the CEA’s position 

limits provision, which since 1936 has 

authorized the Commission (and its 

predecessor) to impose limits on 

speculative positions to prevent the 

harms caused by excessive speculation. 

Prior to the Dodd-Frank Act, CEA 

section 4a(a) stated that for the purpose 

of diminishing, eliminating or 

preventing specified burdens on 

interstate commerce, the Commission 

shall, from time to time, after due notice 

and an opportunity for hearing, by rule, 

regulation, or order, proclaim and fix 

such limits on the amounts of trading 

which may be done or positions which 

may be held by any person under 

contracts of sale of such commodity for 

future delivery on or subject to the rules 

of any contract market as the 

Commission finds are necessary to 


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14 7 U.S.C. 6a(a) (2006). 

15CEA section 4a(a)(2); 7 U.S.C. 6a(a)(2). The 

Commission notes that it uses the defined term 

‘‘bona fide hedging position’’ throughout part 150, 

rather than ‘‘bona fide hedge positions’’ found in 

CEA section 4a(a)(2). CEA section 4a(c)(1) uses the 

term ‘‘bona fide hedging transactions or positions’’ 

and CEA section 4a(c)(2) uses the term ‘‘bona fide 

hedging transaction or position.’’ The Commission 

interprets all of these terms to mean the same. It 

should be noted that the Commission previously 

imposed transaction volume limits on ‘‘the amounts 

of trading which may be done’’ as authorized by 

CEA section 4a(a)(1), but removed those transaction 

volume limits. Elimination of Daily Speculative 

Trading Limits, 44 FR 7124, 7127 (Feb. 6, 1979). 

16Position Limits for Futures and Swaps, 76 FR 

71626 (Nov. 18, 2011). As finalized, part 151 

replaced part 150. 

17 Id. at 71665; see also id at 716629–30. 

18 Id. at 71632–33 (transition), 71668–70 (spotmonth limit), 71671 (non-spot month limit). 

19 Id. at 71643–51. 

20 Id. at 71651–55. A central feature of any 

position limits regime is determining which 

positions to attribute to a particular trader. The CEA 

requires the Commission to attribute to a person all 

positions that the person holds or trades, as well as 

positions held or traded by anyone else that such 

person directly or indirectly controls. 7 U.S.C. 

6a(a)(1). This is referred to as account aggregation. 

In addition to account aggregation, Congress 

required the Commission to set limits on all 

derivative positions in the same underlying 

commodity that a trader may hold or control across 

all derivative exchanges. 7 U.S.C. 6a(a)(6). The 

Commission refers to this as position aggregation. 

21Position Limits for Futures and Swaps, 76 FR 

at 71626–628. 

22 International Swaps and Derivatives Ass’n v. 

United States Commodity Futures Trading Comm’n, 

887 F. Supp. 2d 259 (D.D.C. 2012). 

23 Id. at 270. 

24 Id. at 281. 

25 887 F. Supp. 2d at 274–76. 

26 887 F. Supp. 2d at 279–80. 

27 Id. at 280–82, quoting Peter Pan Bus Lines, Inc. 

v. Fed. Motor Carrier Safety Admin., 471 F.3d 1350, 

1354 (D.C. Cir. 2006). 

28 887 F. Supp. 2d at 282. 

29 Id. at n.7, quoting PDK Labs. Inc. v. DEA, 362 

F.3d 786, 797 (D.C. Cir. 2004). 

diminish, eliminate, or prevent such 

burden.14

In the Dodd-Frank Act, Congress 

renumbered a modified version of CEA 

section 4a(a) as section 4a(a)(1) and 

added, among other provisions, CEA 

section 4a(a)(2), captioned 

‘‘Establishment of Limitations,’’ which 

provides that in accordance with the 

standards set forth in CEA section 

4a(a)(1), the Commission shall establish 

limits on the amount of positions, as 

appropriate, other than bona fide hedge 

positions, that may be held by any 

person. CEA section 4a(a)(2) further 

provides that for exempt commodities 

(energy and metals), the limits required 

under CEA section 4a(a)(2) shall be 

established within 180 days after the 

date of the enactment of CEA section 

4a(a)(2); for agricultural commodities, 

the limits required under CEA section 

4a(a)(2) shall be established within 270 

days after the date of the enactment of 

CEA section 4a(a)(2).15

These and other changes to CEA 

section 4a(a) are described in more 

detail below. 

Pursuant to these amendments, the 

Commission adopted a position limits 

rule in 2011 (‘‘2011 Position Limits 

Rule’’) in a new part 151.16 In the 2011 

Position Limits Rule, the Commission 

imposed, in new part 151, speculative 

limits in the spot-month and non-spotmonths on 28 physical commodity 

derivatives ‘‘of particular significance to 

interstate commerce.’’ 17 Under the 2011 

Position Limits Rule, part 151 used 

formulas for calculating limit levels that 

are similar to the formulas used to 

calculate previous Commission- and 

exchange-set position limits.18 The 2011 

Position Limits Rule contained 

provisions in part 151 that implemented 

the statutory exemption for bona fide 

hedging.19 It also provided account 

aggregation standards to determine 

which positions to attribute to a 

particular market participant.20 Because 

it interpreted the Dodd-Frank Act as 

mandating position limits, the 

Commission did not make an 

independent threshold determination 

that position limits are necessary to 

accomplish the purposes set forth in the 

statute. The Commission explained: 

Congress directed the Commission to impose 

position limits and to do so expeditiously. 

Section 4a(a)(2)(B) states that the limits for 

physical commodity futures and options 

contracts ‘‘shall’’ be established within the 

specified timeframes, and section 4a(a)(2)(5) 

states that the limits for economically 

equivalent swaps ‘‘shall’’ be established 

concurrently with the limits required by 

section 4a(a)(2). The congressional directive 

that the Commission set position limits is 

further reflected in the repeated references to 

the limits ‘‘required’’ under section 

4a(a)(2)(A).21

ISDA and SIFMA sued the 

Commission to vacate part 151 on the 

basis (among others) that, in their view, 

CEA section 4a(a) clearly required the 

Commission to make an antecedent 

necessity finding. 

b. The District Court Opinion 

As set forth in the Commission’s 

December 2013 Position Limits 

Proposal,22 the district court in ISDA v. 

CFTC found that, on one hand, CEA 

section 4a(a)(1) ‘‘unambiguously 

requires that, prior to imposing position 

limits, the Commission find that 

position limits are necessary to 

‘diminish, eliminate, or prevent’ the 

burden described in [CEA section 

4a(a)(1)].’’ 23 On the other hand, the 

court found that the Dodd-Frank Act 

amendments to CEA section 4a(a) 

rendered section 4a(a)(1) ambiguous 

with respect to whether such findings 

are required for the position limits 

described in CEA section 4a(a)(2)— 

futures contracts, options, and certain 

swaps on agricultural and exempt 

commodities.24

The court’s determination in ISDA v. 

CFTC that CEA sections 4a(a)(1) and (2), 

read together, are ambiguous focused on 

the opening phrase of subsection (A)— 

‘‘[i]n accordance with the standards set 

forth in [CEA section 4a(a)(1)].’’ The 

court held that the term ‘‘standards’’ in 

CEA section 4a(a)(2) was ambiguous as 

to whether it referred to the requirement 

in CEA section 4a(a)(1) that the 

Commission impose position limits only 

‘‘as [it] finds are necessary to diminish, 

eliminate, or prevent’’ an unnecessary 

burden on interstate commerce.25 If not, 

‘‘standards’’ would refer to the 

aggregation and flexibility standards 

stated in CEA section 4a(a)(1) by which 

position limits are to be implemented. 

Accordingly, the court rejected both (1) 

the Commission’s contention that CEA 

section 4a(a) as a whole unambiguously 

mandated the imposition of position 

limits without the Commission finding 

independently that they are necessary; 

and (2) the plaintiffs’ contention that 

CEA section 4a(a) unambiguously 

required the Commission to make such 

findings before the imposition of 

position limits.26 The court stated that 

because the Commission had incorrectly 

found CEA section 4a(a) unambiguous, 

it could not defer to any interpretation 

by the Commission to resolve the 

section’s ambiguity. As the court 

observed, the D.C. Circuit has held that 

‘‘ ‘deference to an agency’s 

interpretation of a statute is not 

appropriate when the agency wrongly 

believes that interpretation is compelled 

by Congress.’ ’’ 27 The court further held 

that, pursuant to the law of the D.C. 

Circuit, it was required to remand the 

matter to the Commission so that it 

could ‘‘fill in the gaps and resolve the 

ambiguities.’’ 28 The court instructed 

that the Commission must apply its 

experience and expertise and cautioned 

that, in resolving the ambiguity in CEA 

section 4a(a), ‘‘ ‘it is incumbent upon the 

agency not to rest simply on its parsing 

of the statutory language.’ ’’ 29 The 

Commission does not rest simply on 

parsing the statutory language, but any 

interpretation necessarily begins with 

the text, which is described in the next 

section. 

2. The Statutory Framework for Position 

Limits 

Before the Dodd-Frank Act, what was 

then CEA section 4a(a) authorized the 


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30Under the heading of ‘‘Burden on interstate 

commerce; trading or position limits,’’ 7 U.S.C. 

6a(a) (2006) provided that excessive speculation in 

any commodity under contracts of sale of such 

commodity for future delivery made on or subject 

to the rules of contract markets or derivatives 

transaction execution facilities, or on electronic 

trading facilities with respect to a significant price 

discovery contract 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. 

Title 7 U.S.C. 6a(a) (2006) further provided that for 

the purpose of diminishing, eliminating, or 

preventing such burden, the Commission shall, 

from time to time, after due notice and opportunity 

for hearing, by rule, regulation, or order, proclaim 

and fix such limits on the amounts of trading which 

may be done or positions which may be held by any 

person under contracts of sale of such commodity 

for future delivery on or subject to the rules of any 

contract market or derivatives transaction execution 

facility, or on an electronic trading facility with 

respect to a significant price discovery contract, as 

the Commission finds are necessary to diminish, 

eliminate, or prevent such burden. Additionally, 7 

U.S.C. 6a(a) (2006) stated that in determining 

whether any person has exceeded such limits, the 

positions held and trading done by any persons 

directly or indirectly controlled by such person 

shall be included with the positions held and 

trading done by such person; and further, such 

limits upon positions and trading shall apply to 

positions held by, and trading done by, two or more 

persons acting pursuant to an expressed or implied 

agreement or understanding, the same as if the 

positions were held by, or the trading were done by, 

a single person. Title 7 U.S.C. 6a(a) (2006) further 

stated that nothing in that section shall be 

construed to prohibit the Commission from fixing 

different trading or position limits for different 

commodities, markets, futures, or delivery months, 

or for different number of days remaining until the 

last day of trading in a contract, or different trading 

limits for buying and selling operations, or different 

limits for the purposes of paragraphs (1) and (2) of 

subsection (b) of this section, or from exempting 

transactions normally known to the trade as 

‘‘spreads’’ or ‘‘straddles’’ or ‘‘arbitrage’’ or from 

fixing limits applying to such transactions or 

positions different from limits fixed for other 

transactions or positions. Moreover, 7 U.S.C. 6a(a) 

(2006) defined the word ‘‘arbitrage’’ in domestic 

markets to mean the same as a ‘‘spread’’ or 

‘‘straddle.’’ It also authorized the Commission to 

define the term ‘‘international arbitrage.’’ 7 U.S.C. 

6a(a) (2006). 

31There were four other subsections of CEA 

section 4a: CEA section 4a(b), which made it 

unlawful for a person to hold positions in excess 

of Commission-set limits; CEA section 4a(c), which 

exempted positions held under an exemption for 

bona fide hedges, CEA section 4a(d), which 

exempted positions held by or on behalf of the 

United States, and CEA section 4a(e), which 

authorized exchanges to set limits so long as they 

were not higher than Commission-set limits and 

made it unlawful for any person to hold limits in 

excess of exchange-set limits. (Exchange-set limits 

are also addressed elsewhere in the CEA. E.g., 7 

U.S.C. 7(d)(5)). 

32 15 U.S.C. 8307(a). Some parts of pre DoddFrank CEA sections 4a(a) and 4a(b)–(e) were also 

amended by the Dodd-Frank Act. CEA section 4a(a) 

is now CEA section 4a(a)(1) and was modified 

primarily to add swaps, CEA section 4a(b) updates 

the names of applicable exchanges, and CEA 

section 4a(c) requires the Commission to 

promulgate a rule in accordance with a narrowed 

definition of bona fide hedging position as an 

exemption from position limits. 7 U.S.C. 6a(a)(1), 

6a(b)–(e). 

33 7 U.S.C. 6a(a)(2)(B)(i) and (ii). 

34 7 U.S.C. 6a(a)(3)–(7). 

35 15 U.S.C. 8307(a). 

36 December 2013 Position Limits Proposal, 78 FR 

at 75685. 

Commission to set limits on futures for 

any exchange-traded contract for future 

delivery of any commodity ‘‘as the 

Commission finds are necessary to 

diminish, eliminate, or prevent [the] 

burden’’ of ‘‘[e]xcessive speculation’’ 

‘‘causing sudden or unreasonable 

fluctuations or unwarranted changes in 

the price of such commodity.’’ 7 U.S.C. 

6a(a) (2009 Supp.).30 CEA section 4a(a) 

also required the Commission to follow 

certain criteria for aggregating limits 

once it made that determination. And 

the Commission was authorized to 

impose limits flexibly, depending on the 

commodity, delivery month, and other 

factors.31

The 2010 Dodd-Frank Act 

amendments to CEA section 4a(a) 

significantly expanded and altered it. 

The entirety of pre-Dodd-Frank CEA 

section 4a(a) became CEA section 

4a(a)(1). Congress added six new 

subsections to CEA section 4a(a)— 

sections 4a(a)(2) through (7). And, 

outside of section 4a(a), Congress 

imposed a requirement that the 

Commission study the new limits it 

imposed and provide Congress with a 

report on their effects within one year 

of their imposition.32

The primary change at issue here was 

the addition of new CEA section 

4a(a)(2), which addresses position limits 

on a specific class of commodity 

contracts, ‘‘physical commodities other 

than excluded commodities’’: 

CEA section 4a(a)(2)(A) provides that 

in accordance with the standards set 

forth in CEA section 4a(a)(1), with 

respect to physical commodities other 

than excluded commodities, the 

Commission shall establish limits on the 

amount of positions, as appropriate, 

other than bona fide hedge positions, 

that may be held by any person with 

respect to contracts of sale for future 

delivery or with respect to options on 

the contracts. 

CEA section 4a(a)(2)(B), in turn, 

provides that the limits ‘‘required’’ 

under CEA section 4a(a)(2)(A) ‘‘shall be 

established within 180 days after the 

date of enactment of this paragraph’’ for 

‘‘agricultural commodities’’ (such as 

wheat or corn) and ‘‘within 270 days 

after the date of the enactment of this 

paragraph’’ for ‘‘exempt commodities’’ 

(which include energy-related 

commodities like oil, as well as 

metals).33

The other new subsections of CEA 

section 4a(a) delineate the types of 

physical commodity derivatives to 

which the new limits apply, set forth 

criteria for the Commission to consider 

in determining the levels of the required 

limits, require the Commission to 

aggregate the limits across exchanges for 

equivalent derivatives, require the 

Commission to impose limits on swaps 

that are economically equivalent to the 

physical commodity futures and options 

subject to CEA section 4a(a)(2), and 

permit the Commission to grant 

exemptions from the position limits it 

must impose under the provision: 

• Section 4a(a)(3) guides the 

Commission in setting appropriate limit 

levels by providing that the Commission 

shall consider whether the limit levels: 

(i) Diminish, eliminate, or prevent 

excessive speculation; (ii) deter and 

prevent market manipulation, squeezes, 

and corners; (iii) ensure sufficient 

market liquidity for bona fide hedgers; 

and (iv) ensure that the price discovery 

function of the underlying market is not 

disrupted; 

• Section 4a(a)(4) sets forth criteria 

for determining which swaps perform a 

significant price discovery function for 

purposes of the position limits 

provisions; 

• Section 4a(a)(5) requires the 

Commission to concurrently impose 

appropriate limit levels on physical 

commodity swaps that are economically 

equivalent to the futures and options for 

which limits are required; 

• Section 4a(a)(6) requires the 

Commission to apply the required 

position limits on an aggregate basis to 

contracts based on the same underlying 

commodity across all exchanges; and 

• Section a(a)(7) authorizes the 

Commission to grant exemptions from 

the position limits it imposes.34

In a separate Dodd-Frank Act provision, 

Congress required that the Commission, 

in consultation with exchanges, ‘‘shall 

conduct a study of the effects (if any) of 

the position limits imposed’’ under CEA 

section 4a(a)(2), that ‘‘[w]ithin twelve 

months after the imposition of position 

limits’’ the Commission ‘‘shall’’ submit 

a report of the results of the study to 

Congress, and that Congress ‘‘shall’’ 

hold hearings within 30 days of receipt 

of the report regarding its findings.35

3. The Commission’s Experience With 

Position Limits 

As explained in the December 2013 

Position Limits Proposal, position limits 

have a long history as a tool to prevent 

unwarranted price movement and 

volatility, including but not limited to 

price swings caused by market 

manipulation.36 Physical commodities 

underlying futures contracts are, by 

definition, in finite supply, and so it is 


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37Frank M. Surface, The Grain Trade During the 

World War, at 224 (Macmilliam 1928). 

38 Grain Futures Act of 1922, ch. 369 at section 

3, 342 Stat. 998, 999 (1922), codified at 7 U.S.C. 5 

(1925–26). 

39See Speculative Position Limits—Exemptions 

From Commission Rule 1.61; Chicago Mercantile 

Exchange Proposed Amendments to Rules 3902.D, 

5001.E, 3010.F, 3012.F, 3013.F, 3015.F, 4604, and 

Deletion of Rules 3902.F, 5001.G, 3010.H., 3012.M, 

3013.H, and 3015.H, 56 FR 51687 (Oct. 15, 1991) 

(providing notice of proposed exchange rule 

changes; request for comments). The Government, 

either through Congress, CEC or the Commission, 

has maintained position limits on various 

agricultural commodities since 1917. 

40 December 2013 Position Limits Proposal, 78 FR 

at 75681–85; Significant Price Discovery Contracts 

on Exempt Commercial Markets, 74 FR 12178 

(March 23, 2009). 

41 December 2013 Position Limits Proposal, 78 FR 

at 75682–83 (citing 887 F. Supp. 2d at 273). 

42 887 F. Supp. 2d at 269. 

43See In the Matter of Limits on Position and 

Daily Trading in Wheat, Corn, Oats, Barley, Rye, 

and Flaxseed, for Future Delivery Findings of Fact, 

Conclusions, and Order, 3 FR 3145, Dec. 24, 1938. 

44See 2 FR 2460, Nov. 12, 1937. 

45See Limitation on Buying or Selling of Cotton 

Notice of Hearing, 4 FR 3903, Sep. 14, 1939; Part 

150—Orders of the Commodity Exchange 

Commission Findings of Fact, Conclusions, and 

Order In the Matter of Limits on Position and Daily 

Trading in Cotton for Future Delivery, 5 FR 3198, 

Aug. 28, 1940. 

46See Handling of Anti-Hog-Cholera Serum and 

Hog-Cholera Virus; Notice of Proposed Rule Making 

16 FR 321, Jan. 12, 1951; Limits on Position and 

Daily Trading in Eggs for Future Delivery, 16 FR 

8106, Aug. 16, 1951; see also Limits on Positions 

and Daily Trading in Cottonseed Oil, Soybean Oil, 

and Lard for Future Delivery, 17 FR 6055, Jul. 4, 

1952 (providing notice of a hearing regarding 

proposed position limits for cottonseed oil, soybean 

oil, and lard); Limits on Position and Daily Trading 

in Cottonseed Oil for Future Delivery, 18 FR 443, 

Jan. 22, 1953 (giving orders setting limits for 

cottonseed oil, soybean oil, and lard); Limits on 

Position and Daily Trading in Onions for Future 

Delivery; Notice of Hearing, 21 FR 1838, Mar. 24, 

1956 (conveying notice of a hearing regarding 

proposed position limits for onions), Limits on 

Position and Daily Trading in Onions for Future 

Delivery, 21 FR 5575, Jul. 25, 1956 (providing order 

setting position limits for onions). 

47Although the Commission did not meet these 

deadlines in its first position limits rulemaking, it 

completed the task (in which the Commission 

received and addressed more than 15,000 

comments) as expeditiously as possible under the 

circumstances. 

possible to amass or dissipate an 

extremely large position in such a way 

as to interfere with the normal forces of 

supply and demand. Speculators (who 

have no commercial use for the 

underlying commodity) are considered 

differently from hedgers (who use 

commodity derivatives to hedge 

commercial risk). Speculators have been 

considered a greater source of risk 

because their trading is unconnected 

with underlying commercial activity, 

whereas a hedger’s trading is calibrated 

to other business needs. In various 

statutory enactments, Congress has 

recognized both the utility of position 

limits and the need to treat speculators 

differently from hedgers. 

Congress began regulating commodity 

derivatives in 1917, when Congress 

enacted emergency legislation to 

stabilize the U.S. grain markets during 

the First World War by suspending 

wheat futures and securing ‘‘a voluntary 

limitation’’ of 500,000 bushels on 

trading in corn futures.37 In 1922 

Congress enacted the Grain Futures Act, 

in which it noted that ‘‘sudden or 

unreasonable fluctuations in the prices 

of commodity futures . . . frequently 

occur as a result of speculation, 

manipulation, or control . . . .’’ 38 In 

1936, Congress strengthened the 

government’s authority by providing for 

limits on speculative trading in 

commodity derivatives when it enacted 

the CEA. The CEA authorized the 

CFTC’s predecessor, the Commodity 

Exchange Commission (CEC), to 

establish limits on speculative trading. 

Since that time, the Commission has 

been establishing or authorizing 

position limits for the past 80 years. As 

discussed in the December 2013 

Position Limits Proposal and prior 

rulemakings, this history includes 

setting position limits beginning in 

1938; overseeing exchange-set limits 

beginning in the 1960s; promulgating a 

rule in 1981, later directly ratified by 

Congress, mandating that exchanges set 

limits for all commodity futures for 

which there were no limits; allowing 

exchanges, in the 1990s, to set position 

accountability levels for certain 

financial contracts, such as futures and 

options on foreign currencies and other 

financial instruments with high degrees 

of stability; 39 and later expanding 

exchange limits or accountability 

requirements to significant price 

discovery contracts traded on exempt 

commercial markets.40

As addressed in the December 2013 

Position Limits Proposal, two aspects of 

the Commission’s experience are 

particularly important to the 

Commission’s interpretation of the 

Dodd-Frank Act amendments to CEA 

section 4a. The first is the Commission’s 

experience with the time required to 

make necessity findings before setting 

limits, which relates to the time limits 

contained in CEA section 4a(a)(2)(B). 

The second is the Commission’s 

experience in rulemaking requiring 

exchanges to set limits in accordance 

with certain ‘‘standards,’’ the term the 

district court found ambiguous. 

a. Time to Establish Position Limits 

Based on its experience administering 

position limits, the Commission 

preliminarily concludes (as stated 

preliminarily in the December 2013 

Position Limits Proposal) that Congress 

could not have contemplated that, as a 

prerequisite to imposing limits, the 

Commission would first make 

antecedent commodity-by-commodity 

necessity determinations in the 180–270 

day time frame within which CEA 

section 4a(a)(2)(B) states that limits 

‘‘required under subparagraph 

[4a(a)(2(A)] shall be established.’’ 41 As 

described in the December 2013 

Position Limits Proposal, for 45 years 

after passage of the CEA, the 

Commission’s predecessor agency made 

findings of necessity in its rulemakings 

establishing position limits.42 During 

that period, the Commission had 

jurisdiction over only a limited number 

of agricultural commodities. In orders 

issued by the Commodity Exchange 

Commission between 1940 and 1956 

establishing position limits, the CEC 

stated that the limits it was imposing in 

each were necessary. Each of those 

orders involved no more than a small 

number of commodities. But it took the 

CEC many months to make those 

findings. For example, in 1938, the CEC 

imposed position limits on six grain 

products.43 Proceedings leading up to 

the establishment of the limits 

commenced more than 13 months 

earlier, when the CEC issued a notice of 

hearing regarding the limits.44

Similarly, in September 1939, the CEC 

issued a Notice of Hearing with respect 

to position limits for cotton, but it was 

not until August 1940 that the CEC 

finally promulgated such limits.45 And 

the CEC began the process of imposing 

limits on soybeans and eggs in January 

1951, but did not complete the process 

until more than seven months later.46

In the Commission’s experience 

(including the experience of its 

predecessor agency), it generally took 

many months to make a necessity 

finding with respect to one commodity. 

The process of making the sort of 

necessity findings that plaintiffs in ISDA 

v. SIFMA urged with respect to all 

agricultural commodities and all exempt 

commodities (and that some 

commenters urge) would be far more 

lengthy than the time allowed by CEA 

section 4a(a)(3), i.e., 180 or 270 days 

from enactment of the Dodd-Frank 

Act.47 Because of the stringent time 

limits in CEA section 4a(a)(2)(B), the 

Commission concludes that Congress 

did not intend for the Commission to 

delay the imposition of limits until it 

first made antecedent, contract-bycontract necessity findings. 


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48Establishment of Speculative Position Limits, 

46 FR 50938, 50944–45, Oct. 16, 1981. The rule 

adopted in 1981 tracked, in significant part, the 

language of CEA section 4a(1). Compare 17 CFR 

1.61(a)(1) (1982) with 7 U.S.C. 6a(1) (1976). 

49Establishment of Speculative Position Limits, 

46 FR at 50945. 

50 Id. at 50939; see also id. at 50938 (‘‘to ensure 

that each futures and options contract traded on a 

designated contract market will be subject to 

speculative position limits’’). 

51Compare id. at 50941–42, 50945 with 7 U.S.C. 

6a(a)(2)(A). 

52Establishment of Speculative Position Limits, 

46 FR 50941–42, 50945. 

53 Id. at 50941–42 (preamble), 50945 (text of 

§ 1.61(a)(2)). 

54The Commission believes it likely that, given 

the prophylactic purposes articulated in current 

CEA section 4a(a)(1)(A), a similar view of position 

limits underpins CEA section 4a(a)(2)(A). 

55Establishment of Speculative Position Limits. 

46 FR at 50942. 

56 Id. at 50945 (§ 1.61(a)). Compare 7 U.S.C. 6a(1) 

(1976). 

57As discussed in further detail regarding 

congressional investigations, below, it is especially 

reasonable to infer that Congress had in fact made 

such a determination based on the congressional 

investigations that preceded these Dodd-Frank Act 

amendments. The fact that the Commission already 

had the clear authority to impose limits when it 

deemed them necessary bolsters this inference, 

because there was no need for these Dodd-Frank 

Act amendments to the position limits statute 

unless Congress, based on its own determination of 

necessity, sought to direct the Commission to 

impose limits. 

58The relevant broader legislative history is 

discussed in depth, below. 

59H.R. 977, 11th Cong. (2009). 

60 7 U.S.C. 6. 

61Compare H.R. 977, 11th Cong. (2009) with 

Establishment of Speculative Position Limits, 46 FR 

at 50944. 

62H.Rept. 111–385, at 15, 19 (Dec. 19, 2009). 

63See Union Carbide Corp. & Subsidiaries v. 

Comm’r of Internal Revenue, 697 F.3d 104, 109 (2d 

Cir. 2012) (explaining that when an agency must 

resolve a statutory ambiguity, to do so ‘‘with the aid 

of reliable legislative history is rational and 

prudent’’ (quoting Robert A. Katzman, Madison 

Lecture: Statutes, 87 N.Y.U. L. Rev. 637, 659 

(2012)). 

64S. Rep. No. 97–384, at 44 (1982). 

b. Prior Rulemaking Requiring 

Exchanges to Set Limits 

The CFTC’s preliminary 

interpretation of the statute is also based 

in part on its promulgation of a rule in 

1981 requiring exchanges to impose 

limits on all contracts that did not 

already have limits. In that rulemaking, 

the Commission, acting expressly 

pursuant to, inter alia, what was then 

CEA section 4a(1) (predecessor to CEA 

section 4a(a)(1)), adopted what was then 

17 CFR 1.61.48 This rule required 

exchanges to set speculative position 

limits ‘‘for each separate type of contract 

for which delivery months are listed to 

trade’’ on any DCM, including 

‘‘contracts for future delivery of any 

commodity subject to the rules of such 

contract market.’’ 49 The Commission 

explained that this action would ‘‘close 

the existing regulatory gap whereby 

some but not all contract markets [we]re 

subject to a specified speculative 

position limit.’’ 50

Like the Dodd-Frank Act, the 1981 

final rule established (and the rule 

release described) that such limits 

‘‘shall’’ be established according to what 

the Commission termed ‘‘standards.’’ 51

As used in the 1981 final rule and 

release, ‘‘standards’’ meant the criteria 

for determining how the required limits 

would be set.52 ‘‘Standards’’ did not 

include the antecedent ‘‘necessity’’ 

determination of whether to order limits 

at all. The Commission had already 

made the antecedent judgment in the 

rule that ‘‘speculative limits are 

appropriate for all contract markets 

irrespective of the characteristics of the 

underlying market.’’ 53 The Commission 

further concluded that, with respect to 

any particular market, the ‘‘existence of 

historical trading data’’ showing 

excessive speculation or other burdens 

on that market is not ‘‘an essential 

prerequisite to the establishment of a 

speculative limit.’’ 54

The Commission thus directed the 

exchanges to set limits for all futures 

contracts ‘‘pursuant to the . . . 

standards of rule 1.61,’’ without 

requiring that the exchanges first make 

a finding of necessity.55 And rule 1.61 

incorporated the ‘‘standards’’ from thenCEA-section 4a(1)—an ‘‘Aggregation 

Standard’’ (46 FR at 50943) for applying 

the limits to positions both held and 

controlled by a trader, and a flexibility 

standard allowing the exchanges to set 

‘‘different and separate position limits 

for different types of futures contracts, 

or for different delivery months, or from 

exempting positions which are normally 

known in the trade as ‘spreads, 

straddles or arbitrage’ or from fixing 

limits which apply to such positions 

which are different from limits fixed for 

other positions.’’ 56 Because the 

Commission had already made the 

antecedent necessity findings, it 

imposed tight deadlines for the 

exchanges to establish the limits. It is, 

accordingly, reasonable to believe that 

Congress would have structured CEA 

section 4a(a) similarly, by first making 

the antecedent necessity determination 

on its own,57 then directing the 

Commission to impose the limits 

without making an independent 

determination of necessity, and then 

using the term ‘‘standards’’ just as the 

Commission did in 1981 to refer to 

aggregation and flexibility rather than 

necessity for the required limits. 

Indeed, legislative history shows 

reason to believe that Congress’ choice 

of the word ‘‘standards’’ to refer to 

aggregation and flexibility alone was 

purposeful and intended it to mean the 

same thing it did in the Commission’s 

1981 rule.58 The language that 

ultimately became section 737 of the 

Dodd-Frank Act, amending CEA section 

4a(a), originated in substantially final 

form in H.R. 977, introduced by 

Representative Peterson, who was then 

Chairman of the House Agriculture 

Committee and who would ultimately 

be a member of the Dodd-Frank Act 

conference committee.59 In important 

respects, the language of H.R. 977 

resembles the language the Commission 

used in 1981, suggesting that the 

regulation’s text may have influenced 

the statutory text. Like the 

Commission’s 1981 rule, H.R. 977 states 

that there ‘‘shall’’ be position limits in 

accordance with the ‘‘standards’’ 

identified in CEA section 4a(a).60 This 

language was included in CEA section 

4a(a)(2) as adopted. Also like the 1981 

rule, H.R. 977 established (and the 

Dodd-Frank Act ultimately adopted) a 

‘‘good faith’’ exception for positions 

acquired prior to the effective date of 

the mandated limits.61 The committee 

report accompanying H.R. 977 described 

it as ‘‘Mandat[ing] the CFTC to set 

speculative position limits’’ and the 

section-by-section analysis stated that 

the legislation ‘‘requires the CFTC to set 

appropriate position limits for all 

physical commodities other than 

excluded commodities.’’ 62 This closely 

resembles the omnibus prophylactic 

approach the Commission took in 1981, 

when the Commission required the 

establishment of position limits on all 

futures contracts according to 

‘‘standards’’ it borrowed from CEA 

section 4a(1). The Commission views 

the history and interplay of the 1981 

rule and Dodd-Frank Act section 737 as 

further evidence that Congress intended 

to follow much the same approach as 

the Commission did in 1981, mandating 

position limits as to all physical 

commodities.63

There is further evidence based on the 

1981 rulemaking that Congress would 

have found the across-the-board 

prophylactic approach attractive. In 

1983, when enacting the Futures 

Trading Act of 19982, Public Law 97– 

444, 96 Stat. 2294 (1983), Congress was 

aware that the Commission had 

‘‘promulgated a final rule requiring 

exchanges to submit speculative 

position limit proposals for Commission 

approval for all futures contracts traded 

as of that date.’’ 64 Presented with 

competing industry and Commission 

proposals to amend the position limits 

statute, Congress elected to amend the 


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65 Id. 

66A list is provided below in Section V, 

Appendix B, of the full names, abbreviations, dates 

and comment letter numbers for all comment letters 

cited in this rulemaking. The Commission notes 

that many commenters submitted more than one 

comment letter. Additionally, all comment letters 

that pertain to the December 2013 Position Limits 

Proposal and the 2016 Supplemental Position 

Limits Proposal, including non-substantive 

comment letters, are contained in the rulemaking 

comment file and are available through the 

Commission’s Web site at http://comments.cftc.gov/ 

PublicComments/CommentList.aspx?id=1708. A 

search can be done online for a particular comment 

letters by inserting the specific comment letter 

number in the address in place of the hash tags in 

the following web address: http://

comments.cftc.gov/PublicComments/ 

ViewComment.aspx?id=#####&SearchText. 

67One commenter questioned whether the 

Commission’s experience was even relevant. This 

commenter asserted that the statute clearly and 

unambiguously does not mandate imposition of 

position limits, and therefore no consideration or 

deference to the Commission’s experience is 

appropriate. CL–ISDA/SIFMA–59611 at 7. But the 

district court disagreed and directed the 

Commission to employ its experience in resolving 

the ambiguities in the statute. 887 F. Supp. 2d at 

270, 280–82. In any event, for the reasons 

discussed, the Commission’s reading is, at a 

minimum, reasonable. 

68E.g., CL–CME–59718 at 2; see also CL–ISDA/ 

SIFMA–59611 at 3, 27–32, App. A at 11, App. B at 

6 (arguing for alternatives to limits outside the spot 

month). 

69CL–CME–59718 at 18. 

70CL–CMOC–60400 at 3; and CL-Public Citizen60390 at 2–3. 

71E.g., CL–A4A–59714 at 3. 

72CL–CME–59718 at 7; and CL–ISDA/SIFMA– 

59611 at 9, n. 32 (asserting that deadlines are no 

excuse for the Commission to be ‘‘arbitrary’’ or 

‘‘sloppy.’’). 

73CL–CME–59718 at 7. 

74 Id. at 9–10. 

75CL–AMG–59709 at 4, n. 8; and CL–CME–59718 

at 15–16. 

76Establishment of Speculative Position Limits, 

46 FR at 50940–41 (Oct. 16, 1981). 

CEA ‘‘to clarify and strengthen the 

Commission’s authority in this area,’’ 

including authorizing the Commission 

to prosecute violations of exchange-set 

limits as if they were violations of the 

CEA.65 Thus, by granting the 

Commission explicit authority to 

enforce the Commission-mandated 

exchange-set limits, Congress in effect 

ratified the 1981 rule, finding it 

reasonable to impose position limits on 

an across-the board basis, rather than 

following a commodity-by-commodity 

determination. This contributes to the 

Commission’s judgment that Congress 

reasonably could have followed a 

similar approach here and, for the 

reasons given elsewhere, likely did. 

c. Comments 66

i. Commission’s Experience: No 

commenter disputed the depth or 

breadth of the Commission’s experience 

and expertise with position limits.67

Most, if not all, commenters, many of 

them exchanges, traders, and other 

market participants who have been 

subject to a long-standing federal and 

exchange-set limit regime, implicitly or 

explicitly agreed that at least spotmonth position limits continue to be 

essential to prevent manipulation and 

excessive volatility and thus serve the 

public interest.68 One commenter 

acknowledged that only the 

Commission can impose and monitor 

limits across exchanges.69 Another 

opined that only the Commission could 

impose limits without any conflicts of 

interest due to the exchanges’ 

imperative to maximize trading volume 

in order to maximize profit.70

ii. Time to Establish Limits: No 

commenters disputed the fact that it 

took many months for the Commission 

to make a necessity determination 

before establishing limits. Some 

commenters agreed with the 

determinations the Commission 

preliminarily drew from its 

experience.71

Several commenters asserted that the 

Commission’s reliance on the timelines 

to support its view ignores other 

qualifying language in the statute, such 

as the terms ‘‘necessary’’ and 

‘‘appropriate.’’ 72 The Commission 

disagrees, because its interpretation of 

the statute considers the relevant 

provisions as an integrated whole, 

which is required in interpreting any 

statute. Under this approach, it is 

appropriate to give consideration to the 

import of the tight statutory deadlines in 

light of the Commission’s experience 

that it could not possibly comply with 

if it had to make necessity findings as 

it has in the past. These comments fail 

to take these considerations into 

account. The Commission addresses the 

language relied upon by these 

commenters, infra, in its discussion of 

the text of the statute. 

CME also contended that the 180- and 

270-day time limits were a difficulty 

manufactured by the December 2013 

Position Limits Proposal itself. 

According to CME, the Commission 

could instead expedite the process for 

setting limits by utilizing its exchanges 

and others to determine whether 

position limits are necessary and 

appropriate for a particular commodity 

and, if so, the appropriate types and 

levels of limits and related 

exemptions.73 While this is a plausible 

approach to generating necessity 

findings, the Commission views it 

unlikely that Congress had this 

approach in mind. The provisions at 

issue make no mention of exchange-set 

limits or necessity findings. CME also 

gave no reason to believe that 

commodity-by-commodity necessity 

findings could be made by the 

exchanges within the prescribed 180/ 

270 day limits. 

iii. 1981 Rulemaking: Some 

commenters disagreed with the 

Commission’s consideration of the 1981 

Rule. CME commented that the 1981 

Rule is inapposite because there the 

Commission was requiring DCMs to 

impose position limits based on an 

‘‘antecedent judgment’’ that limits were 

necessary and appropriate; a necessity 

finding was not required there.74 The 

Commission believes that CME’s 

observation is consistent with its 

interpretation. In the 1981 rule, the 

Commission made an antecedent 

judgment on an across-the-board basis 

that position limits were necessary, and 

the exchanges then set them according 

to specific standards. Here, Congress has 

made the antecedent judgment on an 

across-the-board basis that position 

limits are necessary for physical 

commodities (i.e., commodities other 

than excluded commodities), and 

ordered the Commission to set them 

according to the same types of standards 

referenced in the 1981 rule. This 

supports, rather than undermines, the 

Commission’s interpretation that the 

‘‘standards’’ in CEA section 4a(a)(1), 

referred to in CEA section 4a(a)(2) as 

added by the Dodd-Frank Act, are the 

flexibility and aggregation standards, 

much as they were in the 1981 

rulemaking interpreting CEA section 

4a(a)(1). 

Several commenters contended that 

the Commission’s reliance on the 1981 

rulemaking ignores that the CFTC then 

imposed limits only after a factintensive inquiry into the characteristics 

of individual contracts markets to 

determine the limits most appropriate 

for individual contract markets.75

However, the Commission has taken 

those inquiries into account. The 

Commission believes these inquiries are 

significant because while the 

Commission performed such 

investigation for some markets, it did 

not do so for all markets ultimately 

within the scope of the rule. The 1981 

Rule directed exchanges to impose 

limits on all futures contracts for which 

exchanges had not already imposed 

limits. For example, citing a then-recent 

disruption in the silver market, the 

Commission directed that position 

limits be imposed prophylactically for 

all futures and options contracts.76 It 

further directed the exchanges to 

consider the characteristics of particular 

contracts and markets in determining 

how to set limits (the standards, limit 


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77 Id. 

78 Id. 

79CL–ISDA/SIFMA–59611 at 9. 

80CFTC v. Schor, 478 U.S. 833, 846 (1986). 

81E.g., CL–ISDA/SIFMA–59611 at 9; and CL– 

AMG–59709 at 4, n.8. 

82Union Carbide Corp. & Subsidiaries v. Comm’r 

of Internal Revenue, 697 F.3d 104, 109 (2d Cir. 

2012) (explaining that when an agency must resolve 

a statutory ambiguity, to do so ‘‘with the aid of 

reliable legislative history is rational and prudent’’ 

(quoting Robert A. Katzman, Madison Lecture: 

Statutes, 87 N.Y.U. L. Rev. 637, 659 (2012)). 

83 December 2013 Position Limits Proposal, 78 FR 

at 75682, 75684–85. 

84 Id. at 75682. 

85Federal Speculative Position Limits for 

Referenced Energy Contracts and Associated 

Regulations, 75 FR 4144, 4147 (Jan. 26, 2010); 

Revision of Federal Speculative Position Limits and 

Associated Rules, 64 FR 24038, 24048–49 (May 5, 

1999). 

86Commodity Futures Modernization Act of 

2000, Public Law 106–554, 114 Stat. 2763 (Dec. 21, 

2000). 87 7 U.S.C. 7(d)(3) (2009). 88The Role of Market Speculation in Rising Oil 

and Gas Prices: A Need to Put the Cop Back on the 

Beat, Staff Report, Permanent Subcommittee on 

Investigations of the Senate Committee on 

Homeland Security and Governmental Affairs, U.S. 

Senate, S. Prt. No. 109–65 at 1 (June 27, 2006). 89 Id. at 12; see also Excessive Speculation in the 

Natural Gas Market, Staff Report, Permanent 

Subcommittee on Investigations of the Senate 

Committee on Homeland Security and 

Governmental Affairs, U.S. Senate at 1 (June 25, 

2007), available at http://www.levin.senate.gov/ 

imo/media/doc/supporting/2007/ 

PSI.Amaranth.062507.pdf (last visited Mar. 18, 

2013) (‘‘Gas Report’’). 

90 Gas Report at 1–2. 

91 156 Cong. Record S. 4064 (daily ed. May 20, 

2010). 

92S. Rep. 111–176, at 29 (2010). 

levels and so on) but not whether to do 

so.77 It specifically rejected 

commenters’ concerns that position 

limits would not be beneficial for all 

contracts, finding, after ‘‘considerable 

years of Federal and contract market 

regulatory experience,’’ that ‘‘the 

capacity of any contract market . . . is 

not unlimited,’’ and there was no need 

to evaluate the particulars of whether 

any contract would benefit from 

position limits.78 The Dodd-Frank Act 

amendments unfolded in an analogous 

fashion. Prior to the Dodd-Frank Act, 

Congress conducted studies of some, but 

not all, markets in physical 

commodities. This history suggests that 

Congress extrapolated from the 

conclusions reached in those studies to 

determine that position limits were 

necessary for all physical commodities 

other than excluded commodities. 

ISDA and SIFMA asserted that the 

Commission’s reliance on the 1981 

rulemaking is unavailing because (1) it 

cannot alter the Commission’s statutory 

burdens with respect to imposing 

position limits; and (2) it was never 

adopted by Congress.79 The first of these 

comments begs the question, i.e., what 

is ‘‘the statutory burden’’ intended in 

the text of CEA sections 4a(a)(1) and (2), 

read as a whole and considered in 

context to resolve the ambiguity found 

by the district court. As to the second 

comment, the Commission does not 

contend that Congress adopted the 1981 

rule. Rather, it is relevant because the 

language the district court found 

ambiguous in the Dodd-Frank Act 

amendments to CEA section 4a(a) 

resembles the language of the 1981 rule, 

and some of the context is parallel. The 

relevance of this rulemaking is 

supported by the fact that Congress did 

ratify it the following year, when it 

amended the CEA by granting the 

Commission the authority to enforce the 

position limits set by the exchanges, 

reinforcing that as a historical matter 

Congress had approved an omnibus 

prophylactic approach as reasonable. 

That Congress had approved of such an 

approach before and then used language 

in the Dodd-Frank Act that closely 

resembles the very language the 

Commission used when it mandated 

that omnibus approach is another factor 

that weighs on the side of interpreting 

the statutory ambiguity to find a 

mandate to impose physical commodity 

positon limits.80

Finally, several commenters asserted 

that the Commission cannot consider 

the 1981 rulemaking because the 

Commission later allowed exchanges to 

set position accountability levels in lieu 

of limits for some commodities and 

contracts.81 Those later exemptions do 

not, however, alter the language or 

import of the 1981 rule, which directed 

the exchanges to impose limits in 

accordance with ‘‘standards’’ that did 

not include a necessity finding. The 

1981 rulemaking is the last time the 

Commission definitively addressed and 

identified the ‘‘standards’’ in CEA 

section 4a(a)(1) for imposing across-theboard, prophylactic position limits in a 

manner akin to the Dodd-Frank Act 

amendments. That other approaches 

intervened is not inconsistent with the 

inference that Congress was influenced 

by the 1981 rulemaking in the DoddFrank Act amendments. 

4. Legislative History of the Dodd-Frank 

Act Amendments to Position Limits 

Statute 

As discussed in the 2016 

Supplemental Position Limits Proposal, 

the Commission has also considered the 

legislative history of the Dodd-Frank 

Act amendments.82 That history 

contains further indication that 

Congress intended to mandate the 

imposition of limits for physical 

commodity derivatives without 

requiring the Commission to make 

antecedent necessity findings, and did 

not intend the term ‘‘standards’’ to 

include such a finding.83

The Commission’s preliminary 

interpretation of CEA section 4a(a)(2) is 

based in part on congressional concerns 

that arose, and congressional actions 

taken, before the passage of the DoddFrank Act amendments.84 During the 

1990s, the Commission began 

permitting exchanges to experiment 

with an alternative to position limits— 

position accountability, which allowed 

a trader to hold large positions subject 

to reporting requirements and gave the 

exchange the right to order the trader to 

hold or reduce its position.85 Then, in 

the Commodity Futures Modernization 

Act of 2000 (‘‘CFMA’’),86 Congress 

expressly authorized the use of position 

accountability as an alternative means 

to limit speculative positions.87

Following this experiment with 

position accountability, Congress 

became concerned about fluctuations in 

commodity prices. In the late 1990s and 

2000s, Congress conducted several 

investigations that concluded that 

excessive speculation accounted for 

significant volatility and price increases 

in physical commodity markets. For 

example, a congressional investigation 

determined that prices of crude oil had 

risen precipitously and that ‘‘[t]he 

traditional forces of supply and demand 

cannot fully account for these 

increases.’’ 88 The investigation found 

evidence suggesting that speculation 

was responsible for an increase of as 

much as $20–25 per barrel of crude oil, 

which was then at $70.89 Subsequently, 

Congress found similar price volatility 

stemming from excessive speculation in 

the natural gas market.90

These investigations appear to have 

informed the drafting of the Dodd-Frank 

Act. During hearings prior to the 

passage of the Dodd-Frank Act, Senator 

Carl Levin, then-Chair of the Senate 

Permanent Subcommittee on 

Investigations that had conducted them, 

urged passage to ensure ‘‘a cop on the 

beat in all commodity markets where 

U.S. commodities are traded . . . that 

can enforce the law to prevent excessive 

speculation and market 

manipulation.’’ 91 In addition, Congress 

viewed the nearly $600 trillion littleregulated swaps market as a ‘‘major 

contributor to the financial crisis’’ 

because excessive risk taking, hidden 

leverage, and under collateralization in 

that market created a systemic risk of 

harm to the entire financial system.92 As 

Senator Cantwell and others explained, 

it was imperative that the CFTC have 

the ability to regulate swaps through 


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93See, e.g., 156 Cong. Rec. S 2676–78, S 2698– 

99, S 3606–07, S 3966, S 5919 (daily ed. April 27, 

May 12, 19, July 15, 2010 (providing statements of 

Senators Cantwell, Feinstein, Lincoln)). 

94 156 Cong. Rec. H5245 (daily ed. June 30, 2010) 

(emphasis added). 

95 December 2013 Position Limits Proposal, 78 FR 

at 75684–85. 

96 Initially, the House used the word ‘‘may’’ to 

permit the Commission to impose aggregate 

positions on contracts based upon the same 

underlying commodity. See H.R. 4173, 11th Cong. 

3113(a)(2) (providing the version introduced in the 

House, Dec. 2, 2009) (‘‘Introduced Bill’’); see also 

Brief of Senator Levin et al as Amicus Curiae at 10– 

11, ISDA v. CFTC, no. 12–5362 (D.C. Cir. Apr. 22, 

2013), Document No. 1432046 (hereafter ‘‘Levine 

Br.’’). 

97Levin Br. at 11 (citing H.R. 4173, 111th Cong. 

3113(a)(5)(2), (7) (as passed by the House Dec. 11, 

2009) (‘‘Engrossed Bill’’)). 

98 Id. at 12. (citing Engrossed Bill at 3113(a)(5)(3)). 

99 15 U.S.C. 8307; Engrossed Bill at 3005(a). 

100See Levin Br. at 13–17; see also DVD: October 

21, 2009 Business Meeting (House Agriculture 

Committee 2009), ISDA v. CFTC, Dkt. 37–2 Exh. B 

(Apr. 13, 2012) at 59:55–1:02:18. 

101Levin Br. at 23 (citing H.R. Rep. No. 111–373 

at 11 (2009)). 

102Levin Br. at 17–18. 

103CL–CMOC–59720 at 2; CL–Sen. Levin–59637 

at 2–5; and CL–A4A–59686 at 2–3. 

104CL–IECA–59964 at 2; CL–A4A–59686 at 2; and 

CL–Public Citizen–59648 at 2–3. 

105CL–CMOC–59720 at 2. 

106CL–Sen. Levin–59637 at 3–4. 

107 Id. 

108 Id. at 2. 

109CL–Public Citizen–59648 at 2–3, and CL– 

A4A–59686 at 1–2. 

110CL–CME–59718 at 8. CME also asserted that 

the Congressional investigation into excessive 

speculation in natural gas futures focused more on 

the fact that position accountability rules for 

exchange-traded natural gas futures were not in 

place for ‘‘look-alike’’ natural gas swaps traded 

‘‘over the counter,’’ permitting regulatory arbitrage. 

111CL–Citadel–59717 at 3. 

‘‘position limits,’’ ‘‘exchange trading,’’ 

and ‘‘public transparency’’ to avoid a 

recurrence of the instability that rippled 

through the entire financial system in 

2008.93 And in the House of 

Representatives, Representative Collin 

Peterson, then-Chairman of the House 

Committee on Agriculture and author of 

an amendment strengthening the 

position limits provision as discussed 

below, reminded his colleagues that his 

committee’s own ‘‘in-depth review of 

derivative markets began when we 

experienced significant price volatility 

in energy futures markets due to 

excessive speculation—first with 

natural gas and then with crude oil. We 

all remember when we had $147 oil. 

. . . This conference report [now] 

includes the tools we authorized and 

the direction to the CFTC to mitigate 

outrageous price spikes we saw 2 years 

ago.’’ 94 Congress’s focus in its 

investigations on excessive speculation 

involving physical commodities is 

reflected in the scope of the Dodd-Frank 

Act’s position limits amendment: It 

applies only to physical commodities. 

The evolution of the position limits 

provision in the bills before Congress 

from permissive to mandatory supports 

a preliminary determination that 

Congress intended to do something 

more than continue the long-standing 

statutory regime giving the Commission 

discretionary authority to impose 

limits.95 As initially introduced, the 

House bill that became the Dodd-Frank 

Act provided the Commission with 

discretionary authority to issue position 

limits, stating that the Commission 

‘‘may’’ impose them.96 However, the 

House replaced the word ‘‘may’’ with 

the word ‘‘shall,’’ suggesting a specific 

judgment that the limits should be 

mandatory, not discretionary. The 

House also added other language 

militating in favor of interpreting CEA 

section 4a(a)(2) as a mandate. In two 

new subsections, it set the tight 

deadlines described above.97 After 

changing ‘‘may’’ to ‘‘shall,’’ the House 

further amended the bill to refer in one 

instance to the limits for agricultural 

and exempt commodities as 

‘‘required.’’ 98 And only after the 

language had changed from permissive 

to mandatory, the House added the 

requirement that the Commission 

conduct studies on the ‘‘effects (if any) 

of position limits imposed’’ 99 to 

determine if the required position limits 

were harming U.S. markets.100

Underscoring its intent to amend the 

bill to include a mandate, the House 

Report accompanying the House Bill 

stated that it ‘‘required’’ the 

Commission to impose limits.101 The 

Conference Committee adopted the 

House bill’s amended provisions on 

position limits and then strengthened 

them even further by referring to the 

position limits as ‘‘required’’ an 

additional three times, bringing the total 

to four times in the final legislation the 

number of references in statutory text to 

position limits as ‘‘required.’’ 102

a. Comments 

A number of commenters generally 

supported or opposed the Commission’s 

consideration of Congressional 

investigations and the textual 

strengthening of the Dodd-Frank bill. 

The Commission addresses specific 

comments below. 

i. Congressional Investigations: 

Several commenters agreed that the 

Congressional investigations, hearings 

and reports support the view that 

Congress decided to mandate position 

limits.103 They pointed out that 

Congress’s investigations followed 

amendments in 2000 to the CEA as part 

of the CFMA that exempted swaps and 

energy derivatives from position limits 

and expressly authorized exchanges to 

impose position accountability levels in 

lieu of limits.104 According to the 

Commodity Markets Oversight Coalition 

(‘‘CMOC’’), ‘‘witnesses confirmed [at 

those hearings] that the erosion of the 

position limits regime was a leading 

cause in market instability and wild 

price swings.’’ 105 Senator Levin, who 

presided over the investigations, 

commented that those investigations, 

conducted from 2002 onwards, ‘‘into 

how our commodity markets function, 

focusing in particular on the role of 

excessive speculation on commodity 

prices’’ ‘‘have demonstrated that the 

failure to impose and enforce effective 

position limits have led to greater 

speculation and increased price 

volatility in U.S. commodity 

markets.’’ 106 According to Senator 

Levin, the investigations ‘‘provide[d] 

strong support for the Dodd-Frank 

decision to require the Commission to 

impose position limits on all types of 

commodity futures, swaps, and 

options.’’ 107 Senator Levin also stated 

that the harms of excessive speculation 

continue to be felt in the absence of the 

mandated limits. He cited recent actions 

by federal regulators to stop 

manipulation in energy markets, and 

opined that the continuing problems in 

the absence of the mandated limits only 

reinforce the reasonableness of the 

Commission’s view that Congress 

intended to mandate position limits as 

a prophylactic measure.108 Senator 

Levin’s point was echoed by Public 

Citizen, a consumer advocacy 

organization, and Airlines for America, 

a trade association for the U.S. 

scheduled airline industry.109

Other commenters disagreed with the 

Commission’s preliminary 

determination that the Congressional 

investigations indicate that Congress 

intended to mandate limits. CME 

asserted that the investigations do not in 

themselves demonstrate that Congress 

required the CFTC to impose position 

limits as recommended even if those 

investigations suggest that excessive 

speculation poses a burden on interstate 

commerce in certain physical 

commodity markets.110 Citadel 

questioned whether the cited reports 

could be ‘‘broadly indicative of 

Congressional intent,’’ or could 

‘‘redefine statutory language that has 

existed for nearly eight decades.’’ 111

But the Commission is not relying 

solely on these reports. The question, 

rather, is whether these Congressional 


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112CL–Public Citizen–59648 at 2. 113CL–CME–59718 at 2, 5–12 (maintaining 

statutory language requires necessity finding); and 

CL–MFA–59606 at 9 (citing S. Rept. 111–176 (Apr. 

30, 2010, which states ‘‘[t]his section authorizes the 

CFTC to establish aggregate position limits. . . .’’). 

114E.g., CEA sections 4a(a)(2)(A) (providing that 

the Commission ‘‘shall’’ set the limits); 4a(a)(2)(B) 

(referring twice to the ‘‘limits required’’ and 

directing that they ‘‘shall’’ be established by a time 

certain); 4a(a)(3)(referring to the limits ‘‘required’’ 

under subparagraph (A)); 4a(a)(5)(stating that the 

Commission ‘‘shall’’ concurrently establish limits 

on economically equivalent contracts). 

115 7 U.S.C. 6a(a)(2(B). 

116 15 U.S.C. 8307. 

investigations and findings of excessive 

speculation and price volatility in 

energy markets, conducted and issued 

when the Commission was authorized 

but not required by law to impose 

limits, may be one indication, among 

others, that Congress sought to do 

something more with the Dodd-Frank 

Act amendments than to maintain the 

statutory status quo for futures on 

physical commodities. In the 

Commission’s preliminary view, it is 

more plausible, based on these 

investigations, that Congress sought to 

do something more—to require that the 

Commission impose limits for the 

covered commodities without having to 

first find that they are necessary to 

prevent excessive speculation. Contrary 

to Citadel’s comment, the Commission 

is not relying on the investigations and 

reports to redefine statutory language 

that has existed for nearly eight decades. 

Rather, the Commission believes that 

the investigations favor the conclusion 

that Congress added CEA section 

4a(a)(2) to the pre-existing language in 

order to strengthen the long-standing 

position limits regime for a category of 

commodity derivatives—physical 

commodities—that Congress’s 

investigations revealed to be vulnerable 

to substantial price fluctuations. 

ii. Evolution of the Dodd-Frank Bill: 

Several commenters agreed with the 

Commission’s preliminary 

determination that the strengthening of 

the position limits language in the 

Dodd-Frank bill evinces Congress’ 

intent to mandate limits.112

CME and MFA disagreed; while they 

do not directly address this point, they 

believed that the strengthening of the 

language in the Dodd-Frank bills does 

not indicate that Congress intended to 

de-couple the enacted directive to 

impose position limits from the 

necessity finding of CEA section 

4a(a)(1).113 The Commission, however, 

preliminarily considers this the most 

plausible interpretation. The evolution 

of the bill from one stating the 

Commission ‘‘may’’ impose position 

limits to include statements that the 

Commission ‘‘shall’’ impose them, that 

they are ‘‘required,’’ and that the 

Commission shall study their effects 

indicates intentional progressive 

refinement from a bill that would 

continue the status quo for futures to 

one that added special nondiscretionary 

requirements for a category of 

commodities. This legislative evolution 

also supports the conclusion 

‘‘standards’’ does not include an 

antecedent necessity finding. 

5. The Commission Preliminarily 

Interprets the Text of CEA Section 4a(a) 

as an Integrated Whole, In Light of Its 

Experience and Expertise. 

In the December 2013 Position Limits 

Proposal, the Commission discussed 

how its interpretation of the text of CEA 

section 4a(a), considered as an 

integrated whole, is consistent with and 

supports its conclusions based on 

experience and expertise. As discussed, 

the ambiguity is the meaning of CEA 

section 4a(a)(2)’s statement that the 

Commission ‘‘shall’’ establish limits on 

physical commodities other than 

excluded commodities ‘‘[i]n accordance 

with the standards’’ set forth in CEA 

section 4a(a)(1). If ‘‘standards’’ includes 

a necessity finding, then a necessity 

finding is required before limits can be 

imposed on agricultural and exempt 

commodities. If not, the Commission 

must impose limits for that subset of 

commodity derivatives. In the December 

2013 Position Limits Proposal, the 

Commission resolved the ambiguity by 

preliminarily determining that the 

reference in CEA section 4a(a)(2) to the 

‘‘standards’’ in pre-Dodd-Frank section 

4a(a)(1) refers to the criteria in CEA 

section 4a(a)(1) for how the required 

limits are to be set and not the 

antecedent finding whether limits are 

even necessary. The Commission 

explained that, in its preliminary view, 

‘‘standards’’ refers to, in CEA section 

4a(a)(1), only the following two 

provisions. First, the limits must 

account for situations in which one 

person controls another or two persons 

act in concert, by aggregating those 

positions as if the trading were done by 

one person acting alone (aggregation). 

The second ‘‘standard’’ in CEA section 

4a(a)(1) states that the limits may be 

different for different commodities, 

markets, delivery months, etc. 

(flexibility). 

The Commission reasoned that this 

construction of ‘‘standards’’ seemed 

most consistent with the Commission’s 

experience and history administering 

position limits. It also seemed most 

consistent with the text of CEA section 

4a(a)(2), the rest of CEA section 4a(a), 

and the Act as a whole. The Dodd-Frank 

Act amendments to CEA section 4a(a) 

largely re-shape CEA section 4a(a) by 

adding a new, detailed, and 

comprehensive section 4a(a)(2) that 

applies only to a subset of the 

derivatives regulated by the 

Commission—physical commodities 

like wheat, oil, and gold—and not 

intangible commodities like interest 

rates. Amended CEA section 4a(a) 

repeatedly uses the word ‘‘shall’’ and 

refers to the new limits as ‘‘required,’’ 

differentiating it from the text that 

existed before the Dodd-Frank Act.114

Never before in the Commission’s 

experience had Congress set deadlines 

on action for position limits by a date 

certain, much less the short time 

provided in CEA section 4a(a)(2)(B).115

Nor, in the Commission’s experience, 

had Congress required a report by a 

given date or committed itself to hold 

hearings on the report within 30 days 

thereafter.116 The Commission 

preliminarily concluded that, 

considered as a whole in light of this 

experience, these provisions evince a 

Congressional mandate that the 

Commission impose limits on physical 

commodities, that it do so quickly, that 

it impose limit levels in accordance 

with certain requirements, and that it 

study the effectiveness of the limits after 

imposing them and then report to 

Congress. 

By the same token, the Commission 

preliminarily determined that 

interpreting CEA section 4a(a)(2) as it 

proposed to do would not render 

superfluous the necessity finding 

requirement in CEA section 4a(a) 

because that section still applies to the 

non-physical (excluded) commodity 

derivatives that are not subject to CEA 

section 4a(a)(2). Nor would it nullify 

other parts of CEA section 4a(a), as 

those are unaffected by this reading. 

The Commission received a number 

of comments on its discussion of the 

interplay between the statute’s text and 

the Commission’s experience and 

expertise. The Commission has 

considered them carefully, but is not 

thus far persuaded. The Commission 

preliminarily believes that it is a 

reasonable interpretation of the text of 

the statute considered as an integrated 

whole and viewed through the lens of 

the Commission’s experience and 

expertise, that Congress mandated that 

the Commission establish position 

limits for physical commodities. It is 

also reasonable to construe the reference 

to ‘‘standards’’ as an instruction to the 

Commission to apply the flexibility and 

aggregation standards set forth in CEA 

section 4a(a)(1), just as the Commission 

instructed the exchanges to impose 


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117CL–CME–59718 at 11; CL–MFA–59606. at 9; 

etc. But see, e.g., CL–A4A–59714 at 2–3 (noting that 

notwithstanding the ‘‘meshing’’ problems, ‘‘it is 

clear that the Commission’s interpretation is 

reasonable and fully supported by the context in 

which the Dodd-Frank Act was passed, its 

legislative history, and the many other factors 

identified in the NPRM’’); CL–AFR–59685 at 1; CL– 

Public Citizen–60390 at 2; CL–Public Citizen–59648 

at 2; CL–Sen. Levin–59637 at 4; and CL–CMOC– 

59720 at 2–3. 

118CL–A4A–59714 at 2–3. 

119See, e.g., CL–CME–59718 at 12–13; CL– 

Citadel–59717 at 3–4; CL–AMG–59709 at 3; CL– 

MFA–59606 at 9–10; CL–ISDA/SIFMA–59611 at 5– 

7; CL–IECAssn–59679 at 3–4; and CL–FIA–59595 at 

6–7. 

120CL–CME–59718 at 2, 12 (citing Hunter v. 

FERC, 711 F.3d 155 (D.C. Cir. 2013)). 

121See, e.g., CL–ISDA/SIFMA–59611 at 5, 7–8 

(citing CEA section 4a(a)(5) as authorizing aggregate 

position limits ‘‘as appropriate’’ for swaps that are 

economically equivalent to DCM futures and 

options and CEA section 4a(a)(3), which directs the 

Commission to set position limits as appropriate 

and to the maximum extent practicable, in its 

discretion: (i) To diminish, eliminate, or prevent 

excessive speculation; (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.). 122 887 F.Supp. 2d at 278; December 2013 

Position Limits Proposal, 78 FR at 75685, n. 59. 123CEA section 4a(a)(2)(A) provides that the 

Commission ‘‘shall’’ establish limits; CEA section 

4a(a)(2)(B) refers multiple times to the ‘‘required’’ 

limits in (A) that ‘‘shall’’ be established within 180 

or 270 days of enactment of Dodd-Frank; and CEA 

section 4a(a)(2)(C) provides that ‘‘[i]n establishing 

the limits required’’ the Commission shall ‘‘strive 

to ensure’’ that trading on foreign boards of trade 

for commodities that have limits will be subject to 

‘‘comparable limits,’’ thereby assuming that limits 

must be established and requiring that they be set 

at levels in accordance with particular 

considerations. CEA section 4a(a)(3) contains 

‘‘specific limitations’’ on the ‘‘required’’ limits 

which are most reasonably understood to be 

considerations for the Commission for the levels of 

limits. 

omnibus limits in 1981. And it is at 

least reasonable to conclude that 

Congress, in directing the Commission 

to impose the ‘‘required’’ limits on 

extremely tight deadlines, did not 

intend the Commission to 

independently make an antecedent 

finding that any given position limit for 

physical commodities is ‘‘necessary’’—a 

finding that would take many months 

for each individual physical commodity 

contract. 

a. Comments 

Several commenters disputed the 

Commission’s interpretation, based on 

its experience and expertise, that CEA 

section 4a(a)(2) is a mandate for 

prophylactic limits based on their view 

that the statute unambiguously requires 

the Commission to promulgate position 

limits only after making a necessity 

finding, and only ‘‘as appropriate.’’ 117

But in ISDA v. SIFMA, the district court 

held that the statute was ambiguous in 

this respect, and the Commission here is 

following the court’s direction to apply 

its experience and expertise to resolve 

the ambiguity. This is consistent with a 

commenter’s statement that ‘‘the 

meshing of the Dodd-Frank Act into the 

CEA may have created some ambiguity 

from a technical drafting/wording 

standpoint.’’ 118 Nevertheless, the 

Commission addresses these textual 

arguments to show that its preliminary 

interpretation is, at a minimum, a 

permissible one. 

The commenters that disagreed with 

the Commission’s preliminary 

conclusion argued that the Commission: 

(i) Erred in determining that the 

reference to ‘‘standards’’ in CEA section 

4a(a)(2) does not include the necessity 

finding in CEA section 4a(a)(1); (ii) 

failed to consider other provisions that 

show Congress intended to require the 

Commission to make antecedent 

findings; and (iii) incorrectly 

determined that its interpretation is the 

only way to give effect to CEA section 

4a(a)(2). 

i. Meaning of Standards: Several 

commenters asserted that the language: 

‘‘[in] accordance with the standards set 

forth in paragraph (1)’’ in section 

4a(a)(2) must include the phrase ‘‘as the 

Commission finds are necessary to 

diminish, eliminate, or prevent [the 

burden on interstate commerce]’’ in 

CEA section 4a(a)(1).119 They believed 

that the Commission’s contrary 

interpretation constitutes an implied 

repeal of the necessity finding 

language.120

The Commission disagrees that this 

constitutes an implied repeal. First, CEA 

section 4a(a)(2) applies only to physical 

commodities, not other commodities. 

Accordingly, the requirement of a 

necessity finding in section 4a(a)(1) still 

applies to a broad swath of commodity 

derivatives. Second, there is no implied 

repeal even in part, because the 

Commission is interpreting express 

language—the term ‘‘standards.’’ The 

Commission must bring its experience 

to bear when interpreting the ambiguity 

in the new provision, and the 

Commission preliminarily believes that 

the statute, read in light of the 

Commission’s experience administering 

position limits and making necessity 

findings, is more reasonably read as an 

express limited exception, for physical 

commodities futures and economically 

equivalent swaps, to the preexisting 

authorization in CEA section 4a(a)(1) for 

the Commission to impose limits when 

it finds them necessary. 

ii. Other Limiting Language: Some 

commenters pointed to a number of 

terms and provisions that they say 

support the notion that the Commission 

must make antecedent findings before 

imposing any limits under new CEA 

section 4a(a)(2). 

First, some commenters asserted that 

the term ‘‘as appropriate’’ in CEA 

sections 4a(a)(3) (factors that the 

‘‘Commission, ‘‘as appropriate’’ must 

consider when it ‘‘shall set limits’’) and 

4a(a)(5)(A) (providing that Commission 

‘‘shall’’ ‘‘as appropriate’’ establish limits 

on swaps that are economically 

equivalent to physical commodity 

futures and options) require the 

Commission to make antecedent 

findings that the limits required under 

CEA section 4a(a)(2) are appropriate 

before it may impose them.121 The 

district court found these words to be 

ambiguous. In the court’s view, they 

could refer to the Commission’s 

obligation to impose limits (i.e., the 

Commission shall, ‘‘as appropriate,’’ 

impose limits), or to the level of the 

limits the Commission is to impose.122

The Commission preliminarily 

believes that when these words are 

considered in the context of CEA 

section 4a(a)(2)–(7) as a whole, 

including the multiple uses of the new 

terms ‘‘shall’’ and ‘‘required’’ and the 

historically unique stringent time limits 

for imposing the covered limits and 

post-imposition study requirement, it is 

more reasonable to interpret these 

words as referring to the level of limits, 

i.e., the Commission must set physical 

commodity limits at an appropriate 

level, and not to require the 

Commission to first determine whether 

the required limits are appropriate 

before it may even impose them.123 In 

other words, while Congress made the 

threshold decision to impose position 

limits on physical commodity futures 

and options and economically 

equivalent swaps, Congress at the same 

time delegated to the Commission the 

task of setting the limits at levels that 

would maximize Congress’ objectives. 

Some commenters claimed that other 

parts of CEA section 4a(a)(2) undermine 

the Commission’s determination. First, 

CEA section 4a(2)(C) states that the 

‘‘[g]oal . . . [i]n establishing the limits 

required’’ is to ‘‘strive to ensure’’ that 

trading on foreign boards of trade 

(‘‘FBOTs’’) for commodities that have 

limits will be subject to ‘‘comparable 

limits.’’ It goes on to state that for ‘‘any 

limits to be imposed’’ the Commission 

will strive to ensure that they not shift 

trading overseas. Commenters argue that 

‘‘any limits to be imposed’’ under CEA 

section 4a(a)(2)(A) implies that limits 

might not be imposed under that 

section. However, in the context 

discussed and in view of the reference 

in that section to position limits 


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124See, e.g., CL–CME–59718 at 11, 13–17, and 

CL–FIA–59595 at 5–6. 

125See, e.g., CL–AMG–59709 at 3; and CL–CME– 

59718 at 13–17. 

126CEA section 4a(a)(3), 7 U.S.C. 6a(a)(3). 

127CEA section 4a(e), 7 U.S.C. 6a(e). 

128CL–CME–59718 at 10 (citing CEA section 

4a(e)). 

129 7 U.S.C. 7(d)(5). 

130CL–CME–59718 at 11 (citing 7 U.S.C. 7(d)(5)). 

131CL–CME–59718 at 10; CL–AMG–59709 5–6; 

CL–FIA–59595 at 12–13; CL–FIA–60392 at 4–6, 8 

(asserting that under the Commission’s general 

rulemaking authority in CEA section 8a(5), 7 U.S.C. 

12a(5), ‘‘the Commission has the power to adopt, as 

part of an accountability regime, a rule pursuant to 

which it or a DCM could direct a market participant 

to reduce speculative positions above an 

accountability limit because that authority is 

‘reasonably necessary to effectuate’ a position 

accountability rule,’’ and observing that the 

Commission previously determined in rulemakings 

that exchange-set accountability levels represent an 

alternative means to limit excessive speculation); 

CL–FIA–60303 at 3–4; CL–DBCS–59569 at 4; CL– 

MFA–60385 at 7–8, 10–14; and CL–Olam–59658 at 

1–2 (declaring that the Commission can and should 

permit exchanges to administer position 

accountability levels in lieu of Commission-set 

limits under CEA section 4a(a)(2)). 

132CL–Public Citizen–60390 at 3–4 (noting other 

concerns with exchange set limits or accountability 

levels); CL–IECA 60389 at 3–4 (asserting that the 

Commission should not cede its authority to 

exchanges); CL–AFR–60953 at 4; CL–A4A–59686 at 

2–3; CL–IECA–59671 at 2; and CL–CMOC–59720 at 

2. 

133CL–ISDA/SIFMA–59611 at 5; and CL–MFA– 

59606 at 9–10. The District Court expressed the 

same concern. 887 F. Supp. 2d at 274–75. 

‘‘required,’’ the reference to ‘‘any limits 

to be imposed’’ refers again to the levels 

or other standards applied. That is, 

whatever the contours the Commission 

chooses for the required limits, they 

must meet the goal set forth in that 

section. 

Second, CEA section 4a(a)(3)(B) states 

certain factors that the Commission 

must consider in setting limits under 

CEA section 4a(a)(2).124 The 

Commission sees no inconsistency with 

mandatory position limits—the 

Commission must consider these factors 

in setting the appropriate levels and 

other contours. Indeed, CEA section 

4a(a)(3)(B) applies by its own terms to 

‘‘establishing the limits required in 

paragraph (2).’’ Moreover, consideration 

of these factors under CEA section 

4a(a)(3) is not mandatory, as some 

commenters suggest,125 but rather to be 

made ‘‘in [the Commission’s] 

discretion.’’ 126 In the Commission’s 

preliminary view, there is thus nothing 

in these provisions at odds with the 

Commission’s interpretation that it is 

required by CEA section 4a(a)(2)(A) to 

impose limits on a subset of 

commodities without making 

antecedent findings whether they 

should be imposed, particularly when 

the language at issue is construed, as it 

should be, with other terms in CEA 

section 4a(a)(2)–(7), discussed above, 

that use mandatory language and 

impose time limits. 

Some commenters stated that two preDodd Frank Act provisions in CEA 

section 4a undermine the Commission’s 

interpretation. The first is CEA section 

4a(e),which states, ‘‘if the Commission 

shall have fixed limits . . . for any 

contract . . . , then the limits’’ imposed 

by DCMs, SEFs or other trading facilities 

‘‘shall not be higher than the limits 

fixed by Commission.’’ 127 According to 

a commenter, the ‘‘if/then’’ formulation 

suggests position limits should not be 

presupposed for any contract.128 The 

Commission sees the provision 

differently. CEA section 4a(a)(2) applies 

only to a subset of futures contracts— 

contracts in physical commodities. For 

other commodities, position limits 

remain subject to the Commission’s 

determination of necessity, and the ‘‘if/ 

then’’ formulation applies and remains 

logical. There is, accordingly, no 

inconsistency. 

The second pre-Dodd Frank Act 

provision the commenters mentioned is 

CEA section 5(d)(5); 129 it gives the 

exchanges discretionary authority to 

impose position limits on all 

commodity derivatives ‘‘as is necessary 

and appropriate.’’ 130 There is, however, 

no inconsistency. Exchanges retain the 

discretionary authority to set position 

limits for the many commodities not 

covered by CEA section 4a(a)(2), and 

they retain the discretion to impose 

position limits for physical 

commodities, so long as the limits are 

no higher than federal position limits. 

Some commenters cited other 

language in CEA section 5(d)(5) to 

support their assertion that, 

notwithstanding the Dodd-Frank Act 

amendments discussed above requiring 

the Commission to impose limits, the 

Commission retains and should exercise 

its discretion to impose position 

accountability levels in lieu of limits or 

delegate that authority exchanges to do 

so. CEA section 5(d)(5) authorizes 

exchanges to adopt ‘‘position limitations 

or position accountability’’ levels in 

order to reduce the threat of 

manipulation and congestion. These 

commenters also pointed out that the 

Commission has previously endorsed 

accountability levels for exchanges in 

lieu of limits.131 Other commenters 

disagree. They asserted that, given what 

they interpret as a mandate in CEA 

section 4a(a)(2) for the Commission to 

impose position limits for physical 

commodities, it would be inappropriate 

for the Commission to consider 

imposing position accountability levels 

instead for those commodities, or to 

allow exchanges to do so.132

The Commission agrees with the latter 

group of commenters and finds the 

former reading strained. CEA section 

4a(a)(2) makes no mention of position 

accountability levels. Regardless 

whether pre-Dodd Frank section 5(d)(5) 

allows exchanges to set accountability 

levels in lieu of limits where the 

Commission has not set limits, and 

regardless whether the Commission has 

in the past endorsed exchange-set 

position accountability levels in lieu of 

limits, CEA section 4a(a)(2) does not 

mention that tool. If anything, reference 

to accountability levels elsewhere in the 

CEA shows that Congress understands 

that exchanges have used position 

accountability, but made no reference to 

it in amended CEA section 4a(a). 

iii. Avoiding Surplusage or Nullity: 

Several commenters took issue with the 

Commission’s preliminary 

determination that its interpretation is 

necessary in order to avoid rendering 

CEA section 4a(a)(2)(A) surplusage. 

These commenters suggested that 

reading the term ‘‘standards’’ in CEA 

section 4a(a)(2)(A) to include the 

antecedent necessity finding in CEA 

section 4a(a)(1) will not render CEA 

section 4a(a)(2) surplusage because if 

the Commission finds a position limit is 

‘‘necessary’’ and ‘‘appropriate,’’ it now 

must impose one (as opposed to preDodd-Frank, when the Commission had 

authority but not a mandate under CEA 

section 4a(a) to impose limits).133 The 

Commission finds this reading highly 

unlikely. There is no history of the 

Commission determining that limits are 

necessary and appropriate, but then 

declining to impose them. Nor is it 

reasonable to expect that the 

Commission might do so. Indeed, 

historically necessity findings were 

made only in connection with 

establishing limits. 

Furthermore, if Congress had still 

wanted to leave it to the Commission to 

ultimately decide whether a limit was 

necessary, there is no reason for it to 

have also set tight deadlines, repeat 

multiple times that the limits are 

‘‘required,’’ and direct the agency to 

conduct a study after the limits were 

imposed. In other words, requiring the 

Commission to make an antecedent 

necessity finding would render many of 

the Dodd-Frank Act amendments 

superfluous. For example, if the 

Commission determined limits were not 

necessary then, contrary to CEA section 

4a(a)(2), no limits were in fact 

‘‘required,’’ no limits needed to be 

imposed by the deadlines, and no study 


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134 In this vein, then-Commissioner Mark Wetjen, 

who was an aide to Senate Majority Leader Harry 

Reid during the Dodd-Frank legislative process, 

stated at the Commission’s public meeting to adopt 

the December 2013 proposal that to read Section 

4a(a)(2)(A) to require the same antecedent necessity 

finding as Section 4a(a)(1) ‘‘does not comport with 

my understanding of the statute’s intent as 

informed by my experience working as a Senate 

aide during consideration of these provisions.’’ 

Statement of Commissioner Mark Wetjen, Public 

Meeting of the Commodity Futures Trading 

Commission (Nov. 5, 2013), http://www.cftc.gov/ 

PressRoom/SpeechesTestimony/ 

wetjenstatement110513. 

135 December 2013 Position Limits Proposal, 78 

FR at 75685. 

136 International Swaps and Derivatives 

Association v. United States Commodity Futures 

Trading Commission, 887 F. Supp. 2d 259 (D.D.C. 

2012). 

137 7 U.S.C. 6a(a)(1). 

138Establishment of Speculative Position Limits, 

46 FR 50938, 50940 (Oct. 16, 1981). 

139The Commission’s necessity finding is also 

supported by the consideration of costs and benefits 

below. 

needed to be conducted. But none of 

these provisions were phrased in 

conditional terms (e.g., if the 

Commission finds a limit necessary, 

then it shall . . . ). Had Congress 

wanted the Commission to continue to 

be the decisionmaker regarding the need 

for limits, it could have expressed that 

view in countless ways that would not 

strain the statutory language in this way. 

CME contended that the 

Commission’s position—that requiring a 

necessity finding would essentially give 

the Commission the same permissive 

authority it had before the Dodd-Frank 

Act amendments—is ‘‘short-sighted’’ 

because other provisions of CEA section 

4a(a) ‘‘would still have practical 

significance.’’ In support of this view, 

CME stated that new CEA sections 

4a(a)(2)(C) and 4(a)(3)(B) have 

significance even if the Commission is 

required to make a necessity finding 

because they ‘‘set forth safeguards that 

the CFTC must balance when it 

establishes limits’’ after ‘‘the CFTC finds 

that such limits are necessary.’’ The 

Commission preliminarily believes it 

unlikely that Congress would have 

intended that. On CME’s reading, the 

statute would place additional 

requirements to constrain the 

Commission’s preexisting authority. 

Given the background for the 

amendments, particularly the studies 

that preceded the Dodd-Frank Act, the 

Commission sees no reason why 

Congress would have placed additional 

constraints, nor any reason it would 

have placed them with respect to 

physical commodities but not excluded 

commodities or others. This comment 

also does not address the thrust of the 

Commission’s interpretation, which is 

that finding a mandate is the only way 

to read the entirety of the statute 

harmoniously, including the timing 

requirements of CEA section 4a(a)(2)(B) 

and the reporting requirements of 

Section 719 of the Dodd-Frank Act, 

account for the historical context, and, 

at the same time, avoid reading CEA 

section 4a(a)(2)(A) as the functional 

equivalent of CEA section 4a(a)(1).134

CME also cited CEA section 4a(a)(5), 

which requires position limits for 

economically equivalent swaps, to make 

the same point that there are still 

meaningful provisions in CEA section 

4a(a), even with a necessity finding. But 

CEA section 4a(a)(1) already authorizes 

the Commission to establish limits on 

swaps as necessary, and so the 

authority, which would be discretionary 

under CME’s reading, to impose limits 

on economically equivalent swaps 

would add nothing to the statute and 

the amendment would be wholly 

superfluous. 

6. Conclusion 

Having carefully considered the text, 

purpose and legislative history of CEA 

section 4a(a) as a whole, along with its 

own experience and expertise and the 

comments on its proposed 

interpretation, the Commission 

preliminarily believes for the reasons 

above that Congress—while not 

expressing itself with ideal clarity— 

decided that position limits were 

necessary for a subset of commodities, 

physical commodities, mandated the 

Commission to impose them on those 

commodities in accordance with certain 

criteria, and required that the 

Commission do so expeditiously, 

without first making antecedent 

findings that they are necessary to 

prevent excessive speculation. 

Consistent with this interpretation, 

Congress also directed the agency to 

report back to Congress on their 

effectiveness within one year. In the 

Commission’s preliminary view, this 

interpretation, even if not the only 

possible interpretation, best gives effect 

to the text and purpose of the DoddFrank Act amendments in the context of 

the pre-existing position limits 

provision, while ensuring that neither 

the amendments nor the pre-existing 

language is rendered superfluous. 

C. Necessity Finding 

1. Necessity 

The Commission reiterates its 

preliminary alternative necessity 

finding as articulated in the December 

2013 Position Limits Proposal: 135 Out of 

an abundance of caution in light of the 

district court decision in ISDA v. 

CFTC,136 and without prejudice to any 

argument the Commission may advance 

in any forum, the Commission 

reproposes, as a separate and 

independent basis for the Rule, a 

preliminary finding herein that the 

speculative position limits in this 

reproposed Rule are necessary to 

achieve their statutory purposes. 

As described in the Proposal, the 

policy basis and reasoning for the 

Commission’s necessity finding is 

illustrated by two major incidents in 

which market participants amassed 

massive futures positions in silver and 

natural gas, respectively, which enabled 

them to cause sudden and unreasonable 

fluctuations and unwarranted changes 

in the prices of those commodities. CEA 

section 4a(a)(1) calls for position limits 

for the purpose of diminishing, 

eliminating, or preventing the burden of 

excessive speculation.137 Although both 

episodes involved manipulative intent, 

the Commission believes that such 

intent is not necessary for an 

excessively large position to give rise to 

sudden and unreasonable fluctuations 

or unwarranted changes in the price of 

an underlying commodity. This is 

illustrated, for example, by the fact that 

when the perpetrators of the silver 

manipulation lost the ability to control 

their scheme, i.e., to manipulate the 

market at will, they were forced to 

liquidate quickly, which, given the 

amount of contracts sold in a very short 

time, caused silver prices to plummet. 

Any trader who was forced by 

conditions in the market or their own 

financial condition to liquidate a very 

large position could predictably have 

similar effects on prices, regardless of 

their motivation for amassing the 

position in the first place. Moreover, 

although these two episodes unfolded in 

contract markets for silver and natural 

gas, and unfolded at two different times 

in the past, there is nothing unique 

about either market at either relevant 

time that causes the Commission to 

restrict its preliminary finding of 

necessity to those markets or to reach a 

different conclusion based on market 

conditions today. Put another way, any 

contract market has a limited ability, 

closely linked to the market’s size, to 

absorb the establishment and 

liquidation of large speculative 

positions in an orderly manner.138 The 

silver and natural gas examples 

illustrate these issues, but the reasoning 

applies beyond their specific facts. 

Accordingly, the Commission 

preliminarily finds it necessary to 

implement position limits as a 

prophylactic measure for the 25 core 

referenced futures contracts.139


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140The Commission observed in the December 

2013 Position Limits Proposal that the studies 

discussed therein ‘‘overall show a lack of consensus 

regarding the impact of speculation on commodity 

markets and the effectiveness of position limits.’’ 78 

FR at 75695. 141 December 2013 Position Limits Proposal, 78 

FR at 75695. 142E.g., CL–CCMR–59623 at 4–5; CL–EEI–EPSA– 

59602 at 3; CL–FIA–59595 at 7; and CL–IECAssn– 

59679 at 3. 143E.g., CL–BG Group–59656 at 3; CL–EEI–EPSA– 

59602 at 3; and CL–WGC–59558 at 2. 144CL–Chamber–59684 at 4. 145CL–CCMR–59623 at 4–5. 146Contra CL–AFR–59711 at 1; CL–AFR–59685 at 

1; CL–Public Citizen–59648 at 3; CL–WEED–59628. 147CL–EEI–EPSA–59602 at 3. 148A discussion of the cumulative studies 

reviewed by the Commission follows below. See 

below, Section I.C.2. (discussing studies and reports 

received or reviwed in connection with the 

December 2013 Position Limits Proposal), and 

accompanying text. 

149This assumes that, contrary to the 

Commission’s interpretation of the statute, Congress 

did not make that determination itself as to physical 

commodity markets. 

150The Commission stated in the December 2013 

Position Limits Proposal that it found two studies 

of actual market events to be helpful and persuasive 

in making its preliminary alternative necessity 

finding, namely, the interagency report on the silver 

crisis, U.S. Commodity Futures Trading 

Commission, ‘‘Part Two, A Study of the Silver 

Market, May 29, 1981, Report to The Congress in 

Response to Section 21 of the Commodity Exchange 

Act, and the PSI Report on, U.S. Senate, ‘‘Excessive 

Speculation in the Natural Gas Market,’’ June 25, 

2007. 

151 December 2013 Position Limits Proposal, 78 

FR at 75695. 

152Commodity Futures Trading Commission, 

Report to The Congress in Response to Section 21 

of the Commodity Exchange Act, May 29, 1981, Part 

Two, A Study of the Silver Market. 

153Excessive Speculation in the Natural Gas 

Market, Staff Report with Additional Minority Staff 

Views, Permanent Subcommittee on Investigations, 

United States Senate, Released in Conjunction with 

the Permanent Subcommittee on Investigations June 

25 & July 9, 2007 Hearings. 

154One commenter called the Commission’s 

choice ‘cherry-picking.’ CL–Citadel–59717 at 4. 

155The Commission disagrees; that an exemplary 

event occurred in the past does not make it 

irrelevant. 

156Contra CL–Sen. Levin–59637 at 6 (pointing to 

‘‘concrete examples’’). 

157E.g., CL–Chamber–59684 at 3; CL–CME–59718 

at 3, 18; CL–IECAssn–59679 at 2; CL–ISDA/SIFMA– 

59611 at 12; and CL–USCF–59644 at 3. 

158E.g., CL–IECAssn–59679 at 2; and CL–BG 

Group–59656 at 3. Certainly the Commission seeks 

to prevent extreme events such as Amaranth and 

the Hunt brothers, however infrequently they may 

occur. 

159E.g., CL–CME–59718 at 18; and CL–CCMR– 

59623 at 3. 

160CL–CME–59718 at 18. 

161E.g., CL–EEI–EPSA–59602 at 2; CL–WGC– 

59558 at 2. 

162E.g., CL–Citadel–59717 at 4; CL–ISDA/ 

SIFMA–59611 at 12–14; CL–MFA–59606 at 10; and 

CL–WGC–59558 at 2. 

163E.g., CL–Better Markets–59716 at 12; CL–BG 

Group-59656 at 3; CL–COPE–59622 at 4–5; CL– 

CCMR–59623 at 4; CL–ISDA/SIFMA–59611 at 13; 

and CL–AMG–59709 at 5. 

164 December 2013 Position Limits Proposal, 78 

FR at 75685, n. 60. 

The Commission received many 

comments on its preliminary alternative 

necessity finding; the Commission 

summarizes and responds to significant 

comments below. 

a. Studies’ Lack of Consensus.140 The 

Commission stated in the December 

2013 Position Limits Proposal that the 

lack of consensus in the studies 

reviewed at that time warrants acting on 

the side of caution and implementing 

position limits as a prophylactic 

measure, ‘‘to protect against undue price 

fluctuations and other burdens on 

commerce that in some cases have been 

at least in part attributable to excessive 

speculation.’’ 141 Some commenters 

suggested that a lack of consensus 

means instead that the Commission 

should not implement position 

limits,142 that the issue merits further 

study,143 that it would be arbitrary and 

capricious to implement position 

limits,144 and that the desire to err on 

the side of caution should be irrelevant 

to an assessment of whether position 

limits are necessary.145 In short, these 

comments contend that the lack of 

consensus means position limits cannot 

be necessary.146 The Commission 

disagrees. The lack of consensus does 

not provide ‘‘objective evidence that 

position limits are not necessary;’’ 147

rather, it suggests that they remain 

controversial.148 In response to these 

comments, the Commission believes 

that Congress could not have intended 

by using the word ‘‘necessary’’ to 

restrict the Commission from 

determining to implement position 

limits unless experts unanimously agree 

or form a consensus they would be 

beneficial. Otherwise a necessity finding 

would be virtually impossible and, in 

fact, the Commission could plausibly be 

stymied by interested persons 

publishing self-interested studies. The 

Commission’s view in this respect is 

supported by the text of CEA section 

4a(a)(1), which states that there shall be 

such limits as ‘‘the Commission finds’’ 

are necessary.149 Thus, while the 

Commission finds the studies useful, it 

does not cede the necessity finding to 

the authors. 

b. Reliance on Silver and Natural Gas 

Studies.150 The Commission stated in 

the December 2013 Position Limits 

Proposal that it ‘‘found two studies of 

actual market events to be helpful and 

persuasive in making its preliminary 

alternative necessity finding,’’ 151

namely, the Interagency Silver Study 152

and the PSI Report on Excessive 

Speculation in the Natural Gas 

Market.153 Some commenters criticized 

the Commission’s reliance on these two 

studies.154 These commenters dismissed 

the two studies, variously, as limited, 

outdated,155 dubious,156 unpersuasive, 

anecdotal, and irrelevant.157 Other 

commenters characterized the episodes 

as extreme or unique.158 Some 

commenters observed that neither study 

recommended position limits.159 One 

noted that, ‘‘Each study focuses on 

activities in a single market during a 

limited timeframe that occurred years 

ago.’’ 160 Others noted that the 

Commission has undertaken no 

independent analysis of each market, 

commodity, or contract affected by this 

rulemaking.161 They then claim that 

because particular markets or 

commodities have unique 

characteristics, one cannot extrapolate 

from these two specific episodes to 

other commodities or other markets.162

Several commenters describe the Hunt 

brothers silver crisis and the collapse of 

the natural gas speculator Amaranth as 

instances of market manipulation rather 

than excessive speculation.163

As discussed above, the presence of 

manipulative intent or activity does not 

preclude the existence of excessive 

speculation, and traders do not need 

manipulative intent for the 

accumulation of very large positions to 

cause the negative consequences 

observed in the Hunt and Amaranth 

incidents. These are some reasons 

position limits are valuable as a 

prophylactic measure for, in the 

language of CEA section 4a(a)(1), 

‘‘preventing’’ burdens on interstate 

commerce. The Hunt brothers, who 

distorted the price of silver, and 

Amaranth, who distorted the price of 

natural gas, are examples that illustrate 

the burdens on interstate commerce of 

excessive speculation that occurred in 

the absence of position limits, and 

position limits would have restricted 

those traders’ ability to cause 

unwarranted price movement and 

market volatility, and this would be so 

even had their motivations been 

innocent. Both episodes involved 

extraordinarily large speculative 

positions, which the Commission has 

historically associated with excessive 

speculation.164 We are also given no 

persuasive reason to change our 

conclusion that extraordinarily large 

speculative positions could result in 

sudden or unreasonable fluctuations or 

unwarranted price changes in other 

physical commodity markets, just as 

they did in silver and natural case in the 

Hunt Brothers and Amaranth episodes. 

Although commenters describe changes 

in these markets over time, the 

characteristics that we find salient have 


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165See infra Section I.C.1.f., and accompanying 

text. 

166CL–CME–59718 at 13–14. 

167See, e.g., Establishment of Speculative 

Position Limits, 46 FR at 50940 (Oct. 16, 1981) (‘‘[I]t 

appears 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.’’). 

168See also 1 U.S.C. 1 (‘‘In determining the 

meaning of any Act of Congress, unless the context 

indicates otherwise—words importing the singular 

include and apply to several persons, parties, or 

things[.]’’) 

169See the Commission’s discussion of its 

verification of estimates of deliverable supply and 

work with open interest data, below. 

170CL–USCF–59644 at 2. 

171CL–USCF–59644 at 2. This commenter 

exaggerates. The last arguably relevant report of 

Commission staff is ‘‘Commodity Swap Dealers & 

Index Traders with Commission 

Recommendations’’ (Sept. 2008), available at http:// 

www.cftc.gov/idc/groups/public/@newsroom/ 

documents/file/cftcstaffreportonswapdealers09.pdf. 

However, several authors or co-authors of academic 

papers reviewed by the Commission are or have 

been affiliated with the Commission in various 

capacities and have added to the current literature 

relating to position limits. Each of Harris, see 

note240, Kirilenko, see note 2400, and Overdahl, 

see notes 240 and 241, are former Chief Economists 

of the Commission. Other authors, e.g., Aulerich, 

Boyd, Brunetti, Bu ̈ yu ̈ ks ̧ahin, Einloth, Haigh, 

Hranaiova, Kyle, Robe, and Rothenberg, are now or 

have been staff and/or consultants to the 

Commission, have spent sabbaticals at the 

Commission, or have been detailed to the 

Commission from other federal agencies. Graduate 

students studying with some study authors, 

including some working on dissertations, have also 

cycled through the Commission as interns. Cf. note 

180 (disclaimer on paper by Harris and 

Bu ̈ yu ̈ ks ̧ahin). 

172CL–USCF–59644 at 3. Data regarding investor 

and hedger trading records may be protected by 

section 8 of the CEA, 7 U.S.C. 12. In general, ‘‘the 

Commission may not publish data and information 

that would separately disclose the business 

transactions or market positions of any person and 

trade secrets or names of customers . . . .’’ 7 U.S.C. 

12(a)(1). The Commission must therefore be very 

careful about granting outside economists access to 

such data. Commission registrants have in the past 

‘‘questioned why the CFTC was permitting outside 

economists to access CFTC data, why the CFTC was 

permitting the publication of academic articles 

using that data, and . . . the administrative process 

by which the CFTC was employing these outside 

economists.’’ Review of the Commodity Futures 

Trading Commission’s Response to Allegations 

Pertaining to the Office of the Chief Economist, 

Prepared by the Office of the Inspector General, 

Commodity Futures Trading Commission, Feb. 21. 

2014, at ii, available at http://www.cftc.gov/idc/ 

groups/public/@freedomofinformationact/ 

documents/file/oigreportredacted.pdf. The 

Commission is sensitive to these concerns, and 

strives to ensure that reports and publications that 

rely on Commission data do not reveal sensitive 

information. To do so requires an expenditure of 

effort by Commission staff. 

173CL–USCF–59644 at 3. The Commission rejects 

the commenter’s aspersion. The Commission’s 

Office of the Inspector General addressed the 

perception of institutional censorship in its ‘‘Follow 

Up Report: Review of the Commodity Futures 

Trading Commission’s Response to Allegations 

Pertaining to the Office of the Chief Economist, Jan. 

13, 2016 (‘‘Follow Up Report’’), available at http:// 

www.cftc.gov/idc/groups/public/@aboutcftc/ 

documents/file/oig_oce011316.pdf. The Follow Up 

Report emphasizes ‘‘that there has been no 

allegation that the Chairman or Commissioners 

have attempted to prevent certain topics from being 

researched or to alter conclusions,’’ Follow Up 

Report at 11, but nevertheless recommended ‘‘that 

OCE not prohibit research topics relevant to the 

CFTC mission.’’ Follow Up Report at 10. The 

Follow Up Report observed that recently ‘‘OCE has 

focused almost exclusively on short-term research 

and economic analysis in support of other Divisions 

and the Commission.’’ Follow Up Report at 10. 

174 15 U.S.C. 8307(a). See December 2013 Position 

Limits Proposal, 78 FR at 75684 (discussing section 

719(a) of the Dodd-Frank Act in the context of the 

Commission’s construal of CEA section 4a(a) to 

mandate that the Commission impose position 

limits). 

175CL–MFA–59606 at 11–12. 

not changed materially.165 Thus, these 

two examples remain relevant and 

compelling. 

CME makes a textual argument in 

support of the position that CEA section 

4a(a)(2) requires a commodity-bycommodity determination that position 

limits are necessary. It cites several 

places in CEA section 4a(a)(1) that refer 

to limits as necessary to eliminate ‘‘such 

burden’’ on ‘‘such commodity’’ or ‘‘any 

commodity.’’ 166 However, the 

prophylactic measures described herein 

address vulnerabilities characteristic of 

each market.167 Accordingly, the 

Commission believes the statute’s use of 

the singular is immaterial.168

The Commission’s analysis applies to 

all physical commodities, and it would 

account for differences among markets 

by setting the limits at levels based on 

updated data regarding estimated 

deliverable supply in each of the given 

underlying commodities in the case of 

spot-month limits or based on exchange 

recommendation, if an exchange 

recommended a spot-month limit level 

of less than 25 percent of estimated 

deliverable supply, and open interest in 

the case of single-month and allmonths-combined limits, for each 

separate commodity. The Commission’s 

Reproposal regarding whether to adopt 

conditional spot-month limits is also 

based on updated data.169 The 

Commission also does not find it 

relevant that the Interagency Silver 

Study and the PSI Report, each of which 

was published before the Dodd-Frank 

Act became law, do not recommend the 

imposition of position limits. Based on 

the facts described in those reports, 

along with the Commission’s 

understanding of the policies 

underlying CEA section 4a(a)(1) in light 

of the Commission’s own experience 

with legacy limits, the Commission 

preliminarily finds that position limits 

are necessary within the meaning of that 

section. 

c. Commission research. One 

commenter asserted that the 

Commission failed ‘‘to conduct proper 

economic analysis to determine, if in 

fact, the position limits as proposed 

were likely to have any positive impact 

in promoting fair and orderly 

commodity markets.’’ 170 While 

acknowledging the Commission’s 

resource constraints, this commenter 

remarked on ‘‘the paucity of the 

published record by the CFTC’s s own 

staff’’ 171 and suggests that outside 

authors be given ‘‘controlled access to 

all of the CFTC’s data regarding investor 

and hedger trading records.’’ 172 This 

commenter then proceeds to accuse the 

Commission of failing to ‘‘conduct such 

research because they felt the data 

would not in fact support the proposed 

position limit regulations.’’ 173

The Commission disagrees that it has 

failed to conduct proper economic 

analysis to determine the likely benefits 

of position limits. CEA section 15(a) 

requires that before promulgating a 

regulation under the Act, the 

Commission consider the costs and 

benefits of the action according to five 

statutory factors. The Commission does 

so below in robust fashion with respect 

to the Reproposal in its entirety, 

including the alternative necessity 

finding. Neither section 15(a) of the CEA 

nor the Administrative Procedure Act 

requires the Commission to conduct a 

study in any particular form so long as 

it considers the costs and benefits and 

the entire administrative record. Section 

719(a) of the Dodd-Frank Act, on the 

other hand, provides that the 

Commission ‘‘shall conduct a study of 

the effects (if any) of the position limits 

imposed pursuant to the . . . [CEA] on 

excessive speculation’’ and report to 

Congress on such matters after the 

imposition of position limits.174 The 

Commission will do so as required by 

Section 719(a), thereby fully discharging 

its duty. At all stages, the Commission 

has relied on and will continue to rely 

on the input of staff economists in the 

Division of Market Oversight (‘‘DMO’’) 

and the Office of the Chief Economist 

(‘‘OCE’’). 

d. Excessive Speculation 

One commenter opined that, ‘‘in 

discussing only the Hunt Brothers and 

Amaranth case studies the Commission 

has not given adequate weight to the 

benefits that speculators provide to the 

market.’’ 175 To the contrary, the 

Commission recognizes that speculation 

is part of a well-functioning market, 

particularly insofar as speculators 

contribute valuable liquidity. The focus 

of this reproposed rulemaking is not 

speculation per se; Congress identified 

excessive speculation as an undue 


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176 7 U.S.C. 6a(a)(1). One commenter suggests that 

the Commission base speculative position limits on 

‘‘a determination of an acceptable total level of 

speculation that approximates the historic ratio of 

hedging to investor/speculative trading.’’ CL–A4A– 

59714 at 4. The Commission declines at this time 

to adopt such a ratio as basis for speculative 

position limits. Among other things, the 

Commission does not now collect reliable data 

distinguishing hedgers from speculators. Also, there 

may be levels above a historic hedging ratio that 

still provide liquidity rather than denoting 

excessive speculation. While the Commission has 

authority under section 4a(a)(1) of the Act to 

impose position limits on a group or class of 

traders, the only way that the Commission knows 

how to implement limit levels based on such a 

historic ratio would be to impose rationing, which 

the Commission declines to do at this time. 

177CL–ISDA/SIFMA–59611 at 3, 14–15; see also 

CL–FIA–59595 at 6–7. 

178 December 2013 Position Limits Proposal, 78 

FR at 75685, n. 60 (citation omitted). 

179 7 U.S.C. 6a(a)(1). 

180CL–ISDA/SIFMA–59611 at 3; see also CL– 

CCMR–59623 at 4; CL-Chamber-59684 at 4. Contra 

CL-Sen. Levin-59637 at 6 (stating ‘‘[c]ontrary to the 

complaints of some critics, it would be a waste of 

time and resources for the Commission to expand 

the proposed rules beyond the existing justification 

to repeat the same analysis, reach the same 

conclusions, and issue the same findings for each 

of the 28 commodities.’’). 

181See also CL–CCMR–59623 at 4–5. Another 

commenter ‘‘contends that the best available 

evidence discounts the theory that there is 

excessive speculation distorting the prices in the 

commodity markets.’’ CL–MFA–59606 at 13 (citing 

Pirrong). Such a contention is inconsistent with 

‘‘Congress’ determination, codified in CEA section 

4a(a)(1), that position limits are an effective tool to 

address excessive speculation as a cause of sudden 

or unreasonable fluctuations or unwarranted 

changes in the price of . . . [agricultural and 

exempt] commodities. December 2013 Position 

Limits Proposal, 78 FR at 75695 (footnote omitted). 

Another commenter mischaracterizes the finding of 

the Congressional Budget Report, ‘‘Evaluating 

Limits on Participation and Transactions in Markets 

for Emissions Allowances’’ (2010), available at 

http://www.cbo.gov/publication/21967 (‘‘CBO 

Report’’); the CBO Report does not conclude ‘‘that 

position limits are harmful to markets.’’ CL– 

IECAssn–59679 at 3. Rather, in the context of 

creating markets for emissions allowance trading, 

the CBO Report discusses both the uses and benefits 

and the challenges and drawbacks of not only 

position limits but also circuit breakers, in addition 

to banning certain types of traders and banning 

allowance derivatives. Among other things, the 

CBO Report states, ‘‘Position Limits would probably 

lessen the possibility of systemic risk and 

manipulation in allowance markets . . . .’’ CBO 

Report at viii. Another commenter states that a 

‘‘CFTC study’’ found that the 2008 crude oil crisis 

was primarily due to fundamental factors in the 

supply and demand of oil. CL–CCMR–59623 at 4. 

The referenced study is Harris and Bu ̈ yu ̈ ks ̧ahin, The 

Role of Speculators in the Crude Oil Futures Market 

(working paper 2009). See generally note 240 

(listing studies that employ the Granger method of 

statistical analysis). While Harris is a former Chief 

Economist, and Bu ̈ yu ̈ ks ̧ahin is a former staff 

economist in OCE, as noted above, the cover page 

of the referenced paper contains the standard 

disclaimer, ‘‘This paper reflects the opinions of its 

authors only, and not those of the U.S. Commodity 

Futures Trading Commission, the Commissioners, 

or other staff of the Commission.’’ That is, it is not 

a ‘‘CFTC study.’’ In addition, other studies of that 

market at that time reached different conclusions. 

Cf. note 252 (citing study that concludes price 

changes precede the position change). The 

Commission reviewed several studies of the crude 

oil market around 2008 and discusses them herein. 

See discussion of persuasive academic studies, 

below. The Commission cautions that, given the 

continuing controversy surrounding position limits, 

it is unlikely that one study will ever be completely 

dispositive of these complicated and difficult 

issues. 

182 December 2013 Position Limits Proposal, 78 

FR at 75683. 

183CL–CCMR–59623 at 4 (claim supported only 

by a reference to a comment letter that pre-dates the 

December 2013 Position Limits Proposal). 184CL–MFA–59606 at 12 (citing one academic 

paper, Irwin and Sanders, The Impact of Index and 

Swap Funds on Commodity Futures Markets: 

Preliminary Results (working paper 2010)). See 

generally note 240 (studies that employ the Granger 

method of statistical analysis). 185E.g., CL–MFA–59606 at 11–12, n. 26. Contra 

CL–AFR–59685 at 1 (stating ‘‘We understand that 

other factors contribute to highly volatile 

commodity prices, but excessive speculation plays 

a significant part, according to studies by Princeton, 

MIT, the Petersen Institute, the University of 

London, and the U.S. Senate, among other highly 

credible sources.’’). 

186CL–MFA–59606 at 13, n. 30. 

187E.g., CL–MFA–59606 at 12–13 (hedge funds). 

Cf. CL–SIFMA AMG–59709 at 15 (asserting ‘‘neither 

Amaranth nor the Hunt brothers were in any way 

involved in commodity index swaps’’), 16 

(registered investment companies and ERISA 

accounts). 

188CL–MFA- 59606 at 13. Contra CL–CMOC– 

59702 at 2 (maintaining that witness testimony 

before policymakers ‘‘confirmed that the erosion of 

the position limits regime was a leading cause in 

market instability and wild price swings seen in 

recent years and that it had led to diminished 

confidence in the commodity derivative markets as 

a hedging and price discovery tool’’). 

burden on interstate commerce in CEA 

section 4a(a)(1).176

One commenter asserted that the 

Commission must provide a definition 

of excessive speculation before making 

any necessity finding.177 The 

Commission disagrees that the rule must 

include such a definition. The statute 

contains no such requirement, and did 

not contain such a requirement prior to 

the Dodd-Frank Act. The Commission 

has never based necessity findings on a 

rigid definition. The Commission’s 

position on this issue has been clear 

over time: ‘‘The CEA does not define 

excessive speculation. But the 

Commission historically has associated 

it with extraordinarily large speculative 

positions . . . .’’ 178 CEA section 

4a(a)(1) states that position limits 

should diminish, eliminate, or prevent 

burdens on interstate commerce 

associated with sudden or unreasonable 

fluctuations or unwarranted changes in 

the price of commodities.179 It stands to 

reason that excessive speculation 

involves positions large enough to risk 

such unreasonable fluctuations or 

unwarranted changes. This commenter 

also urges the Commission to 

‘‘demonstrate and determine that . . . 

harmful excessive speculation exists or 

is reasonably likely to occur with 

respect to particular commodities’’ 180

before implementing any position 

limits.181 As stated in the December 

2013 Position Limits Proposal, the 

Commission referenced its prior 

determination in 1981 ‘‘that, with 

respect to any particular market, the 

‘existence of historical trading data’ 

showing excessive speculation or other 

burdens on that market is not ‘an 

essential prerequisite to the 

establishment of a speculative 

limit.’ ’’ 182 The Commission reiterates 

this statement and underscores that 

these risks are characteristic of contract 

markets generally. Differences among 

markets can be addressed, as the 

Commission reproposes to do here, by 

setting the limit levels to account for 

individual market characteristics. 

Attempting to demonstrate and 

determine that excessive speculation is 

reasonably likely to occur with respect 

to particular commodities before 

implementing position limits is 

impractical because historical trading 

data in a particular commodity is not 

necessarily indicative of future events in 

that commodity. Further, it would 

require the Commission to determine 

what may happen in a forecasted future 

state of the market in a particular 

commodity. As the Commission has 

often repeated, position limits are a 

prophylactic measure. Inherently, then, 

position limits are designed to address 

the burdens of excessive speculation 

well before they occur, not when the 

Commission somehow determines that 

such speculation is imminent, which 

the Commission (or any market actor for 

that matter) cannot reliably do. 

e. Volatility 

Commenters assert, variously, that 

‘‘the volatility of commodity markets 

has decreased steadily over the past 

decade,’’ 183 that ‘‘research found that 

there was a negative correlation between 

speculative positions and market 

volatility,’’ 184 research shows that 

factors other than excessive speculation 

were primarily responsible for specific 

instances of price volatility,185 that 

futures markets are associated with 

lower price volatility,186 that particular 

types of speculators provide liquidity 

rather than causing price volatility,187

that position limits will increase 

volatility,188 etc. It would follow, then, 

according to these commenters, that 

because they believe there is little or no 

volatility (no sudden or unreasonable 

fluctuations or unwarranted price 

changes), or no volatility caused by 

excessive speculation, position limits 

cannot be necessary. 

As stated above, the Commission 

recognizes that speculation is part of a 


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189That a particular type of speculator trades a 

different type of instrument, employs a different 

trading strategy, or is unlevered, diversified, subject 

to other regulatory regimes, etc., so as to distinguish 

it in some way from Amaranth or the Hunt brothers 

does not overcome the size of the position held by 

the speculator, and the risks inherent in amassing 

extraordinarily large speculative positions. 

190CEA section 4a(a)(1); 7 U.S.C. 6a(a)(1). 

191See the discussion of the impact analysis, 

below under § 150.2. 

192CL–Citadel–59717 at 3–4 (footnote omitted). 

Contra CL-Sen. Levin-59637 at 6 (declaring that 

‘‘[t]he Commission’s analysis and findings, paired 

with concrete examples, provide a comprehensive 

explanation of the principles and reasoning behind 

establishing position limits.’’). 

193Although the events described in the proposal 

are sufficient to support the necessity finding for 

the reasons given, the Commission also notes 

reports that more recent market events have been 

perceived as involving excessively large positions 

that have caused or threatened to cause market 

disruptions. See, e.g., Ed Ballard, Speculators sit on 

Sugar Pile, Raising Fears of Selloff, The Wall Street 

Journal (Nov. 21, 2016) (‘‘Speculative investors 

have built a record position in sugar this year, 

sparking fears of a swift pullback in its price.’’); Of 

mice and markets, A surge in speculation is making 

commodity markets more volatile, The Economist 

(Sept. 10, 2016) (discussing ‘‘scramble by funds to 

unwind their short positions in’’ West Texas 

Intermediate that appears to have ‘‘fanned a rally 

in spot oil prices’’). As discussed elsewhere, 

willingness to participate in the futures and swaps 

markets may be reduced by perceptions that a 

participant with an unusually large speculative 

position could exert unreasonable market power. 

194CL–WGC–59558 at 2; see also CL–BG Group59656 at 3. 

195 December 2013 Position Limits Proposal, 78 

FR at 75690. 

196The Commission’s methodology is a fair 

approximation of how the limits would have been 

applied during the time of the silver crisis. See 

December 2013 Position Limits Proposal, 78 FR at 

75690. 

197 December 2013 Position Limits Proposal, 78 

FR at 75690–1. 

198For example, using historical month-end open 

interest data, the Commission calculated a singleand all-months-combined limit level of 6,700 

contracts, which would have been exceeded by a 

total Hunt position of over 12,000 contracts for 

March delivery. December 2013 Position Limits 

Proposal, 78 FR at 75690. Baldly, a position of 

12,000 contracts would still exceed a 7,600 contract 

limit. 

199 December 2013 Position Limits Proposal, 78 

FR at 75692. 200 December 2013 Position Limits Proposal, 78 

FR at 75692–3. 201See level of initial limits under App. D to part 

150. 202Establishment of Speculative Position Limits, 

46 FR 50938, 50940. 203A gross comparison such as this may not 

meaningful. For example, the Commission could 

have increased the size of Amaranth’s historical 

position proportionately to the increased size of the 

market and compared it to the limit level for natural 

gas that the Commission adopts today. But such an 

approach would be less rigorous than the analysis 

on which the Commission bases its determination 

today. 

well-functioning market particularly, as 

noted in comments, as a source of 

liquidity. Position limits address 

excessive speculation, not speculation 

per se. Position limits neither exclude 

particular types of speculators nor 

prohibit speculative transactions; they 

constrain only speculators with 

excessively large positions in order to 

diminish, eliminate, or prevent an 

undue and unnecessary burden on 

interstate commerce in a commodity.189

The Commission agrees that futures 

markets are associated with, and may 

indeed contribute to, lower volatility in 

underlying commodity prices. However, 

as Congress observed, in CEA section 

4a(a)(1), excessive speculation in a 

commodity contract that causes 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.190 In 

promulgating CEA section 4a(a)(1), 

Congress adopted position limits as a 

useful tool to diminish, eliminate, or 

prevent those problems. The 

Commission believes that position 

limits are a necessary prophylactic 

measure to guard against disruptions 

arising from excessive speculation, and 

the Commission has endeavored to 

repropose limit levels that are not so 

low as to hamper healthy speculation as 

a source of liquidity.191

f. Basis for Determination 

One commenter states, ‘‘The necessity 

finding . . . proffered by the 

Commission—which consists of a 

discussion of two historical events and 

a cursory review of existing studies and 

reports on position limits related 

issues—falls short of a comprehensive 

analysis and justification for the 

proposed position limits.192 We disagree 

with the commenter’s opinion that the 

Commission’s analysis is not 

comprehensive or falls short of 

justifying the reproposed rule.193

Another commenter states that the 

December 2013 Position Limits Proposal 

‘‘does not provide any quantitative 

analysis of how the outcome of these 

[two historical] events might have 

differed if the proposed position limits 

had been in place.’’ 194 The Commission 

disagrees. The Commission stated in the 

December 2013 Position Limits Proposal 

that, ‘‘The Commission believes that if 

Federal speculative position limits had 

been in effect that correspond to the 

. . . . [proposed] limits . . . , across 

markets now subject to Commission 

jurisdiction, such limits would have 

prevented the Hunt brothers and their 

cohorts from accumulating such large 

futures positions.’’ 195 This statement 

was based on calculations using a 

methodology similar to 196 that 

proposed in the December 2013 Position 

Limits Proposal applied to quantitative 

data included and as described 

therein.197 The Commission’s stated 

belief is unchanged at the higher singlemonth and all-months-combined limit 

levels of 7,600 contracts that the 

Commission adopts today for silver.198

Nevertheless, historical data regarding 

absolute position size from the period of 

the late-1970’s to 1980 may not be 

readily comparable to the numerical 

limits adopted in the current market 

environment. Accordingly, the 

Commission is reproposing establishing 

levels using the methodology based on 

the size of the current market as 

described elsewhere in this release. 

With respect to Amaranth, the 

Commission stated, ‘‘Based on certain 

assumptions . . . , the Commission 

believes that if Federal speculative 

position limits had been in effect that 

correspond to the limits that the 

Commission . . . [proposed in the 

December 2013 Position Limits 

Proposal], across markets now subject to 

Commission jurisdiction, such limits 

would have prevented Amaranth from 

accumulating such large futures 

positions and thereby restrict its ability 

to cause unwarranted price effects.’’ 199

This statement of belief about Amaranth 

was also based on calculations using the 

methodology applied to quantitative 

data as described and included in the 

December 2013 Position Limits Proposal 

preamble.200 The historical size of 

Amaranth positions would no longer 

breach the higher single-month and allmonths-combined limit levels of 

200,900 contracts that the Commission 

adopts today for natural gas.201

However, the Commission is 

reproposing setting a level using a 

methodology that adapts to changes in 

the market for natural gas, i.e., the fact 

that it has grown larger and more liquid 

since the collapse of Amaranth. Thus, it 

stands to reason that a speculator might 

now have to accumulate a larger 

position than Amaranth’s historical 

position to present a similar risk of 

disruption to the natural gas market. In 

fact, the Commission has long 

recognized ‘‘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.’’ 202 A larger 

market should have larger capacity, 

other things being equal; 203 hence, the 

Commission is adopting higher levels of 

limits. Moreover, costly disruptions like 

those associated with Amaranth remain 

entirely possible. Because the costs of 

these disruptions can be great, and 

borne by members of the public 


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204E.g., CL–CCMR–59623 at 3 (supporting 

additional transparency and reporting); CL-Citadel– 

59717 at 4 (pointing to available tools, including 

‘‘enhanced market surveillance, broadened 

reporting requirements, broadened special call 

authorities, and exchange limits’’); CL–ISDA/ 

SIFMA–59611 at 13 (noting that tools that the 

Commission has incorporated include ‘‘enhanced 

market surveillance, broadened reporting 

requirements, broadened special call authorities, 

and exchange limits’’); CL–MFA–59606 at 10; and 

CL–SIFMA AMG–59709 at 5–6 (providing examples 

of new tools). 

205E.g., CL–CME–59718 at 18; CL–ICE–59645 at 

2–4; CL–FIA–59595 at 6, n. 13, 12–13; and CL– 

AMG–59709 at 8. 

206The Commission observes that logically there 

is no reason why the availability of some regulatory 

tools under the CEA should preclude the use of 

another tool explicitly authorized by Congress. 

207 78 FR at 75681 (footnotes omitted). 

208See generally December 2013 Position Limits 

Proposal, 78 FR at 75681. 

209See generally December 2013 Position Limits 

Proposal, 78 FR at 75747–8. 

210See discussion of requirements for exchangeset position limits under § 150.5, below, and 

exchange core principles regarding position limits, 

below. 

211See reproposed § 150.5(a)(6)(iii). 

212See generally 7 U.S.C. 7(d)(6) (DCM Core 

Principles: Emergency Authority); 7 U.S.C. 7b– 

3(f)(8) (Core Principles for Swap Execution 

Facilities—Emergency Authority); 17 CFR 37.800 

(Swap Execution Facility Core Principle 8— 

Emergency authority), 17 CFR 38.350 (Designated 

Contract Markets –Emergency Authority—Core 

Principle 6). 

213E.g., CL–FIA–59595 at 3; CL–EEI–EPSA–59602 

at 2, 8–9. 

214See supra Section I.C.2 (discussing the 

Interagency Silver Study and the PSI Report on 

Excessive Speculation in the Natural Gas Market). 

215E.g., CL-Citadel-59717 at 4–5; CL–EEI–EPSA– 

59602 at 8–9. 

216CL–CME–59718 at 3. 

unconnected with trading markets, the 

Commission preliminarily finds it 

necessary to impose speculative 

position limits as a preventative 

measure. As markets differ in size, the 

limit levels differ accordingly, each 

designed to prevent the accumulation of 

positions that are extraordinary in size 

in the context of each market. 

Several commenters opined that the 

Commission, in reaching its preliminary 

alternative necessity finding, ignores 

current market developments and does 

not employ the ‘‘new tools’’ other than 

position limits available to it to prevent 

excessive speculation or manipulative 

or potentially manipulative behavior.204

Specifically, some commenters 

suggested that position limits are not 

necessary because position 

accountability rules and exchange-set 

limits are adequate.205 The Commission 

agrees that the Dodd-Frank Act gave the 

Commission new tools with which to 

protect and oversee the commodity 

markets, and agrees that these along 

with older tools may be useful in 

addressing market volatility. However, 

the Commission disagrees that the 

availability of other tools means that 

position limits are not necessary.206

Rather the statute, at a minimum, 

reflects Congress’ judgment that 

position limits may be found by the 

Commission to be necessary. The 

Commission notes that although CEA 

section 4a(a) position limits provisions 

have existed for many years, the DoddFrank Act not only retained CEA section 

4a(a), but added, rather than deleted, 

several sections. This leads to the 

conclusion that Congress appears to 

share the Commission’s view that the 

other tools provided by Congress were 

not sufficient. 

Position accountability, for example, 

is an older tool, from the era of the 

CFMA. As the Commission explained in 

the December 2013 Position Limits 

Proposal, the CFMA ‘‘provided a 

statutory basis for exchanges to use preexisting position accountability levels as 

an alternative means to limit the 

burdens of excessive speculative 

positions. Nevertheless, the CFMA did 

not weaken the Commission’s authority 

in CEA section 4a to establish position 

limits as an alternative means to prevent 

such undue burdens on interstate 

commerce. More recently, in the CFTC 

Reauthorization Act of 2008, Congress 

gave the Commission expanded 

authority to set position limits for 

significant price discovery contracts on 

exempt commercial markets,’’ 207 and it 

expanded the Commission’s authority 

again in the Dodd-Frank Act.208 While 

position accountability is useful in 

providing exchanges with information 

about specific trading activity so that 

exchanges can act if prudent to require 

a trader to reduce a position after the 

position has already been amassed, 

position limits operate prophylactically 

without requiring case-by-case, ex post 

determinations about large positions. As 

to exchange-set accountability levels or 

position limits set at levels below those 

of federal position limits, those remain 

useful as well and should be used, at the 

exchanges’ discretion, in conjunction 

with federal position limits. They may 

be most useful, for example, with 

respect to contracts that are not corereferenced futures contracts or if an 

exchange determines that federal limits 

are too high to address adequately the 

conditions in the markets it administers. 

In the regulations that the Commission 

reproposes today, the Commission 

would update (rather than eliminate) 

the acceptable practices for exchange-set 

speculative position limits and position 

accountability rules to conform to the 

Dodd-Frank Act changes [as described 

in the December 2013 Position Limits 

Proposal].209 Generally, for contracts 

subject to speculative limits, exchanges 

may set limits no higher than the federal 

limits,210 and may impose ‘‘restrictions 

. . . to reduce the threat of market 

manipulation or congestion, to maintain 

orderly execution of transactions, or for 

such other purposes consistent with its 

responsibilities.’’ 211 And § 150.5(b)(3) 

sets forth the requirements for position 

accountability in lieu of exchange-set 

limits in the case of contracts not 

subject to federal limits. The exchanges 

are also still authorized to react to 

instances of greater price volatility by 

exercising emergency authority as they 

did during the silver crisis.212 In 

addition, the Commission has striven to 

take current market developments into 

account by considering the market data 

to which the Commission has access as 

described herein and by considering the 

description of current market 

developments to the extent included in 

the comments the Commission has 

received in connection with the 

December 2013 Position Limits 

Proposal. Some commenters suggest that 

the Commission, in reaching its 

preliminary alternative necessity 

finding, has not undertaken any 

empirical analysis of available data.213

As discussed above, the Commission 

carefully reviewed the Interagency 

Silver Study and the PSI Report on 

Excessive Speculation in the Natural 

Gas Market.214 The Commission also 

carefully considered the studies 

submitted during the various comment 

periods regarding the December 2013 

Position Limits Proposal and the 2016 

Supplemental Position Limits Proposal. 

Other commenters suggest that the 

Commission relies on incomplete, 

unreliable, or out of date data, and that 

the Commission should collect more 

and/or better data before determining 

that position limits are necessary or 

implementing position limits.215 The 

Commission disagrees. The Commission 

has considered the recent data 

presented by the exchanges in support 

of their estimates of deliverable supply. 

The Commission is expending 

significant, agency-wide efforts to 

improve data collection and to analyze 

the data it receives. The quality of the 

data on which the Commission relies 

has improved since the December 2013 

Position Limits Proposal. The 

Commission is satisfied with the quality 

of the data on which it bases its 

Reproposal. 

One commenter opines that, ‘‘The 

Proposal’s ‘necessary’ finding offers no 

reasoned basis for adopting its 

framework and the shift in regulatory 

policy it embodies.’’ 216 To the contrary, 


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217See CL–Sen. Levin–59637 at 6 (stating that the 

Commission’s necessity finding ‘‘appropriately 

reflects Congressional action in enacting the DoddFrank Act which requires the Commission to 

impose appropriate position limits on speculators 

trading physical commodities.’’). 

218CL–AMG–59709 at 9. See the Commission’s 

response to the comment regarding the purported 

lack of ‘‘quantitative analysis of how the outcome 

of these [two historical] events might of differed if 

the proposed position limits had been in place’’ at 

the text accompanying notes 192–200 above. See 

also CL–CME–59718 at 41–3; CL–ISDA/SIFMA– 

59611 at 28. 

219See note 202 supra and accompanying text. 

220See December 2013 Position Limits Proposal, 

78 FR at 75691 (citing the PSI Report, ‘‘Amaranth 

accumulated such large positions and traded such 

large volumes of natural gas futures that it distorted 

market prices, widened price spread, and increased 

price volatility.’’). 

221See December 2013 Position Limits Proposal, 

78 FR at 75692 (citing the PSI Report, ‘‘Commercial 

participants in the 2006 natural gas markets were 

reluctant or unable to hedge.’’). 

222CL–CME–59718 at 41–42. 

223See notes 207–212 supra and accompanying 

text. 

224CL–ISDA/SIFMA–59611 at 28. 

225The Commission discussed the trading activity 

of Amaranth at length in the December 2013 

Position Limits Proposal, 78 FR at 75691–3; in 

particular, Amaranth’s calendar spread trading is 

discussed at 78 FR 75692. The Commission repeats 

that the findings of the Permanent Subcommittee in 

the PSI Report support the imposition of 

speculative position limits outside the spot month. 

A trader, who does not liquidate an extraordinarily 

large long futures position in the nearby physicaldelivery futures contract, contrary to typical 

declining open interest patterns in a physicaldelivery contract approaching expiration, may 

cause the nearby futures price to increase as short 

position holders, who do not wish to make physical 

delivery, bid up the futures price in an attempt to 

offset their short positions. Potential liquidity 

providers who do not currently hold a deliverable 

commodity may be hesitant to establish short 

positions as a physical-delivery futures contract 

approaches expiration, because exchange rules and 

contract terms require such short position holder to 

prepare to make delivery by obtaining the cash 

commodity. 

226CL–CME–59718 at 43; cf. CL–APGA–59722 at 

3 (asserting that ‘‘the non-spot month limits being 

proposed by the Commission are too high to be 

effective’’). 

227CL–CCMR–59623 at 4. 

228CL–ISDA/SIFMA–59611 at 28; CL–Better 

Markets–59716 at 24; CL–APGA–59722 at 6–7. 

229CL–Better Markets–59716 at 22, n. 38 (Parnon 

Energy). 

230See the discussion in levels of limits, under 

§ 150.2, below. 

231E.g., December 2013 Position Limits Proposal, 

78 FR at 75681. 

232CEA section 4a(a)(3)(B)(iii), 7 U.S.C. 

6a(a)(3)(B)(iii). Some commenters expressed 

concern that position limits could 

disproportionately affect commercial entities. E.g., 

CL–CME–59718 at 43; CL–APGA–59722 at 3. Some 

commenters expressed concern about the 

application of position limits to trade options. E.g., 

CL–APGA–59722 at 3; CL–EEI–EPSA–59602 at 3. 

The Commission reminds commenters that 

speculative position limits do not apply to bona 

fide hedging transactions or positions. CEA section 

4a(c), 7 U.S.C. 6a(c). 

233The Commission will revisit the specific 

limitations set forth in CEA section 4a(a)(3) when, 

under reproposed § 150.2(e), it considers resetting 

limit levels. 

234A list of studies and reports that the 

Commission reviewed in connection with the 

December 2013 Position Limits Proposal was 

included in its Appendix A to the preamble. 

December 2013 Position Limits Proposal, 78 FR at 

75784–7. One commenter observed that the studies 

reviewed in connection with the December 2013 

Position Limits Proposal are not all ‘‘necessarily 

germane to specific position limits proposed.’’ CL– 

Citadel–59717 at 4. See also CL–CCMR–59623 at 5 

(stating that it had reviewed the studies, and found 

that ‘‘only 27 address position limits’’). The 

Commission acknowledges that some studies are 

more relevant than others. The Commission in the 

December 2013 Position Limits Proposal was 

disclosing the studies that it had reviewed and 

the necessity finding, including the 

Commission’s responses to comments, 

is the Commission’s explanation of why 

position limits are necessary.217

g. Non-Spot-Month Limits 

Some commenters opine that ‘‘the 

Commission’s proposed non-spot-month 

position limits do not increase the 

likelihood of preventing the excessive 

speculation or manipulative trading 

exemplified by Amaranth or the Hunt 

brothers relative to the status quo.’’ 218

The Commission disagrees; as repeated 

above, ‘‘the capacity of the market is not 

unlimited.’’ 219 This includes markets in 

non-spot month contracts. Thus, as with 

spot-month contracts, extraordinarily 

large positions in non-spot month 

contracts may still be capable of 

distorting prices.220 If prices are 

distorted, the utility of hedging may 

decline.221 One commenter argues for 

non-spot month position accountability 

rules; 222 the Commission discusses 

position accountability above.223

Another argues that Amaranth was 

really just ‘‘another case of spot-month 

misconduct.’’ 224 The Commission 

disagrees that this limits the relevance 

of Amaranth; a speculator like 

Amaranth may attempt to distort the 

perception of supply and demand in 

order to benefit, for instance, calendar 

spread positions by, for instance, 

creating the perception of a nearby 

shortage of the commodity which a 

speculator could do by accumulating 

extraordinarily large long positions in 

the nearby month.225 One commenter 

states that ‘‘improperly calibrated nonspot month limits would also deter 

speculative activity that triggers no risk 

of manipulation or ‘causing sudden or 

unreasonable fluctuations or 

unwarranted changes in the price of 

such commodity,’ the hallmarks of 

‘excessive speculation.’ ’’ 226 The 

Commission sees little merit in this 

objection because the Reproposal would 

calibrate the levels of the non-spot 

month limits to accommodate 

speculative activity that provides 

liquidity for hedgers. 

h. Meaning of Necessity 

One commenter suggests that position 

limits could only be necessary if they 

were the only means of preventing the 

Hunt brothers and Amaranth crises.227

First, while the Commission relies on 

these incidents to explain its reasoning, 

the risks they illustrate apply to all 

markets in physical commodities, and 

so the efficacy of the limits the 

Commission adopts today, and the 

extent to which other tools are 

sufficient, cannot be judged solely by 

whether they might have prevented 

those specific incidents. Second, in any 

event, the Commission rejects such an 

overly restrictive reading, which lacks a 

basis in both common usage and 

statutory construction. The Commission 

preliminarily finds that limits are 

necessary as a prophylactic tool to 

strengthen the regulatory framework to 

prevent excessive speculation ex ante to 

diminish the risk of the economic harm 

it may cause further than it would 

reliably be from the other tools alone. 

Other commenters question why the 

Commission proposed limits at levels 

they contend are too high to be effective, 

undercutting the Commission’s 

alternative necessity finding.228 One 

commenter points out that the limit 

levels as proposed would not have 

prevented the misconduct alleged by the 

Commission in a particular enforcement 

action filed in 2011.229 As repeated 

elsewhere in this Notice 230 and in the 

December 2013 Position Limits 

Proposal,231 in establishing limits, the 

Commission must, ‘‘to the maximum 

extent practicable, in its discretion . . . 

ensure sufficient market liquidity for 

bona fide hedgers.232 The Commission 

realizes that the reproposed initial limit 

levels may prevent or deter some, but 

fail to eliminate all, excessive 

speculation in the markets for the 25 

commodities covered by this first phase 

of implementation. But the Commission 

is concerned that initial limit levels set 

lower than those reproposed today, and 

in particular low enough to prevent 

market manipulation or excessive 

speculation in specific, less egregious 

cases than the Hunt brothers or 

Amaranth, could impair liquidity for 

hedges.233

The Commission requests comment 

on all aspects of this section. 

2. Studies and Reports 

The Commission has reviewed and 

evaluated studies and reports received 

as comments on the December 2013 

Position Limits Proposal, in addition to 

the studies and reports reviewed in 

connection with the December 2013 

Position Limits Proposal 234 (such 


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evaluated. The Commission requested comment on 

its discussion of the studies, and invited 

commenters to advise the Commission of other 

studies to consider, in the hope that commenters 

would indicate which studies they believe are more 

germane or persuasive and suggest other studies for 

Commission review. 

235 December 2013 Position Limits Proposal, 78 

FR at 75694. 

236See 162 Cong. Rec. E1005–03, E1006 (June 28, 

2016) (Statement of Rep. Conaway, Chairman of the 

House Committee on Agriculture) (‘‘Comment 

letters on either side declaring that the matter is 

settled in their favor among respectable economists 

are simply incorrect.’’). Contra CL–CCMR–59623 at 

5, which says, ‘‘The Committee staff also reviewed 

these studies and found that of them, only 27 

address position limits, with the majority opposing 

such limits.’’ The commenter describes how it 

arrives at this conclusion as follows: ‘‘The 

Committee staff reviewed the abstract and body of 

each study to determine if the author assessed: (1) 

Whether position limits are effective at reducing 

speculation; or (2) whether excessive speculation is 

distorting prices in commodities markets. If the 

author presented a critical analysis of the issue, 

rather than just mentioning position limits or 

excessive speculation in passing, then the 

Committee staff included the study in its tally.’’ 

Such a method is relatively unsophisticated, and 

the Commission cannot evaluate it without 

knowing to which studies the commenter refers. 

The commenter continues, ‘‘Of the total, 105 

studies address whether excessive speculation is 

distorting prices in today’s commodity markets, 

with 66 of these studies finding that excessive 

speculation is not a problem.’’ This statement did 

not identify the 66 studies or 105 studies on which 

it based its belief. Accordingly, the Commission is 

unable to evaluate the basis of its belief. 

237See discussion of mandate, above. We 

emphasize that this discussion relates only to the 

Commission’s alternative necessity finding. To the 

extent there is a Congressional mandate that the 

Commission establish position limits, these studies 

could be no basis to disregard it. As noted in the 

December 2013 Position Limits Proposal, ‘‘Studies 

that militate against imposing any speculative 

position limits appear to conflict with the 

Congressional mandate . . . that the Commission 

impose limits on futures contracts, options, and 

certain swaps for agricultural and exempt 

commodities.’’ 78 FR at 75695 (footnote omitted). 

Separately, ‘‘such studies also appear to conflict 

with Congress’ determination, codified in CEA 

section 4a(a)(1), that position limits are an effective 

tool to address excessive speculation as a cause of 

sudden or unreasonable fluctuations or 

unwarranted changes in the price of such 

commodities,’’ irrespective of whether they are 

mandated. Id. The Commission acknowledges that 

some of the studies, when considered as comments 

on the December 2013 Position Limits Proposal, can 

be understood to suggest that, contrary to the 

Congressional determination, there is no empirical 

evidence that excessive speculation exists, that 

excessive speculation causes sudden or 

unreasonable fluctuations or unwarranted changes 

in the price of a commodity, or is an undue and 

unnecessary burden on interstate commerce in a 

commodity. 

238See discussion of necessity finding, above. 

239These categories are not exclusive; some 

studies employ or examine more than one type of 

methodology. That researchers in the different 

categories employed different methodologies 

complicates the task of comparing the studies 

across the seven categories. In addition, some 

studies were not susceptible to meaningful 

economic analysis for various reasons, such as 

being written in a foreign language, being founded 

on suspect methodologies, being press releases, etc. 

These studies include: Basak and Pavlova, A Model 

Financialization of Commodities (working paper 

2013); Bass, Finanazma ̈rkte als Hungerverursacher? 

(working paper 2011); Bass, Finanzspekulation und 

Nahrungsmittelpreise. Anmerkungenzum Stand der 

Forschung (working paper 2013); Bukold, 

O ̈ lpreisspekulation und Benzinpreise in 

Deutschland, (2011); Chevalier, (Ministe`re de 

l’Economie, de l’Industrie e t de l’emploi): Rappor 

t du groupe de travai l sur la volatilite` des prix du 

pe`trole, (2010); Dicker, Oil’s Endless Bid, (2011); 

Ederington and Lee, Who Trades Futures and How: 

Evidence from the Heating Oil Market?, Journal of 

Business 2002; Evans, The Official Demise of the 

Oil Bubble, Wall Street Journal 2008; Gheit and 

Katzenberg, Surviving Lower Oil Prices, 

Oppenheimer & Co. (2008); Ghosh, Commodity 

Speculation and the Food Crisis, (working paper 

2010); Halova, The Intraday Volatility-Volume 

Relationship in Oil and Gas Futures, (working 

paper 2012); Jouyet, Rappor t d’ e ́tape-Pre ́venir e t 

ge ́rer l’instabilite ́ des marche ́s agricoles, (2010); 

Korzenik, Fundamental Misconceptions in the 

Speculation Debate, (2009); Lake Hill Capital 

Management, Investable Indices are Distorting 

Commodity Markets?, (2013); Lee, Cheng, and Koh, 

Would Position Limits Have Made any Difference 

to the ‘Flash Crash’ on May 6, 2010?, Review of 

Futures Markets (2010); Markham, Manipulation of 

Commodity Futures Prices: The Unprosecutable 

Crime, Yale Journal of Regulation (1991); Mayer, 

The Growing Financializsation of Commodity 

Markets: Divergences between Index Investors and 

Money Managers, Journal of Development Studies 

(2012); Morse, Oil dotcom, Research Notes, (2008); 

Naylor, Food Security in an Era of Economic 

Volatility (working paper 2010); Newell, 

Commodity Speculation’s ‘‘Smoking Gun’’ (2008); 

Peri, Vandone, and Baldi, Internet, Noise Trading 

and Commodity Prices (working paper 2012); Soros, 

Interview with Stern Stern Magazine (2008); 

Tanaka, IEA Says Speculation Amplifying Oil Price 

Moves, (2006); Von Braun and Tadesse, Global 

Food Price Volatility and Spikes: An Overview of 

Costs, Cause and Solutions (2012). 

240Studies that employ the Granger method of 

statistical analysis include: Algieri, Price Volatility, 

Continued 

studies and reports, collectively, 

‘‘studies’’). Appendix A to this preamble 

is a summary of the various studies 

reviewed and evaluated by the 

Commission. 

The Commission observed in the 

December 2013 Position Limits 

Proposal, ‘‘There is a demonstrable lack 

of consensus in the studies.’’ 235 Neither 

the passage of time nor the additional 

studies have changed the Commission’s 

view: As a group, these studies do not 

show a consensus in favor of or against 

position limits.236 In addition to 

arriving at disparate conclusions, the 

quality of the studies varies. 

Nevertheless, the Commission believes 

that some well-executed studies suggest 

that excessive speculation cannot be 

excluded as a possible cause of undue 

price fluctuations and other burdens on 

commerce in certain circumstances. All 

of these factors persuade the 

Commission to act on the side of 

caution in preliminarily finding limits 

necessary, consistent with their 

prophylactic purpose. For these reasons, 

explained in more detail below, the 

Commission preliminarily concludes 

that the studies, individually or taken as 

a whole, do not persuade the 

Commission to reverse course 237 or to 

change its necessity finding.238

The Commission’s deliberations are 

informed by its consideration of the 

studies. The Commission recognizes 

that speculation and volatility are not 

per se unusual or exceptional 

occurrences in commodity markets. 

Some economic studies attempt to 

distinguish normal, helpful speculative 

activity in commodity markets from 

excessive speculation, and normal 

volatility from unreasonable price 

fluctuations. It has proven difficult in 

some studies to discriminate between 

the proper workings of a wellfunctioning market and unwanted 

phenomena. That some studies have as 

yet failed to do so with precision or 

certainty does not, in light of the full 

record, persuade the Commission to 

reverse course or to change its necessity 

finding. 

In general, many studies focused on 

subsidiary questions and did not 

directly address the desirability or 

utility of position limits. Their proffered 

interpretations may not be the only 

plausible explanation for statistical 

results. There is no broad academic 

consensus on the formal, testable 

economic definition of ‘‘excessive 

speculation’’ in commodity futures 

markets or other relevant terms such as 

‘‘price bubble.’’ There is also no broad 

academic consensus on the best 

statistical model to test for the existence 

of excessive speculation. There are not 

many papers that quantify the impact 

and effectiveness of position limits in 

commodity futures markets. The 

Commission has identified some 

reasons why there are not many 

compelling, peer-reviewed economic 

studies engaging in quantitative, 

empirical analysis of the impact of 

position limits on prices or price 

volatility: Limitations on publicly 

available data, including detailed 

information on specific trades and 

traders; pre-existing position limits in 

some commodity markets, making it 

difficult to determine how those 

markets would operate in the absence of 

position limits; and the difficulties 

inherent in modelling complex 

economic phenomena. 

The studies that the Commission 

considered can be grouped into seven 

categories.239

Granger Causality Analyses 240


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96724 Federal Register / Vol. 81, No. 251 / Friday, December 30, 2016 / Proposed Rules 

Speculation and Excessive Speculation in 

Commodity Markets: Sheep or Shepherd 

Behaviour? (working paper 2012); Antoshin, 

Canetti, and Miyajima, IMF Global Financial 

Stability Report: Financial Stress and Deleveraging: 

Macrofinancial Implications and Policy, Annex 1.2, 

Financial Investment in Commodities Markets 

(October 2008); Aulerich, Irwin, and Garcia, 

Bubbles, Food Prices, and Speculation: Evidence 

from the CFTC’s Daily Large Trader Data Files 

(NBER Conference 2012); Borin and Di Nino, The 

Role of Financial Investments in Agricultural 

Commodity Derivatives Markets (working paper 

2012); Brunetti and Bu ̈ yu ̈ ks ̧ahin, Is Speculation 

Destabilizing? (working paper 2009); Cooke and 

Robles, Recent Food Prices Movements: A Time 

Series Analysis (working paper 2009); Frenk, 

Review of Irwin and Sanders 2010 OECD Report 

(Better Markets June 10, 2010); Gilbert, Commodity 

Speculation and Commodity Investment (2010); 

Gilbert, How to Understand High Food Prices, 

Journal of Agricultural Economics (2008); Gilbert, 

Speculative Influences on Commodity Futures 

Prices, 2006–2008, UN Conference on Trade and 

Development (2010); Goyal and Tripathi, 

Regulation and Price Discovery: Oil Spot and 

Futures Markets (working paper 2012); Grosche, 

Limitations of Granger Causality Analysis to Assess 

the Price Effects From the Financialization of 

Agricultural Commodity Markets Under Bounded 

Rationality, Agricultural and Resource Economics 

(2012); Harris and Bu ̈ yu ̈ ks ̧ahin, The Role of 

Speculators in the Crude Oil Futures Market 

(working paper 2009); Irwin and Sanders, Energy 

Futures Prices and Commodity Index Investment: 

New Evidence from Firm-Level Position Data 

(working paper 2014); Irwin and Sanders, The 

Impact of Index and Swap Funds on Commodity 

Futures Markets: A Systems Approach, Journal of 

Alternative Investments (working paper 2010); 

Irwin and Sanders, The Impact of Index and Swap 

Funds on Commodity Futures Markets: Preliminary 

Results (working paper 2010); Irwin and Sanders, 

The ‘‘Necessity’’ of New Position Limits in 

Agricultural Futures Markets: The Verdict from 

Daily Firm-Level Position Data (working paper 

2014); Irwin and Sanders, The Performance of 

CBOT Corn, Soybean, and Wheat Futures Contracts 

after Recent Changes in Speculative Limits 

(working paper 2007); Irwin, Sanders, and Merrin, 

Devil or Angel: The Role of Speculation in the 

Recent Commodity Price Boom, Journal of 

Agricultural and Applied Economics (2009); 

Kaufman, The role of market fundamentals and 

speculation in recent price changes for crude oil, 

Energy Policy, Vol. 39, Issue 1 (January 2011); 

Kaufmann and Ullman, Oil Prices, Speculation, and 

Fundamentals: Interpreting Causal Relations 

Among Spot and Futures Prices, Energy Economics, 

Vol. 31, Issue 4 (July 2009); Mayer, The Growing 

Interdependence Between Financial and 

Commodity Markets, UN Conference on Trade and 

Development (discussion paper 2009); Mobert, Do 

Speculators Drive Crude Oil Prices? (2009 working 

paper); Robles, Torero, and von Braun, When 

Speculation Matters (working paper 2009); Sanders, 

Boris, and Manfredo, Hedgers, Funds, and Small 

Speculators in the Energy Futures Markets: An 

Analysis of the CFTC’s Commitment of Traders 

Reports, Energy Economics (2004); Sanders, Irwin, 

and Merrin, The Adequacy of Speculation in 

Agricultural Futures Markets: Too Much of a Good 

Thing?, Applied Economic Perspectives and Policy 

(2010); Sanders, Irwin, and Merrin, Smart Money? 

The Forecasting Ability of CFTC Large Traders, 

Journal of Agricultural and Resource Economics 

(2009); Sanders, Irwin, and Merrin, A Speculative 

Bubble in Commodity Futures? Cross-Sectional 

Evidence, Agricultural Economics (2010); 

Singleton, The 2008 Boom/Bust in Oil Prices 

(working paper 2010); Singleton, Investor Flows 

and the 2008 Boom/Bust in Oil Prices (working 

paper 2011); Stoll and Whaley, Commodity Index 

Investing and Commodity Futures Prices (working 

paper 2010); Timmer, Did Speculation Affect World 

Rice Prices?, UN Food and Agricultural 

Organization (working paper 2009); Tse and 

Williams, Does Index Speculation Impact 

Commodity Prices?, Financial Review, Vol. 48, 

Issue 3 (2013); Tse, The Relationship Among 

Agricultural Futures, ETFs, and the US Stock 

Market, Review of Futures Markets (2012); Varadi, 

An Evidence of Speculation in Indian Commodity 

Markets (working paper 2012); Williams, Dodging 

Dodd-Frank: Excessive Speculation, Commodities 

Markets, and the Burden of Proof, Law & Policy 

Journal of the University of Denver (2015). 

241Studies that employ the comovement or 

cointegration methods include: Ada ̈mmer, Bohl and 

Stephan, Speculative Bubbles in Agricultural Prices 

(working paper 2011); Algieri, A Roller Coaster 

Ride: an Empirical Investigation of the Main Drivers 

of Wheat Price (working paper 2013); Babula and 

Rothenberg, A Dynamic Monthly Model of U.S. 

Pork Product Markets: Testing for and Discerning 

the Role of Hedging on Pork-Related Food Costs, 

Journal of Int’l Agricultural Trade and Development 

(2013); Baffes and Haniotos, Placing the 2006/08 

Commodity Boom into Perspective, World Bank 

Policy Research Working Paper 5371 (2010); Basu 

and Miffre, Capturing the Risk Premium of 

Commodity Futures: The Role of Hedging Pressure, 

Journal of Banking and Risk (2013); Belke, Bordon, 

and Volz, Effects of Global Liquidity on Commodity 

and Food Prices, German Institute for Economic 

Research (2013); Bicchetti and Maystre, The 

Synchronized and Long-lasting Structural Change 

on Commodity Markets: Evidence from High 

Frequency Data (working paper 2012); Boyd, 

Bu ̈ yu ̈ ks ̧ahin, and Haigh, The Prevalence, Sources, 

and Effects of Herding (working paper 2013); Bunn, 

Chevalier, and Le Pen, Fundamental and Financial 

Influences on the Co-movement of Oil and Gas 

Prices (working paper 2012); Bu ̈ yu ̈ ks ̧ahin, Harris, 

and Haigh, Fundamentals, Trader Activity, and 

Derivatives Pricing (working paper 2008); 

Bu ̈ yu ̈ ks ̧ahin and Robe, Does it Matter Who Trades 

Energy Derivatives?, Review of Env’t, Energy, and 

Economics (2013); Bu ̈ yu ̈ ks ̧ahin and Robe, Does 

‘‘Paper Oil’’ Matter? (working paper 2011); 

Bu ̈ yu ̈ ks ̧ahin and Robe, Speculators, Commodities, 

and Cross-Market Linkages (working paper 2012); 

Cheng, Kirilenko, and Xiong, Convective Risk 

Flows in Commodity Futures Markets (working 

paper 2012); Coleman and Dark, Economic 

Significance of Non-Hedger Investment in 

Commodity Markets (working paper 2012); Creti, 

Joets, and Mignon, On the Links Between Stock and 

Commodity Markets’ Volatility, Energy Economics 

(2010); Dorfman and Karali, Have Commodity Index 

Funds Increased Price Linkages between 

Commodities? (working paper 2012); Filimonov, 

Bicchetti, Maystre, and Sornette, Quantification of 

the High Level of Endogeneity and of Structural 

Regime Shifts in Commodity Markets, (working 

paper 2013); Haigh, Harris, and Overdahl, Market 

Growth, Trader Participation and Pricing in Energy 

Futures Markets (working paper 2007); Hoff, 

Herding Behavior in Asset Markets, Journal of 

Financial Stability (2009); Kawamoto, Kimura, et 

al., What Has Caused the Surge in Global 

Commodity Prices and Strengthened Cross-market 

Linkage?, Bank of Japan Working Papers Series 

No.11–E–3 (May 2011); Korniotis, Does Speculation 

Affect Spot Price Levels? The Case of Metals With 

and Without Futures Markets (working paper, FRB 

Finance and Economic Discussion Series 2009); Le 

Pen and Se ́vi, Futures Trading and the Excess 

Comovement of Commodity Prices (working paper 

2012); Pollin and Heintz, How Wall Street 

Speculation is Driving Up Gasoline Prices Today 

(AFR working paper 2011); Tang and Xiong, Index 

Investment and Financialization of Commodities, 

Financial Analysts Journal (2012); and Windawi, 

Speculation, Embedding, and Food Prices: A 

Cointegration Analysis (working paper 2012). 

242Studies that employ models of fundamental 

supply and demand include: Acharya, Ramadorai, 

and Lochstoer, Limits to Arbitrage and Hedging: 

Evidence from Commodity Markets, Journal of 

Financial Economics (2013); Allen, Litov, and Mei, 

Large Investors, Price Manipulation, and Limits to 

Arbitrage: An Anatomy of Market Corners, Review 

of Finance (2006); Bos and van der Molen, A Bitter 

Brew? How Index Fund Speculation Can Drive Up 

Commodity Prices, Journal of Agricultural and 

Applied Economics (2010); Breitenfellner, Crespo, 

and Keppel, Determinants of Crude Oil Prices: 

Supply, Demand, Cartel, or Speculation?, Monetary 

Policy and the Economy (2009); Brennan and 

Schwartz, Arbitrage in Stock Index Futures, Journal 

of Business (1990); Byun and Sungje, Speculation 

in Commodity Futures Market, Inventories and the 

Price of Crude Oil (working paper 2013); Chan, 

Trade Size, Order Imbalance, and Volatility-Volume 

Relation, Journal of Financial Economics (2000); 

Chordia, Subrahmanyam and Roll, Order 

imbalance, Liquidity, and Market Returns, Journal 

of Financial Economics (2002); Cifarelli and 

Paladino, Oil Price Dynamics and Speculation: a 

Multivariate Financial Approach, Energy 

Economics (2010); Doroudian and Vercammen, 

First and Second Order Impacts of Speculation and 

Commodity Price Volatility (working paper 2012); 

Ederington, Dewally, and Fernando, Determinants 

of Trader Profits in Futures Markets (working paper 

2013); Einloth, Speculation and Recent Volatility in 

the Price of Oil (working paper 2009); Frankel and 

Rose, Determinants of Agricultural and Mineral 

Commodity Prices (working paper 2010); Girardi, 

Do Financial Investors Affect Commodity Prices? 

(working paper 2011); Gorton, Hayashi, 

Rouwenhorst, The Fundamentals of Commodity 

Futures Returns, Review of Finance (2013); 

Guilleminot and Ohana, The Interaction of Hedge 

Funds and Index Investors in Agricultural 

Derivatives Markets (working paper 2013); Gupta 

and Kamzemi, Factor Exposures and Hedge Fund 

Operational Risk: The Case of Amaranth (working 

Some economic studies considered by 

the Commission employ the Granger 

method of statistical analysis. The 

Granger method seeks to assess whether 

there is a strong linear correlation 

between two sets of data that are 

arranged chronologically forming a 

‘‘time series.’’ While the Granger test is 

referred to as the ‘‘Granger causality 

test,’’ it is important to understand that, 

notwithstanding this shorthand, 

‘‘Granger causality’’ does not necessarily 

establish an actual cause and effect 

relationship. The result of the Granger 

method is evidence, or the lack of 

evidence, of the existence of a linear 

correlation between the two time series. 

The absence of Granger causality does 

not necessarily imply the absence of 

actual causation. 

Comovement or Cointegration 

Analyses 241

The comovement method looks for 

whether there is correlation that is 

contemporaneous and not lagged. A 

subset of these comovement studies use 

a technique called cointegration for 

testing correlation between two sets of 

data. 

Models of Fundamental Supply and 

Demand 242


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paper 2009); Haigh, Hranaiova, and Overdahl, 

Hedge Funds, Volatility, and Liquidity Provisions 

in the Energy Futures Markets, Journal of 

Alternative Investments (2007); Haigh, Hranaiova, 

and Overdahl, Price Dynamics, Price Discovery, and 

Large Futures Trader Interactions in the Energy 

Complex, (working paper 2005); Hamilton, Causes 

and Consequences of the Oil Shock of 2007–2008, 

Brookings Paper on Economic Activity (2009); 

Hamilton and Wu, Effects of Index-Fund Investing 

on Commodity Futures Prices, International 

Economic Review, Vol. 56, No. 1 (2015); Hamilton 

and Wu, Risk Premia in Crude Oil Futures Prices, 

Journal of International Money and Finance (2013); 

Harrison and Kreps, Speculative Investor Behavior 

in a Stock Market with Heterogeneous Expectations, 

Quarterly Journal of Economics (1978); Henderson, 

Pearson and Wang, New Evidence on the 

Financialization of Commodity Markets (working 

paper 2012); Hirshleifer, Residual Risk, Trading 

Costs, and Commodity Futures Risk Premia, Review 

of Financial Studies, Vol. 1, No. 2, Oxford 

University Press (1988); Hong and Yogo, Digging 

into Commodities (working paper 2009); 

Interagency Task Force on Commodity Markets, 

Interim Report on Crude Oil, multiple federal 

agencies including the CFTC (2008); Juvenal and 

Petrella, Speculation in the Oil Market (working 

paper 2012); Juvenal and Petrella, Speculation in 

Commodities, and Cross-Market Linkages (working 

paper 2011); Kilian, Not All Oil Price Shocks Are 

Alike: Disentangling Demand and Supply Shocks in 

the Crude Oil Market, American Economic Review 

(2007); Kilian and Lee, Quantifying the Speculative 

Component in the Real Price of Oil: The Role of 

Global Oil Inventories (working paper 2013); Kilian 

and Murphy, The Role of Inventories and 

Speculative Trading in the Global Market for Crude 

Oil, Journal of Applied Econometrics (2010); Knittel 

and Pindyck, The Simple Economics of Commodity 

Price Speculation, (working paper 2013); Kyle and 

Wang, Speculation Duopoly with Agreement to 

Disagree: Can Overconfidence Survive the Market 

Test?, Journal of Finance (1997); Manera, Nicolini 

and Vignati, Futures Price Volatility in 

Commodities Markets: The Role of Short-Term vs 

Long-Term Speculation (working paper 2013); Mei, 

Acheinkman, and Xiong, Speculative Trading and 

Stock Prices: An Analysis of Chinese A–B Share 

Premia, Annals of Economics and Finance (2009); 

Morana, Oil Price Dynamics, Macro-finance 

Interactions and the Role of Financial Speculation, 

Journal of Banking & Finance, Vol. 37, Issue 1 (Jan. 

2012); Mou, Limits to Arbitrage and Commodity 

Index Investment: Front-Running the Goldman roll 

(working paper 2011); Plato and Hoffman, 

Measuring the Influence of Commodity Fund 

Trading on Soybean Price Discovery (working paper 

2007); Sornette, Woodard and Zhou, The 2006– 

2008 Oil Bubble and Beyond: Evidence of 

Speculation, and Prediction, Physica A. (2009); 

Stevans and Sessions, Speculation, Futures Prices, 

and the U.S. Real Price of Crude Oil, American 

Journal of Social and Management Science (2010); 

Trostle, Global Agricultural Supply and Demand: 

Factors Contributing to the Recent Increase in Food 

Commodity Prices, USDA Economic Research 

Service (2008);Van der Molen, Speculators Invading 

the Commodity Markets (working paper 2009); 

Weiner, Do Birds of A Feather Flock Together? 

Speculation in the Oil Markets, (Working Paper 

2006); Weiner, Speculation in International Crises: 

Report from the Gulf, Journal of Int’l Business 

Studies (2005); Westcott and Hoffman, Price 

Determination for Corn and Wheat: The Role of 

Market Factors and Government Programs (working 

paper 1999); Wright, International Grain Reserves 

and Other Instruments to Address Volatility in 

Grain Markets, World Bank Research Observer 

(2012). 

243Studies that include switching regressions or 

similar analyses include: Brooks, Prokopczuk, and 

Wu, Boom and Bust in Commodity Markets: 

Bubbles or Fundamentals? (working paper 2014); 

Baldi and Peri, Price Discovery in Agricultural 

Commodities: the Shifting Relationship Between 

Spot and Futures Prices (working paper 2011); 

Chevallier, Price Relationships in Crude oil Futures: 

New Evidence from CFTC Disaggregated Data, 

Environmental Economics and Policy Studies 

(2012); Cifarelli and Paladino, Commodity Futures 

Returns: A non-linear Markov Regime Switching 

Model of Hedging and Speculative Pressures 

(working paper 2010); Fan and Xu, What Has 

Driven Oil Prices Since 2000? A Structural Change 

Perspective, Energy Economics (2011); Hache and 

Lantz, Speculative Trading & Oil Price Dynamic: A 

Study of the WTI Market, Energy Economics, Vol. 

36, p.340 (March 2013); Lammerding, Stephan, 

Trede, and Wifling, Speculative Bubbles in Recent 

Oil Price Dynamics: Evidence from a Bayesian 

Markov Switching State-Space Approach, Energy 

Economics Vol. 36 (2013); Sigl-Gru ̈ b and Schiereck, 

Speculation and Nonlinear Price Dynamics in 

Commodity Futures Markets, Investment 

Management and Financial Innovations, Vol. 77 

(2010); Silvernnoinen and Thorp, Financialization, 

Crisis and Commodity Correlation Dynamics, 

Journal of Int’l Financial Markets, Institutions, and 

Money (2013). 

244While there is no broad academic consensus 

on the formal, testable economic definition of the 

term ‘‘price bubble,’’ price bubbles are colloquially 

thought to be unsustainable surges in asset prices 

fueled by speculation and followed by ‘‘crashes’’ or 

precipitous price drops. 

245Studies that employ eigenvalue stability 

analysis include: Czudaj and Beckman, Spot and 

Futures Commodity Markets and the Unbiasedness 

Hypothesis—Evidence from a Novel Panel Unit 

Root Test, Economic Bulletin (2013); Du, Yu, and 

Hayes, Speculation and Volatility Spillover in the 

Crude Oil and Agricultural Commodity Markets: A 

Bayesian Analysis, (working paper 2012); Gilbert, 

Speculative Influences on Commodity Futures 

Prices, 2006–2008, UN Conference on Trade and 

Development (working paper 2010); Gutierrez, 

Speculative Bubbles in Agricultural Commodity 

Markets, European Review of Agricultural 

Economics (2012); Phillips and Yu, Dating the 

Timeline of Financial Bubbles During the Subprime 

Crisis, Quantitative Economics (2011). 

246 In statistical modeling, regression analysis is 

a process for estimating the relationships among 

certain types of variables (values that change over 

time or in different circumstances). 

247 In this context, an eigenvalue is a 

mathematical calculation that summarizes the 

dynamic properties of the data generated by the 

model. Generally, an eigenvalue is a concept from 

linear algebra. 

248Studies that present theoretical models 

include: Avriel and Reisman, Optimal Option 

Portfolios in Markets with Position Limits and 

Margin Requirements, Journal of Risk (2000); Dai, 

Jin and Liu, Illiquidity, Position Limits, and 

Optimal Investment (working paper 2009); 

Dicembrino and Scandizzo, The Fundamental and 

Speculative Components of the Oil Spot Price: A 

Real Options Value Approach (working paper 

2012); Dutt and Harris, Position Limits for CashSettled Derivative Contracts, Journal of Futures 

Markets (2005); Ebrahim and ap Gwilym, Can 

Position Limits Restrain Rogue Traders?, at p.832 

Journal of Banking & Finance (2013); Edirsinghe, 

Naik, and Uppal, Optimal Replication of Options 

with Transaction Costs and Trading Restrictions, 

Journal of Financial and Quantitative Analysis 

(1993); Froot, Scharfstein, and Stein, Herd on the 

Street: Informational Inefficiencies in a Market with 

Short Term Speculation, (Working Paper 1990); 

Kumar and Seppi, Futures Manipulation with 

‘‘Cash Settlement’’, Journal of Finance (1992); Kyle 

and Viswanathan, How to Define Illegal Price 

Manipulation, American Economic Review (2008); 

Kyle and Wang, Speculation Duopoly with 

Agreement to Disagree: Can Overconfidence 

Survive the Market Test?, Journal of Finance (1997); 

Lee, Cheng and Koh, An Analysis of Extreme Price 

Shocks and Illiquidity Among Systematic Trend 

Followers (working paper 2010); Leitner, Inducing 

Agents to Report Hidden Trades: A Theory of an 

Intermediary, Review of Finance (2012); Liu, 

Financial-Demand Based Commodity Pricing: A 

Theoretical Model for Financialization of 

Commodities (working paper 2011); Lombardi and 

van Robays, Do Financial Investors Destabilize the 

Continued 

Some economists have developed 

economic models for the supply and 

demand of a commodity. These models 

often include theories of how storage 

capacity and use affect supply and 

demand, which may influence the price 

of a physical commodity over time. An 

economist looks at where the model is 

in equilibrium with respect to quantities 

of a commodity supplied and demanded 

to arrive at a ‘‘fundamental’’ price or 

price return. The economist then looks 

for deviations between the fundamental 

price (based on the model) and the 

actual price of a commodity. When 

there is a statistically significant 

deviation between the fundamental 

price and the actual price, the 

economist generally infers that the price 

is not driven by market fundamentals of 

supply and demand. 

Switching Regressions or Similar 

Analyses 243

In the context of studies relating to 

position limits, economists employing 

switching regression analysis generally 

posit a model with two states: A normal 

state, where prices reflect market 

fundamentals, and a second state, often 

interpreted as a ‘‘bubble.’’ 244 Using 

price data, authors of these studies 

calculate the probability of a transition 

between the two states. The point of 

transition is called a structural 

‘‘breakpoint.’’ Examination of these 

breakpoints permits the researcher to 

identify the duration of a particular 

‘‘bubble.’’ 

Eigenvalue Stability Analysis 245

Some economists have run regression 

analyses 246 on price and time-lagged 

values of price. They estimate an 

equation that relates current to past time 

values over short time intervals and 

solve for the roots of that equation, 

called the eigenvalues (latent values), in 

order to detect unusual price changes. If 

they find an eigenvalue 247 with an 

absolute value of greater than one, they 

infer that the price of the commodity is 

in a ‘‘bubble.’’ 

Theoretical Models 248


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Oil Price? (working paper, European Central Bank, 

2011); Morris, Speculative Investor Behavior and 

Learning, Quarterly Journal of Economics (1996); 

Parsons, Black Gold & Fool’s Gold: Speculation in 

the Oil Futures Market, Economia (2009); Pierru 

and Babusiaux, Speculation without Oil Stockpiling 

as a Signature: A Dynamic Perspective (working 

paper 2010); Pirrong, Manipulation of the 

Commodity Futures Market Delivery Process, 

Journal of Business (1993); Pirrong, The SelfRegulation of Commodity Exchanges: The Case of 

Market Manipulation, Journal of Law and 

Economics (1995); Pliska and Shalen, The Effects of 

Regulation on Trading Activity and Return 

Volatility in Futures Markets, Journal of Futures 

Markets (2006); Routledge, Seppi, and Spatt, 

Equilibrium Forward Curves for Commodities, 

Journal of Finance (2000); Schulmeister, Technical 

Trading and Commodity Price Fluctuations 

(working paper 2012); Schulmeister, Torero, and 

von Braun, Trading Practices and Price Dynamics 

in Commodity Markets (working paper 2009); 

Shleifer and Vishney, The Limits of Arbitrage, 

Journal of Finance (1997); Sockin and Xiong, 

Feedback Effects of Commodity Futures Prices 

(working paper 2012); Vansteenkiste, What is 

Driving Oil Price Futures? Fundamentals Versus 

Speculation (working paper, European Central 

Bank, 2011); Westerhoff, Speculative Markets and 

the Effectiveness of Price Limits, Journal of 

Economic Dynamics and Control (2003). 249Studies that are survey or opinion pieces 

include: Anderson, Outlaw, and Bryant, The Effects 

of Ethanol on Texas Food and Feed, Agricultural 

and Food Policy Center Research Report (2008); 

Baffes, The Long-term Implications of the 2007– 

2008 Commodity-Price Boom, Development in 

Practice (2011); Basu and Gavin, What Explains the 

Growth in Commodity Derivatives? (working paper 

2011); Berg, The Rise of Commodity Speculation: 

from Villainous to Venerable, (2011); Bessenbinder, 

Lilan, and Mahadeva, The Role of Speculation in 

Oil Markets: What Have We Learned So Far? 

(working paper 2012); Cagan, Financial Futures 

Markets: Is More Regulation Needed?, Journal of 

Futures Markets (1981); Chincarini, The Amaranth 

Debacle: Failure of Risk Measures or Failure of Risk 

Management (working paper 2007); Chincarini, 

Natural Gas Futures and Spread Position Risk: 

Lessons from the Collapse of Amaranth Advisors 

L.L.C., Journal of Applied Finance (2008); CME 

Group, Inc., Excessive Speculation and Position 

Limits in Energy Derivatives Markets (working 

paper); Cooper, Excessive Speculation and Oil Price 

Shock Recessions: A Case of Wall Street ‘‘De ́ja` vu 

All Over Again,’’ Consumer Federation of America 

(2011); Dahl, Future Markets: The Interaction of 

Economic Analyses and Regulation: Discussion, 

American Journal of Agricultural Economics (1980); 

De Schutter, Food Commodities Speculation and 

Food Price Crises, United Nations Special Report on 

the Right to Food (2010); Easterbrook, Monopoly, 

Manipulation, and the Regulation of Futures 

Markets, Journal of Business (1986); Eckaus, The 

Oil Price Really is a Speculative Bubble (working 

paper 2008); Ellis, Michaely, and O’Hara, The 

Making of a Dealer Market: From Entry to 

Equilibrium in the Trading of Nasdaq Stocks, 

Journal of Finance (2002); European Commission, 

Review of the Markets in Financial Instruments 

Directive (working paper 2010); European 

Commission, Tackling the Challenges in 

Commodity Markets, Communication from the 

European Commission to the European Parliament 

(2011); Frenk and Turbeville, Commodity Index 

Traders and the Boom/Bust Cycle in Commodities 

Prices, Better Markets Copyright (2011); Goldman 

Sachs, Global Energy Weekly March 2011 (2011); 

Government Accountability Office, Issues Involving 

the Use of the Futures Markets to Invest in 

Commodity Indexes, (Report 2009); Greenberger, 

The Relationship of Unregulated Excessive 

Speculation to Oil Market Price Volatility (working 

paper 2010); Harris, Circuit Breaker and Program 

Trading Limits: What Have We Learned, Brooking 

Institutions Press (1997); Henn, CL–WEED–59628; 

Her Majesty’s Treasury, Global Commodities: A 

Long Term Vision for Stable, Secure, and 

Sustainable Global Markets, (2008); House of 

Commons Select Committee on Science & 

Technology of the United Kingdom, Strategically 

Important Metals, (2011); Hunt, Thought for the 

Day: Unreported Copper Stocks, Simon Hunt 

Strategic Services (2011); Inamura Kimata, and 

Takeshi, Recent Surge in Global commodity 

Prices—Impact of Financialization of Commodities 

and Globally Accommodative Monetary Conditions, 

Bank of Japan Review March 2011; International 

Monetary Fund, Is Inflation Back? Commodity 

Prices and Inflation, Chapter 3 of IMF’s World 

Economic Outlook ‘‘Financial Stress, Downturns, 

and Recoveries’’ (2008); Irwin and Sanders, Index 

Funds, Financialization, and Commodity Futures 

Markets, Applied Economic Perspective and Policy 

(2010); Jack, Populists vs Theorists: Futures Markets 

and the Volatility of Prices, Exploration in 

Economic History (2006); Jickling and Austin, 

Hedge Fund Speculation and Oil Prices (working 

paper 2011); Kemp, Crisis Remarks the Commodity 

Business, Reuters Columnist (2008); Khan, The 

2008 Oil Price ‘‘Bubble (working paper 2009); Koski 

and Pontiff, How Are Derivatives Used? Evidence 

from the Mutual Fund Industry, Journal of Finance 

(1996); Lagi, Bar-Yam, and Bertrand, The Food 

Crisis: A Quantitative Model Of Food Prices 

Including Speculators and Ethanol Conversion 

(working paper 2012); Lagi, Bar-Yam, and Bertrand, 

The Food Crisis: A Quantitative Model Of Food 

Prices Including Speculators and Ethanol 

Conversion (working paper 2011); Lines, 

Speculation in Food Commodity Markets, World 

Development Movement (2010); Luciani, From 

Price Taker to Price Maker? Saudi Arabia and the 

World Oil Market (working paper 2009); Masters 

and White, The Accidental Hunt Brother: How 

Institutional Investors are Driving UP Food and 

Energy Prices (working paper 2008); Medlock and 

Myers, Who is in the Oil Futures Market and How 

Has It Changed?, (working paper 2009); Newman, 

Financialiation and Changes in the Social Relations 

along commodity Chains: The Case of Coffee, 

Review of Radical Political Economics (2009); 

Nissanke, Commodity Markets and Excess 

Volatility: An Evolution of Price Dynamics Under 

Financialization (working paper 2011); Nissanke, 

Commodity Market Linkage in the Global Financial 

Crisis: Excess Volatility and Development Impact, 

Journal of Development Studies (2012); Parsons, 

Black Gold & Fool’s Gold: Speculation in the Oil 

Futures Market, (Economia 2009); Jones, Price 

Limits: A Return to Patience and Rationality in U.S. 

Markets, Speech to the CME Global Financial 

Leadership (2010); Petzel, Testimony before the 

CFTC, (July 28, 2009); Pfuderer and Gilbert, Index 

Funds Do Impact Agricultural Prices? (working 

paper 2012); Pirrong, Squeezes, Corners, and the 

Anti-Manipulation Provisions of the Commodity 

Exchange Act, Regulation (1994); Pirrong, Annex B 

to CL–ISDA/SIFMA–59611; Plante and Yucel, Did 

Speculation Drive Oil Prices? Market Fundamentals 

Suggest Otherwise, Federal Reserve Bank of Dallas 

(2011); Plante and Yucel, Did Speculation Drive Oil 

Prices? Futures Market Points to Fundamentals, 

Federal Reserve Bank of Dallas (2011); Ray and 

Schaffer, Index Funds and the 2006–2008 Run-up 

in Agricultural Commodity Prices (working paper 

2010); Rossi, Analysis of CFTC Proposed Position 

Limits on Commodity Index Fund Trading (working 

paper 2011); Smith, World Oil: Market or Mayhem?, 

Journal of Economic Perspectives (2009); Technical 

Committee of the International Organization of 

Securities Commissions, Task Force on Commodity 

Futures Market Final Report, (2009); Tokic, Rational 

Destabilizing Speculation, Positive Feedback 

Trading, and the Oil Bubble of 2008, Energy 

Economics (2011); U.S. Commodity Futures Trading 

Commission, Part Two, A Study of the Silver 

Market, May 29, 1981, Report to the Congress in 

Response to Section 21 Of The Commodity 

Exchange Act., (1981); U.S. Commodity Futures 

Trading Commission, Staff Report on Commodity 

Swap Dealers and Index Traders with Commission 

Recommendations, (2008); U.S. Senate Permanent 

Subcommittee, Excessive Speculation in the 

Natural Gas Market, (2007); U.S. Senate Permanent 

Subcommittee, Excessive Speculation in the Wheat 

Market, (2009); U.S. Senate Permanent 

Subcommittee, The Role of Market Speculation in 

Rising Oil and Gas Prices: A Need to Put the cop 

Back on the Beat, (2006); United Nations 

Commission of Experts on Reforms of the 

International and Monetary System, Report of the 

Commission of Experts, (2009); United Nations 

Conference on Trade and Development, The Global 

Economic Crisis: Systemic Failures and Multilateral 

Remedies, (2009); United Nations Conference on 

Trade and Development, The Financialization of 

Commodity Markets, (2009); United Nations 

Conference on Trade and Development, Trade and 

Development Report: Price Formation in 

Financialized Commodity Markets: The Role of 

Information, (2011); United Nations Food and 

Agricultural Organization, Final Report of the 

Committee on Commodity Problems: Extraordinary 

Joint Intersessional Meeting of the 

Intergovernmental Group (IGG), (2010); United 

Nations Food and Agricultural Organization, Price 

Volatility in Agricultural Markets, Economic and 

Social Perspectives Policy Brief (2010); United 

Nations Food and Agricultural Organization, Price 

Volatility in Food and Agricultural Markets: Policy 

Response, (2011); Urbanchuk, Speculation and the 

Commodity Markets (2011); Verleger, Annex A to 

CL–ISDA/SIFMA–59611; Woolley, Why are 

Financial Markets so Inefficient and Exploitative— 

and a Suggested Remedy, (2010); Wray, The 

Commodities Market Bubble: Money Manager 

Capitalism and the Financialization of Commodities 

(working paper 2008). 

250For example, these surveys may posit ‘‘facts’’ 

that are unsupported by testing, may not test their 

hypotheses, or may claim results that are subject to 

multiple interpretations. 

Some studies perform little or no 

empirical analysis and instead present a 

general theoretical model that may bear, 

directly or indirectly, on the effect of 

excessive speculation in the 

commodities markets. Because these 

papers do not include empirical 

analysis, they contain many untested 

assumptions and conclusory statements, 

limiting their usefulness to the 

Commission. 

Surveys of Economic Literature and 

Opinion Pieces 249

The Commission considered more 

than seventy studies that are survey or 

opinion pieces. Some of these studies 

provide useful background material but, 

on the whole, they offer mere opinion 

unsupported by rigorous empirical 

analysis. While they may be useful for 

developing hypotheses or informing 

policymakers, these secondary sources 

often exhibit policy bias and are not 

neutral, reliable bases for scientific 

inquiry the way that primary economic 

studies are.250

More Persuasive Academic Studies 

While the economic literature is 

inconclusive, the Commission can 


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251 Generally, studies that the Commission 

considers to be well-executed, for example, employ 

well-accepted, defensible, scientific methodology, 

document and present facts and results that can be 

replicated, are on point regarding issues relevant to 

position limits, and may eventually appear in 

respected, peer-reviewed academic journals. 

252A risk premium is the amount of return on a 

particular asset or investment that is in excess of 

the expected rate of return on a theoretically risk 

free asset or investment, i.e., one with a virtually 

certain or guaranteed return. 

253The economic rationale behind this is that 

speculative traders would be taking long positions 

to earn the risk premium, among other things. If 

more speculative traders are going long, i.e., 

bidding to earn the risk premium, the risk premium 

would be reduced. In this way, speculators make it 

cheaper for short hedgers to lock in their price risk. 

Contra Harris and Bu ̈ yu ̈ ks ̧ahin, The Role of 

Speculators in the Crude Oil Futures Market 

(working paper 2009) (concluding that price 

changes precede the position change). In this way, 

speculators make it cheaper for short hedgers to 

lock in their price risk. 

254Long speculators would tend to be 

compensated for assuming the price risk that is 

inherent with going long in the crude oil futures 

contract. If more speculators are bidding to earn the 

risk premium by taking long position in crude oil 

futures contracts, it should lower the risk premium, 

all else being equal. 

255That is, when long speculative positions are 

larger, the risk premiums are smaller. 

256See also Hamilton and Wu, Risk Premia in 

Crude Oil Futures Prices, Journal of International 

Money and Finance (2013); Hamilton, Causes of the 

Oil Shock of 2007–2008, Brookings Paper on 

Economic Activity (2009). 

257 December 2013 Position Limits Proposal, 78 

FR at 75695–6. 

258U.S. Commodity Futures Trading Commission, 

‘‘Part Two, A Study of the Silver Market,’’ May 29, 

1981, Report to Congress in Response to Section 21 

of The Commodity Exchange Act. 

259U.S. Senate Permanent Subcommittee on 

Investigations, ‘‘Excessive Speculation in the 

Natural Gas Market,’’ June 25, 2007. 

260E.g., U.S. Commodity Futures Trading 

Commission, Staff Report on Commodity Swap 

Dealers and Index Traders with Commission 

Recommendations (2008); U.S. Senate Permanent 

Subcommittee, Excessive Speculation in the Wheat 

Market (2009); U.S. Senate Permanent 

Subcommittee, The Role of Market Speculation in 

Rising Oil and Gas Prices: A Need to Put the Cop 

Back on the Beat (2006). 

261See, e.g., CL–FIA–60937 at 5. 

262CL–FIA–61036 at 2. 

identify a few of the well-executed 

studies that do not militate against and, 

to some degree, support the 

Commission’s reproposal to follow, out 

of due caution, a prophylactic 

approach.251 Hamilton and Wu, in Risk 

Premia in Crude Oil Futures Prices, 

Journal of International Money and 

Finance (2013), using models of 

fundamental supply and demand, find 

evidence that changes in noncommercial positions can affect the risk 

premium in crude oil futures prices; 

that is, Hamilton and Wu found that, for 

a limited period around the time of the 

2008 financial crisis that gave rise to the 

Dodd-Frank Act, increases in 

speculative positions reduced the risk 

premiums 252 in crude oil futures 

prices.253 This is important because, all 

else being equal, one would expect the 

risk premium to be the component of 

price that would be affected by traders 

accumulating large positions.254

Hamilton, in Causes of the Oil Shock of 

2007–2008, Brookings Paper on 

Economic Activity (2009), also 

concludes that the oil price run-up was 

caused by strong demand confronting 

stagnating world production, but that 

something other than fundamental 

factors of supply and demand (as 

modeled) may have aggravated the 

speed and magnitude of the ensuing oil 

price collapse. Singleton, in Investor 

Flows and the 2008 Boom/Bust in Oil 

Prices (working paper 2011), employs a 

technique that is similar to Granger 

causality and finds a negative 

correlation between speculative 

positions and risk premiums.255

Chevallier, in Price Relationships in 

Crude Oil Futures: New Evidence from 

CFTC Disaggregated Data, 

Environmental Economics and Policy 

Studies (2012), applies switching 

regression analysis to position data and 

concludes that one cannot eliminate the 

possibility of speculation as one of the 

main factors contributing to oil price 

volatility in 2008. This study also 

suggests that when supply and demand 

are highly inelastic, i.e., relatively 

unresponsive to price changes, financial 

investors may have contributed to oil 

price volatility by taking large positions 

in energy sector commodity index 

funds.256 As one may infer from this 

small sample, some of the more 

compelling studies that support the 

proposition that large positions may 

move prices involve empirical studies of 

the oil market. The Commission 

acknowledges that not all commodity 

markets exhibit the same price behavior 

at the same times. Even so, that the 

findings of a particular study of the 

market experience of a particular 

commodity over a particular time period 

may not be extensible to other 

commodity markets or over other time 

periods does not mean that the 

Commission should disregard that 

study. This is because, as explained 

elsewhere, these markets are over time 

all susceptible to similar risks from 

excessive speculation. Again, this 

supports a prophylactic approach to 

limits and a determination that limits 

are necessary to effectuate their 

statutory purposes. 

The Commission in the December 

2013 Position Limits Proposal identified 

two studies of actual market events to be 

helpful and persuasive in making its 

alternative necessity finding: 257 The 

inter-agency report on the silver 

crisis 258 and the PSI Report on 

Excessive Speculation in the Natural 

Gas Market.259 These two studies and 

some of the other reports included in 

the survey category 260 do not use 

statistical or theoretical models to reach 

economically rigorous conclusions. 

Some of the evidence cited in these 

studies is anecdotal. Still, these two 

studies are in-depth examinations of 

actual market events and the 

Commission continues to find them to 

be helpful and persuasive in making its 

preliminary alternative necessity 

finding. The Commission reiterates that 

the PSI Report (because it closely 

preceded Congress’ amendments to CEA 

section 4a(a) in the Dodd-Frank Act) 

indicates how Congress views limits as 

necessary as a prophylactic measure to 

prevent the adverse effects of 

excessively large speculative positions. 

The studies, individually or taken as a 

whole, do not dissuade the Commission 

from its consistent view that large 

speculative positions and outsized 

market power pose risks to wellfunctioning commodities markets, nor 

from its preliminary finding that 

speculative position limits are necessary 

to achieve their statutory purposes. 

The Commission requests comment 

on its discussion of studies and reports. 

It also invites commenters to advise the 

Commission of any additional studies 

that the Commission should consider, 

and why. 

II. Compliance Date for the Reproposed 

Rules 

Commenters requested that the 

Commission delay the compliance date, 

generally for at least nine months, to 

provide adequate time for market 

participants to come into compliance 

with a final rule.261 In addition, a 

commenter requested the Commission 

delay the compliance date until no 

earlier than January 3, 2018, to 

coordinate with the expected 

implementation date for position limits 

in Europe.262

In response to commenters, in this 

reproposal, the Commission proposes to 

delay the compliance date of any final 

rule until, at earliest, January 3, 2018, as 

provided under reproposed § 150.2(e). 

The Commission is of the opinion that 

a delay would provide market 

participants with sufficient time to 

come into compliance with a final rule, 

particularly in light of grandfathering 

provisions, discussed below. 

The Commission believes that a delay 

until January 3, 2018, would provide 

time for market participants to gain 


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263At that time, the Commission noted that 

several terms that are not currently in part 150 were 

not included in the December 2013 Position Limits 

Proposal even though definitions for those terms 

were adopted in vacated part 151. The Commission 

stated its view that the definition of those terms was 

not necessary for clarity in light of other revisions 

proposed in that rulemaking. The terms not 

proposed at that time include ‘‘swaption’’ and 

‘‘trader.’’ 

264The December 2013 Position Limits Proposal 

also made several non-substantive edits to the 

definitions to make them easier to read. 

265See Aggregation of Positions, 78 FR 68946 

(Nov. 15, 2013) at 68965, 68974 (proposing changes 

to the definitions of ‘‘eligible entity’’ and 

‘‘independent account controller’’) (‘‘November 

2013 Aggregation Proposal’’). The Commission 

issued a supplement to this proposal in September 

2015, but the supplement did not propose any 

changes to the definitions. See 80 FR 58365 (Sept. 

29, 2015). 

266The December 2013 Position Limits Proposal 

mirrored the amendments to the definitions of 

‘‘eligible entity’’ and ‘‘independent account 

controller,’’ proposed in the November 2013 

Aggregation Proposal, and also included some nonsubstantive change to the definition of 

‘‘independent account controller.’’ 

267See 2016 Final Aggregation Rule, adopted by 

the Commission separately from this Reproposal. 

access to adequate systems to compute 

futures-equivalent positions. The 

Commission bases this opinion on its 

experience, including with swap dealers 

and clearing members of derivative 

clearing organizations, who, as reporting 

entities under part 20 (swaps large 

trader reporting), have been required to 

prepare reports of swaps on a futuresequivalent basis for years. As discussed 

above, futures-equivalent reporting of 

swaps under part 20 generally has 

improved. This means many reporting 

entities already have implemented 

acceptable systems to compute futuresequivalent positions. The systems 

developed for that purpose also should 

be acceptable for monitoring 

compliance with position limits. The 

Commission believes it is reasonable to 

expect some reporting entities to offer 

futures-equivalent computation services 

to market participants. In this regard, 

such reporting entities already compute 

and report, under part 20, futuresequivalent positions for swap 

counterparties with reportable 

positions, including spot-month 

positions and non-spot-month positions. 

The Commission notes that market 

participants who expect to be over the 

limits would need to assess whether 

exemptions are available (including 

requesting non-enumerated bona fide 

hedging positon exemptions or spread 

exemptions from exchanges, as 

discussed below under reproposed 

§§ 150.9 and 150.10). In the absence of 

exemptions, such market participants 

would need to develop plans for coming 

into compliance. 

The Commission notes the request for 

a further delay in a compliance date 

may be mitigated by the grandfathering 

provisions in the Reproposal. First, the 

reproposed rules would exclude from 

position limits ‘‘pre-enactment swaps’’ 

and ‘‘transition period swaps,’’ as 

discussed below. Second, the rules 

would exempt certain pre-existing 

positions from position limits under 

reproposed § 150.2(f). Essentially, this 

means only futures contracts initially 

would be subject to non-spot-month 

position limits, as well as swaps entered 

after the compliance date. The 

Commission notes that a pre-existing 

position in a futures contract also would 

not be a violation of a non-spot-month 

limit, but, rather, would be 

grandfathered, as discussed under 

reproposed § 150.2(f)(2), below. 

Nevertheless, the Commission intends 

to provide a substantial implementation 

period to ease the compliance burden. 

The Commission requests comment 

on its discussion of the proposed 

compliance date. 

III. Reproposed Rules 

The Commission is not addressing 

comments that are beyond the scope of 

this reproposed rulemaking. 

A. § 150.1—Definitions 

1. Various Definitions Found in § 150.1 

Among other elements, the December 

2013 Position Limits Proposal included 

amendments to the definitions of 

‘‘futures-equivalent,’’ ‘‘long position,’’ 

‘‘short position,’’ and ‘‘spot-month’’ 

found in § 150.1 of the Commission’s 

regulations, to conform them to the 

concepts and terminology of the CEA, as 

amended by the Dodd-Frank Act. The 

Commission also proposed to add to 

§ 150.1, definitions for ‘‘basis contract,’’ 

‘‘calendar spread contract,’’ 

‘‘commodity derivative contract,’’ 

‘‘commodity index contract,’’ ‘‘core 

referenced futures contract,’’ ‘‘eligible 

affiliate,’’ ‘‘entity,’’ ‘‘excluded 

commodity,’’ ‘‘intercommodity spread 

contract,’’ ‘‘intermarket spread 

positions,’’ ‘‘intramarket spread 

positions,’’ ‘‘physical commodity,’’ 

‘‘pre-enactment swap,’’ ‘‘pre-existing 

position,’’ ‘‘referenced contract,’’ 

‘‘spread contract,’’ ‘‘speculative position 

limit,’’ ‘‘swap,’’ ‘‘swap dealer’’ and 

‘‘transition period swap.’’ In addition, 

the Commission proposed to move the 

definition of bona fide hedging from 

§ 1.3(z) into part 150, and to amend and 

update it. Moreover, the Commission 

proposed to delete the definition for 

‘‘the first delivery month of the ‘crop 

year.’ ’’ 263 Separately, the Commission 

proposed making a non-substantive 

change to list the definitions in 

alphabetical order rather than by use of 

assigned letters.264 According to the 

December 2013 Position Limits 

Proposal, this last change would be 

helpful when looking for a particular 

definition, both in the near future, in 

light of the additional definitions 

proposed to be adopted, and in the 

expectation that future rulemakings may 

adopt additional definitions. 

Finally, in connection with the 2016 

Supplemental Position Limits Proposal, 

which provided new alternative 

processes for DCMs and SEFs to 

recognize certain positions in 

commodity derivative contracts as nonenumerated bona fide hedges or 

enumerated anticipatory bona fide 

hedges, and to exempt from federal 

position limits certain spread positions, 

the Commission proposed to further 

amend certain relevant definitions, 

including changes to the definitions of 

‘‘futures-equivalent,’’ ‘‘intermarket 

spread position,’’ and ‘‘intramarket 

spread position.’’ 

Separately, as noted in the December 

2013 Position Limits Proposal, 

amendments to two definitions were 

proposed in the November 2013 

Aggregation Proposal,265 which was 

approved by the Commission on the 

same date as the December 2013 

Position Limits Proposal. The November 

2013 Aggregation Proposal, a 

companion to the December 2013 

Position Limits Proposal, included 

amendments to the definitions of 

‘‘eligible entity’’ and ‘‘independent 

account controller.’’ 266 The 

Commission notes that since the 

amendments were part of the separate 

Aggregation proposal, the proposed 

amendments to those definitions, and 

comments thereon, are addressed in the 

final Aggregation rulemaking (the ‘‘2016 

Final Aggregation Rule’’); 267 therefore, 

the Commission is not addressing the 

definitions of ‘‘eligible entity’’ and 

‘‘independent account controller’’ 

herein. 

The Commission is reproposing the 

amendments to the definitions in 

§ 150.1, as set forth in the December 

2013 Position Limits Proposal and as 

amended in the 2016 Supplemental 

Position Limits Proposal, with 

modifications made in response to 

public comments. The Reproposal also 

includes non-substantive changes to 

certain definitions to enhance 

readability and clarity for market 

participants and the public, including 

the extraction of definitions that were 

contained in the definition of 

‘‘referenced contract’’ to stand on their 

own. The amendments and the public 


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268The Commission also notes that the proposed 

definition of ‘‘commodity index contract’’ excluded 

intercommodity spread contracts, calendar spread 

contracts, and basis contracts. 

269The proposed basis contract definition was not 

intended to include significant time differentials in 

prices of the two commodities (e.g., the proposed 

basis contract definition did not include calendar 

spreads for nearby vs. deferred contracts). 

270 December 2013 Position Limits Proposal at 

75696. 

271 Id. 

272CL–Working Group–59693 at 68. 

273CLWorking Group–59959 at 16. 

274CL–FIA–59595 at 19; CL–ISDA/SIFMA–59611 

at 35. 

275CL–FIA–59595 at 4 and 18–19; CL–ISDA/ 

SIFMA–59611 at 34–35. 

276CL–FIA–59595 at 19. 

277Consequently, the Commission realizes that its 

determination to retain its traditional definition 

while clarifying its meaning by adopting the 

amended term of ‘‘locational basis contract’’ does 

not provide for the expanded definition of basis 

contract requested by some of the commenters. A 

broader definition of basis contract would result in 

the exclusion of more derivative contracts from the 

definition of referenced contract than previously 

proposed. A contract excluded from the definition 

of referenced contract is not subject to position 

limit under this Reproposal. The Commission 

declines to exclude more than the locational basis 

contracts that it previously proposed from the 

definition of referenced contract. 

comments relevant to each amendment 

are discussed below. 

a. Basis Contract 

Proposed Rule: In the December 2013 

Position Limits Proposal, the 

Commission proposed to exclude ‘‘basis 

contracts’’ from the definition of 

‘‘referenced contracts.’’ 268 While the 

term ‘‘basis contract’’ is not defined in 

current § 150.1, the Commission 

proposed a definition for basis contract 

in the December 2013 Position Limits 

Proposal. Proposed § 150.1 defined basis 

contract to mean ‘‘a commodity 

derivative contract that is cash-settled 

based on the difference in: (1) The price, 

directly or indirectly, of: (a) A particular 

core referenced futures contract; or (b) a 

commodity deliverable on a particular 

core referenced futures contract, 

whether at par, a fixed discount to par, 

or a premium to par; and (2) the price, 

at a different delivery location or pricing 

point than that of the same particular 

core referenced futures contract, directly 

or indirectly, of: (a) A commodity 

deliverable on the same particular core 

referenced futures contract, whether at 

par, a fixed discount to par, or a 

premium to par; or (b) a commodity that 

is listed in appendix B to this part as 

substantially the same as a commodity 

underlying the same core referenced 

futures contract.’’ 

The Commission also proposed 

Appendix B to part 150, Commodities 

Listed as Substantially the Same for 

Purposes of the Definition of Basis 

Contract. As proposed, the definition of 

basis contract would include contracts 

cash-settled on the difference in prices 

of two different, but economically 

closely related commodities, for 

example, certain quality differentials 

(e.g., RBOB gasoline vs. 87 unleaded).269

As explained when it was proposed, the 

intent of the proposed definition was to 

reduce the potential for excessive 

speculation in referenced contracts 

where, for example, a speculator 

establishes a large outright directional 

position in referenced contracts and 

nets down that directional position with 

a contract based on the difference in 

price of the commodity underlying the 

referenced contracts and a close 

economic substitute that was not 

deliverable on the core referenced 

futures contract.270 In the absence of 

this provision, the speculator could then 

increase further the large position in the 

referenced contracts. By way of 

comparison, the Commission noted in 

the December 2013 Position Limits 

Proposal that there is greater concern (i) 

that someone may manipulate the 

markets by disguise of a directional 

exposure through netting down the 

directional exposure using one of the 

legs of a quality differential (if that 

quality differential contract were not 

exempted), than (ii) that someone may 

use certain quality differential contracts 

that were exempted from position limits 

to manipulate the outright price of a 

referenced contract.271

Comments Received: The Commission 

received a number of comment letters 

regarding the proposed definition of 

basis contract. One commenter 

supported the proposed definition of 

basis contract and stated that it 

appreciates the Commission’s inclusion 

of Appendix B listing the commodities 

it believes are substantially the same as 

a core referenced futures contract for 

purposes of identifying contracts that 

meet the basis contract definition.272

Other comment letters requested that 

the Commission broaden the definition 

to include contracts that settle to other 

types of differentials, such as processing 

differentials (e.g., crack or crush 

spreads) or quality differentials (e.g., 

sweet vs. sour crude oil). One 

commenter recommended a definition 

of basis contract that includes crack 

spreads, by-products priced at a 

differential to other by-products (e.g., jet 

fuel vs. heating oil, both of which are 

crude oil by-products), and a 

commodity that includes similar 

commodities such as a contract based 

on the difference in prices between light 

sweet crude and a sour crude that is not 

deliverable against the NYMEX Light 

Sweet Crude Oil core referenced futures 

contract. This commenter suggested that 

if these types of contracts are included 

as basis contracts, market participants 

should be able to net certain contracts 

where a commodity is priced at a 

differential to a product or by-product, 

subject to prior approval according to a 

process created by the Commission.273

Two commenters specifically 

requested that the list in Appendix B 

include Jet fuel (54 grade) as 

substantially the same as heating oil (67 

grade). They also requested that WTI 

Midland (Argus) vs. WTI Financial 

Futures should be listed as basis 

contracts for Light Louisiana Sweet 

(LLS) Crude Oil.274

Noting that basis contracts are 

excluded from the definition of 

referenced contract and thus not subject 

to speculative position limits, two 

commenters requested CFTC expand the 

list in Appendix B to part 150 of 

commodities considered substantially 

the same as a core referenced futures 

contract, and the corresponding list of 

basis contracts, to reflect the 

commercial practices of market 

participants.275 One of these 

commenters recommended that the 

Commission adopt a flexible process for 

identifying any additional commodities 

that are substantially the same as a 

commodity underlying a core referenced 

futures contract for inclusion in 

Appendix B, and allow market 

participants to request a timely 

interpretation regarding whether a 

particular commodity is substantially 

the same as a core referenced futures 

contract or that a particular contract 

qualifies as a basis contract.276

Commission Reproposal: The 

Commission has determined to 

repropose the definition of basis 

contract as originally proposed, but to 

change the defined term from ‘‘basis 

contract’’ to ‘‘location basis contract.’’ 

The Commission intended the ‘‘basis 

contract’’ definition to encompass 

contracts that settle to the difference 

between prices in separate delivery 

locations of the same (or substantially 

the same) commodity, while the 

industry seems to use the term ‘‘basis’’ 

more broadly to include other price 

differentials, including, among other 

things, processing differentials and 

quality differentials. Thus, under the 

Reproposal, the term is changing from 

‘‘basis contract’’ to ‘‘location basis 

contract’’ in order to reduce any 

confusion stemming from the more 

encompassing use of the word ‘‘basis’’ 

in industry parlance.277


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278As noted above, according to the commenter, 

a flexible process would allow market participants 

to request a timely interpretation regarding whether 

a particular commodity is substantially the same as 

a core referenced futures contract or that a 

particular contract qualifies as a ‘‘basis contract. See 

CL–FIA–59595 at 19 

279See 2016 Supplemental Position Limits 

Proposal, 81 FR at 38476–80. 

280See, e.g., amendments to § 150.1 (the 

definitions of: ‘‘location basis contract,’’ the 

definition of ‘‘bona fide hedging position,’’ ‘‘intermarket spread position,’’ ‘‘intra-market spread 

position,’’ ‘‘pre-existing position,’’ ‘‘speculative 

position limits,’’ and ‘‘spot month’’), §§ 150.2(f)(2), 

150.3(d), 150.3(h), 150.5(a), 150.5(b), 150.5(e), 

150.7(d), 150.7(f), Appendix A to part 150, and 

Appendix C to part 150. 

281 In the December 2013 Position Limits 

Proposal, the Commission noted that while the 

proposed definition of ‘‘referenced contract’’ 

specifically excluded guarantees of a swap, basis 

contracts and commodity index contracts, spread 

contracts were not excluded from the proposed 

definition of ‘‘referenced contract.’’ The December 

2013 Position Limits Proposal at 75702. 

282 In the December 2013 Position Limits 

Proposal, the Commission also clarified that if a 

swap was based on the difference between two 

prices of two different commodities, with one 

linked to a core referenced futures contract price 

(and the other either not linked to the price of a 

core referenced futures contract or linked to the 

price of a different core referenced futures contract), 

then the swap was an ‘‘intercommodity spread 

contract,’’ was not a commodity index contract, and 

was a referenced contract subject to the position 

limits specified in § 150.2. The Commission further 

clarified that a contract based on the prices of a 

referenced contract and the same or substantially 

the same commodity (and not based on the 

difference between such prices) was not a 

commodity index contract and was a referenced 

contract subject to position limits specified in 

§ 150.2. See December 2013 Position Limits 

Proposal, 78 FR at 75697, n. 163. 

283 Id. at 75697, n. 163. 

284 Id. at 75697. 

285The Commission notes that although it did not 

receive comments on the proposed definitions for 

commodity index contract, spread contract, 

calendar spread contract, and intercommodity 

spread contract, it did receive a number of 

comments regarding the interplay of those defined 

terms and the definition of ‘‘referenced contract.’’ 

Discussion of those comments are included in the 

discussion of the proposed definition of ‘‘referenced 

contract’’ below. 

The Commission is reproposing 

Appendix B as originally proposed. The 

Commission is not persuaded by 

commenters’ suggestions for expanding 

the current list of commodities 

considered ‘‘substantially the same’’ in 

Appendix B. While a commenter 

requested the Commission expand the 

list to address all ‘‘commercial 

practices’’ used by market participants, 

the Commission believes this request is 

too vague and too broad to be workable. 

In addition, although a commenter 

recommended that the Commission 

adopt a flexible process for identifying 

any additional commodities that are 

substantially the same as a commodity 

underlying a core referenced futures 

contract for inclusion in Appendix B,278

the Commission observes that market 

participants are already provided the 

flexibility of two processes: (i) To 

request an exemptive, no-action or 

interpretative letter under § 140.99; and/ 

or (ii) to petition for changes to 

Appendix B under § 13.2. Under either 

process, the Commission would need to 

carefully consider whether it would be 

beneficial and consistent with the 

policies underlying CEA section 4a to 

list additional commodities as 

substantially the same as a commodity 

underlying a core referenced futures 

contract, especially since various market 

participants might have conflicting 

views on such a determination in 

certain cases. 

Finally, the Commission notes that 

comments regarding other types of 

differentials were addressed in the 

Commission’s 2016 Supplemental 

Position Limits Proposal, which would 

allow exchanges to grant spread 

exemptions, including calendar spreads, 

quality differential spreads, processing 

spreads, and product or by-product 

differential spreads.279 Comments 

responding to that 2016 Supplemental 

Position Limits Proposal and the 

Commission’s Reproposal are discussed 

below. 

b. Commodity Derivative Contract 

Proposed Rule: The December 2013 

Position Limits Proposal would define 

in § 150.1 the term ‘‘commodity 

derivative contract’’ for position limits 

purposes as shorthand for any futures, 

option, or swap contract in a commodity 

(other than a security futures product as 

defined in CEA section 1a(45)). The 

proposed use of such a generic term 

would be a convenient way to 

streamline and simplify references in 

part 150 to the various kinds of 

contracts to which the position limits 

regime applies. As such, this new 

definition can be found frequently 

throughout the Commission’s proposed 

amendments to part 150.280

Comments Received: The Commission 

received no comments on the proposed 

definition. 

Commission Reproposal: The 

Commission has determined to 

repropose the definition as proposed for 

the reasons given above. 

c. Commodity Index Contract, Spread 

Contract, Calendar Spread Contract, and 

Intercommodity Spread Contract 

Proposed Rule: The December 2013 

Position Limits Proposal excluded 

commodity index contracts from the 

definition of referenced contracts; thus, 

commodity index contracts would not 

be subject to position limits. The 

Commission also proposed to define the 

term commodity index contract, which 

is not in current § 150.1, to mean ‘‘an 

agreement, contract, or transaction that 

is not a basis contract or any type of 

spread contract, based on an index 

comprised of prices of commodities that 

are not the same or substantially the 

same.’’ 

Further, the Commission proposed to 

add a definition of basis contract, as 

discussed above, and spread contract to 

clarify which types of contracts would 

not be considered a commodity index 

contract and thus would be subject to 

position limits. Under the proposal, a 

spread contract was defined as ‘‘a 

calendar spread contract or an 

intercommodity spread contract.’’ 281

Finally, the Commission proposed the 

addition of definitions for a calendar 

spread contract, and an intercommodity 

spread contract to clarify the meanings 

of those terms. In particular, under the 

proposal, a calendar spread contract 

would mean ‘‘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 the settlement price of 

another contract month or another series 

of contract months’ settlement prices for 

the same agreement, contract or 

transaction.’’ An intercommodity spread 

contract would mean ‘‘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.’’ 282

The December 2013 Position Limits 

Proposal further noted that part 20 of 

the Commission’s regulations requires 

reporting entities to report commodity 

reference price data sufficient to 

distinguish between commodity index 

contract and non-commodity index 

contract positions in covered 

contracts.283 Therefore, for commodity 

index contracts, the Commission stated 

its intention to rely on the data elements 

in § 20.4(b) to distinguish data records 

subject to § 150.2 position limits from 

those contracts that are excluded from 

§ 150.2. The Commission explained that 

this would enable the Commission to set 

position limits using the narrower data 

set (i.e., referenced contracts subject to 

§ 150.2 position limits) as well as 

conduct surveillance using the broader 

data set.284

Comments Received: The Commission 

received no comments on the proposed 

definitions for commodity index 

contract, spread contract, calendar 

spread contract, and intercommodity 

spread contract.285


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286The selection of the core referenced futures 

contracts is explained in the discussion of § 150.2. 

See discussion below. 

287See 78 FR at 75697 n. 166. 

288See proposed § 150.1. 

289See December 2013 Position Limits Proposal, 

78 FR at 75698. 

290See Clearing Exemption for Swaps Between 

Certain Affiliated Entities, 78 FR 21749, 21783, Apr. 

11, 2013. Section 50.52(a) addresses eligible affiliate 

counterparty status, allowing a person not to clear 

a swap subject to the clearing requirement of 

section 2(h)(1)(A) of the Act and part 50 if the 

person meets the requirements of the conditions 

contained in paragraphs (a) and (b) of § 50.52. The 

conditions in paragraph (a) of § 50.52 specify either 

one counterparty holds a majority ownership 

interest in, and reports its financial statements on 

a consolidated basis with, the other counterparty, 

or both counterparties are majority owned by a 

third party who reports its financial statements on 

a consolidated basis with the counterparties. 

The conditions in paragraph (b) of § 50.52 address 

factors such as the decision of the parties not to 

clear, the associated documentation, audit, and 

recordkeeping requirements, the policies and 

procedures that must be established, maintained, 

and followed by a dealer and major swap 

participant, and the requirement to have an 

appropriate centralized risk management program, 

rather than the nature of the affiliation. As such, 

those conditions are less pertinent to the definition 

of eligible affiliate. 

291See December 2013 Position Limits Proposal, 

78 FR at 75698; see also definition of ‘‘eligible 

affiliate’’ in § 150.1, as proposed therein. 

292See, e.g., CL–ISDA/SIFMA–59611 at 3 and 33, 

CL–Working Group–59693 at 66–7. 

293Of course, sister affiliates would be required 

to aggregate, as would any other market 

participants, if they were trading together pursuant 

to an express or implied agreement. 

294CEA section 1a(38); 7 U.S.C. 1a(38). See also 

December 2013 Position Limits Proposal, 78 FR at 

75698. 

Commission Reproposal: The 

Commission has determined to 

repropose the definitions as originally 

proposed for the reasons provided 

above, with the exception that, under 

the Reproposal, the term ‘‘basis 

contract’’ will be replaced with the term 

‘‘location basis contract,’’ in the 

reproposed definition of commodity 

index contract, to conform to the name 

change discussed above. In addition, the 

Commission notes that while it had 

proposed to subsume the definitions of 

commodity index contract, spread 

contract, calendar spread contract, and 

intercommodity spread contract under 

the definition of referenced contract, in 

the Reproposal it is enumerating each as 

a separate definition for ease of 

reference. 

d. Core referenced Futures Contract 

Proposed Rule: The December 2013 

Position Limits Proposal provided a list 

of futures contracts in § 150.2(d) to 

which proposed position limit rules 

would apply. The Commission 

proposed the term ‘‘core referenced 

futures contract’’ as a short-hand phrase 

to denote such contracts.286

Accordingly, the Commission proposed 

to include in § 150.1 a definition of core 

referenced futures contract to mean ‘‘a 

futures contract that is listed in 

§ 150.2(d).’’ In its proposal, the 

Commission also clarified that core 

referenced futures contracts include 

options that expire into outright 

positions in such contracts.287

Comments Received: The Commission 

received no comments on the proposed 

definition. 

Commission Reproposal: The 

Commission has determined to 

repropose the definition as originally 

proposed. 

e. Eligible Affiliate 

Proposed Rule: The term ‘‘eligible 

affiliate,’’ used in proposed 

§ 150.2(c)(2), is not defined in current 

§ 150.1. The Commission proposed to 

amend § 150.1 to define an ‘‘eligible 

affiliate’’ as an entity with respect to 

which another person: (1) Directly or 

indirectly holds either: (i) A majority of 

the equity securities of such entity, or 

(ii) the right to receive upon dissolution 

of, or the contribution of, a majority of 

the capital of such entity; (2) reports its 

financial statements on a consolidated 

basis under Generally Accepted 

Accounting Principles or International 

Financial Reporting Standards, and 

such consolidated financial statements 

include the financial results of such 

entity; and (3) is required to aggregate 

the positions of such entity under 

§ 150.4 and does not claim an 

exemption from aggregation for such 

entity.288

The definition of ‘‘eligible affiliate’’ 

proposed in the December 2013 Position 

Limits Proposal qualified persons as 

eligible affiliates based on requirements 

similar to those adopted by the 

Commission in a separate 

rulemaking.289 On April 1, 2013, the 

Commission provided relief from the 

mandatory clearing requirement of CEA 

section 2(h)(1)(A) of the Act for certain 

affiliated persons if the affiliated 

persons (‘‘eligible affiliate 

counterparties’’) meet requirements 

contained in § 50.52.290 Under both 

§ 50.52 and the definition proposed in 

the December 2013 Position Limits 

Proposal, a person is an eligible affiliate 

if another person (e.g. a parent 

company), directly or indirectly, holds a 

majority ownership interest in such 

affiliates, reports its financial statements 

on a consolidated basis under Generally 

Accepted Accounting Principles or 

International Financial Reporting 

Standards, and such consolidated 

financial statements include the 

financial results of such affiliates. In 

addition, for purposes of the position 

limits regime, that other person (e.g., a 

parent company) must be required to 

aggregate the positions of such affiliates 

under § 150.4 and not claim an 

exemption from aggregation for such 

affiliates.291

Comments Received: The Commission 

received few comments on the proposed 

definition of ‘‘eligible affiliate.’’ 

Commenters requested that the 

Commission harmonize the definition of 

‘‘eligible affiliate’’ with the definition of 

‘‘eligible affiliate counterparty’’ under 

§ 50.52 in order to include ‘‘sister 

affiliates’’ within the definition.292

Commission Reproposal: The 

Commission notes that under § 150.4, 

aggregation is required by a person that 

holds an ownership or equity interest of 

10 percent or greater in another person, 

unless an exemption applies. Under 

reproposed § 150.2(c)(2), sister affiliates 

would not be required to comply 

separately with position limits, 

provided such entities are eligible 

affiliates.293

As such, the Commission does not 

believe a there is a need to conform the 

‘‘eligible affiliate’’ definition in 

reproposed § 150.1 to the definition of 

‘‘eligible affiliate counterparty’’ in 

§ 50.52 in order to accommodate sister 

affiliates. The Commission notes that a 

third person that holds an ownership or 

equity interest in each of the sister 

affiliates—e.g., the parent company— 

would be required to aggregate positions 

of such eligible affiliates. Thus, the 

Commission is reproposing the 

definition without changes. 

f. Entity 

Proposed Rule: The December 2013 

Position Limits Proposal defined 

‘‘entity’’ to mean ‘‘a ‘person’ as defined 

in section 1a of the Act.’’ 294 The term, 

not defined in current § 150.1, is used 

in a number of contexts, and in various 

definitions in the proposed amendments 

to part 150. Thus, the definition 

originally proposed would provide a 

clear and unambiguous meaning for the 

term, and prevent confusion. 

Comments Received: The Commission 

received no comments on the proposed 

definition. 

Commission Reproposal: The 

Commission has determined to 

repropose the definition as originally 

proposed, for the reasons provided 

above. 

g. Excluded Commodity 

Proposed Rule: The phrase ‘‘excluded 

commodity’’ was added into the CEA in 

the CFMA, and is defined in CEA 


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295CEA section 1a(19); 7 U.S.C. 1a(19). 

296CEA section 4a(2)(A); 7 U.S.C. 6a(2)(A). 

297Prior to the adoption of Part 151, a singlemonth limit was set at a level that was lower than 

the all-months-combined limit. Operating in 

conjunction with the lower single-month limit 

level, as noted below, § 150.3(a)(3) provides a 

limited exemption for calendar spread positions to 

exceed that single-month limit, as long as the single 

month position (including calendar spread 

positions) is no greater than the level of the allmonths-combined limit. In part 151, the 

Commission determined to set the single-month 

position limit levels in § 150.2 at the same level as 

the all-months-combined limits; in vacating part 

151, the court retained the amendments to § 150.2, 

leaving the single-month limit at the same level as 

those of the all-months-combined limit levels. The 

December 2013 Position Limits Proposal retained 

parity of the single-month limit and all-monthscombined limits levels. 

298Moreover, the 2016 Supplemental Position 

Limits Proposal did not limit the exemption to 

spread positions held between individual months of 

a futures contract in the same crop year, nor limit 

the size of an individual month position to the allmonths limit. 

299 17 CFR 150.1(f) currently defines ‘‘futuresequivalent’’ only for an option contract, adjusting 

the open position in options by the previous day’s 

risk factor, as calculated at the close of trading by 

the exchange. 

300The December 2013 Position Limits Proposal 

defined ‘‘futures-equivalent’’ for: (1) An option 

contact, adjusting the position size by an 

economically reasonable and analytically supported 

risk factor, computed as of the previous day’s close 

or the current day’s close or contemporaneously 

during the trading day; and (2) a swap, converting 

the position size to an economically equivalent 

amount of an open position in a core referenced 

futures contract. See December 2013 Position Limits 

Proposal, 78 FR at 75698–9. 

301Amendments to CEA section 4a(1) authorize 

the Commission to extend position limits beyond 

futures and option contracts to swaps traded on an 

exchange and swaps not traded on an exchange that 

perform or affect a significant price discovery 

function with respect to regulated entities. 7 U.S.C. 

6a(a)(1). In addition, under new CEA sections 

4a(a)(2) and 4a(a)(5), speculative position limits 

apply to agricultural and exempt commodity swaps 

that are ‘‘economically equivalent’’ to DCM futures 

and option contracts. 7 U.S.C. 6a(a)(2) and (5). 

302Under current § 150.2, for purposes of 

compliance with federal position limits, positions 

in regular sized and mini-sized contracts are 

aggregated. The Commission’s practice of 

aggregating futures contracts when a DCM lists for 

trading two or more futures contracts with 

substantially identical terms, is to scale down a 

position in the mini-sized contract, by multiplying 

the position in the mini-sized contract by the ratio 

of the unit of trading in the mini-sized contract to 

that of the regular sized contract. See paragraph 

(b)(2)(D) of app. C to part 38 of the Commission’s 

regulations for guidance regarding the contract size 

or trading unit for a futures or futures option 

contract. 

section 1a(19), but is not defined or 

used in current part 150.295 CEA section 

4a(a)(2)(A), as amended by the DoddFrank Act, utilizes the phrase ‘‘excluded 

commodity’’ when it provides a 

timeline under which the Commission 

is charged with setting limits for futures 

and option contracts other than on 

excluded commodities.296

The December 2013 Position Limits 

Proposal included in § 150.1, a 

definition of excluded commodity that 

simply incorporates the statutory 

meaning, as a useful term for purposes 

of a number of the proposed changes to 

part 150. For example, the phrase was 

used in the proposed amendments to 

§ 150.5, in its provision of requirements 

and acceptable practices for DCMs and 

SEFs in their adoption of rules and 

procedures for monitoring and enforcing 

position limits and accountability 

provisions; the phrase was also used in 

the definition of bona fide hedging 

position. 

Comments Received: The Commission 

received no comments on the proposed 

definition. 

Commission Reproposal: The 

Commission has determined to 

repropose the definition as previously 

proposed, for the reasons provided 

above. 

h. First Delivery Month of the Crop Year 

Proposed Rule: The term ‘‘first 

delivery month of the crop year’’ is 

currently defined in § 150.1(c), with a 

table of the first delivery month of the 

crop year for the commodities for which 

position limits are currently provided in 

§ 150.2. The crop year definition had 

been pertinent for purposes of the 

spread exemption to the individual 

month limit in current § 150.3(a)(3), 

which limits spreads to those between 

individual months in the same crop year 

and to a level no more than that of the 

all-months limit.297 Under the 

December 2013 Position Limits 

Proposal, the definition of ‘‘crop year’’ 

would be deleted from § 150.1. The 

proposed elimination of the definition 

conformed with level of individual 

month limits set at the level of the allmonths limits, thus negating the 

purpose of the existing spread 

exemption in current § 150.3(a)(3), 

which the December 2013 Position 

Limits Proposal also eliminated. 

The Commission notes that in its 2016 

Supplemental Position Limits Proposal, 

the Commission proposed to retain a 

spread exemption in § 150.3 and not, as 

proposed in the December 2013 Position 

Limits Proposal, to eliminate it 

altogether.298

Comments Received: The Commission 

received no comments on the proposed 

deletion of the crop year definition. 

Commission Reproposal: The 

Commission has determined to 

repropose the deletion of the definition 

of the term ‘‘first delivery month of the 

crop year’’ as originally proposed. The 

Commission notes that, although in its 

2016 Supplemental Position Limits 

Proposal, the Commission proposed to 

retain a spread exemption in § 150.3 

and, in fact, provides for the approval 

by exchanges of exemptions to spread 

positions beyond the limited exemption 

for spread positions in current 

§ 150.3(a)(3), the crop year definition 

remains unnecessary since the level of 

individual month limits has been set at 

the level of the all-months limits. 

i. Futures Equivalent 

Proposed Rule: In the December 2013 

Position Limits Proposal, the 

Commission proposed to broaden the 

definition of the term ‘‘futuresequivalent’’ found in current § 150.1(f) 

of the Commission’s regulations,299 and 

to expand upon clarifications included 

in the current definition relating to 

adjustments and computation times.300

The Dodd-Frank Act amendments to 

CEA section 4a,301 in part, direct the 

Commission to apply aggregate federal 

position limits to physical commodity 

futures contracts and to swaps contracts 

that are economically equivalent to such 

physical commodity futures contracts 

on which the Commission has 

established limits. In order to aggregate 

positions in futures, options and swaps 

contracts, it is necessary to adjust the 

position sizes, since such contracts may 

have varying units of trading (e.g., the 

amount of a commodity underlying a 

particular swap contract could be larger 

than the amount of a commodity 

underlying a core referenced futures 

contract). The Commission proposed to 

adjust position sizes to an equivalent 

position based on the size of the unit of 

trading of the core referenced futures 

contract. Under the December 2013 

Position Limits Proposal, the definition 

of ‘‘futures equivalent’’ in current 

§ 150.1(f), which is applicable only to an 

option contract, would be extended to 

both options and swaps. 

In the 2016 Supplemental Position 

Limits Proposal, the Commission 

proposed two further clarifications to 

the definition of the term ‘‘futuresequivalent.’’ First, the Commission 

proposed to address circumstances in 

which a referenced contract for which 

futures equivalents must be calculated 

is itself a futures contract. The 

Commission noted that this may occur, 

for example, when the referenced 

contract is a futures contract that is a 

mini-sized version of the core 

referenced futures contract (e.g., the 

mini-corn and the corn futures 

contracts).302 The Commission proposed 

to clarify in proposed § 150.1 that the 

term ‘‘futures-equivalent’’ includes a 

futures contract which has been 

converted to an economically equivalent 

amount of an open position in a core 


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303For an example of a futures-equivalent 

conversion of a swaption, see example 6, WTI 

swaptions, Appendix A to part 20 of the 

Commission’s regulations. 

304 2016 Supplemental Position Limits Proposal, 

81 FR at 38483. See also Table 11 in the December 

2013 Position Limits Proposal, 78 FR at 75731–3. 

305CL–MFA–59606; CL–FIA–59595 at 15. 

306CL–MFA–59606 at 16–17. 

307MFA also stated that the Commission should 

not second guess the results of reasonable models 

and impose findings of violations after-the-fact as 

that would introduce tremendous uncertainty into 

compliance with the position limits regime. Id at 

17. 

308 Id at 17. 

309CL–MFA–59606 at 17; CL–FIA–59595 at 15. 

310CL–FIA–59595 at 15. 

311Under § 16.01(a)(2), a reporting market is 

required to record for each trading session the 

option delta, when a delta system is used, while 

§ 16.01(e) requires a reporting market to make that 

option delta readily available to the public. A 

reporting market for this purpose is defined in 

§ 15.00(q) as a DCM or a registered entity under 

CEA section 1a(40) (under CEA section 1a(40), 

registered entities include, among others, DCMs, 

DCOs, SEFs, SDRs). 

312 Deltas are computed using an option pricing 

model. Different option pricing models incorporate 

different assumptions. For a discussion of 

circumstances where assumptions in an option 

pricing model may not hold, see, for example, Paul 

Wilmott, Derivatives: The Theory and Practice of 

Financial Engineering chapter 29 (1998) (describing 

circumstances where delta hedging an option 

position (i.e., replication trading) can move the 

price of the underlying asset, violating an 

assumption of certain option pricing models that 

replication trading has no influence on the price of 

the underlying asset). 

313The Commission believes that, in the 

circumstance of option assignment, one business 

day is a reasonable amount of time to come into 

compliance because the markets for commodities 

subject to federal limits under § 150.2 are generally 

liquid. 

314 In the December 2013 Position Limits 

Proposal, the Commission proposed to define an 

‘‘intermarket spread position’’ as ‘‘a long position 

in a commodity derivative contract in a particular 

commodity at a particular designated contract 

market or swap execution facility and a short 

position in another commodity derivative contract 

in that same commodity away from that particular 

designated contract market or swap execution 

facility.’’ The Commission also proposed to define 

an ‘‘intramarket spread position’’ as ‘‘a long 

position in a commodity derivative contract in a 

particular commodity and a short position in 

another commodity contract in the same 

commodity on the same designated contract market 

or swap execution facility.’’ See December 2013 

Position Limits Proposal, 78 FR at 75699–700. 

referenced futures contract. This 

clarification would mirror the expanded 

definition of ‘‘futures-equivalent’’ in the 

December 2013 Position Limits 

Proposal, as it would pertain to swaps. 

Second, the Commission proposed in 

the 2016 Supplemental Position Limits 

Proposal to clarify the definition of the 

term ‘‘futures-equivalent’’ to provide 

that, for purposes of calculating futures 

equivalents, an option contract must 

also be converted to an economically 

equivalent amount of an open position 

in a core referenced futures contract. 

This clarification would address 

situations, for example, where the unit 

of trading underlying an option contract 

(that is, the notional quantity 

underlying an option contract) may 

differ from the unit of trading 

underlying a core referenced futures 

contract.303

The Commission expressed the view 

in the 2016 Supplemental Position 

Limits Proposal that these clarifications 

would be consistent with the 

methodology the Commission used to 

provide its analysis of unique persons 

over percentages of the proposed 

position limit levels in the December 

2013 Position Limits Proposal.304

Comments Received: The Commission 

received two comments on the proposed 

definition of ‘‘futures-equivalent’’ in the 

December 2013 Position Limits 

Proposal.305 Each comment was 

generally supportive of the proposed 

definition. Although one commenter 

commended the flexibility granted to 

market participants to use different 

option valuation models, it 

recommended that the Commission 

provide guidance on when it would 

consider an option valuation model 

unsatisfactory and what the factors the 

Commission would consider in arriving 

at such an opinion.306 According to the 

commenter, the Commission should 

utilize a ‘‘reasonableness approach’’ by 

explicitly providing a ‘‘safe harbor’’ for 

models that produce results within 10 

percent of an exchange or Commission 

model, and should permit market 

participants to demonstrate the 

reasonableness under prevailing market 

conditions of any model that falls 

outside this safe harbor.307 It was also 

recommended that the Commission 

consider the exchanges’ approach to 

option valuation where appropriate 

because these approaches are already in 

use and familiar to market 

participants.308

Both MFA and FIA supported the 

optional use of the prior day’s delta to 

calculate a futures-equivalent position 

for purposes of speculative position 

limit compliance.309 In addition, each 

requested that the Commission confirm 

or adopt a provision similar to CME 

Rule 562. That exchange rule provides, 

among other things, that if a 

participant’s position exceeds position 

limits as a result of an option 

assignment, that participant is allowed 

one business day to liquidate the excess 

position without being considered in 

violation of the limits. FIA urged the 

Commission to provide market 

participants with a reasonable period of 

time to reduce its position below the 

speculative position limit.310

Commission Reproposal: The 

Commission has determined to 

repropose the definition of ‘‘futuresequivalent’’ as proposed in the 2016 

Supplemental Position Limits proposal, 

with the exception that it now proposes 

adopting the current exchange practice 

with regard to option assignments, as 

discussed below. 

Regarding risk (delta) models, the 

Reproposal does not provide a ‘‘safe 

harbor’’ as requested since risk models, 

generally, should produce similar 

results. The Commission believes a 

difference of 10 percent above or below 

the delta resulting from an exchange’s 

model generally would be too great to be 

economically reasonable. However, the 

Commission notes that, under the 

Reproposal, should a market participant 

believe its model produces an 

economically reasonable and 

analytically supported risk factor for a 

particular trading session that differs 

significantly from a result published by 

an exchange for that same time,311 it 

may describe the circumstances that 

result in a significant difference and 

request that staff review that model for 

reasonableness.312

Regarding the time period for a 

participant to come into compliance 

because of option assignment, the 

Commission agrees that a participant in 

compliance only because of a previous 

day’s delta, and no longer, after option 

assignment, in compliance on a 

subsequent day, should have one 

business day to liquidate the excess 

position resulting from option 

assignment without being considered in 

violation of the limits.313 Exchanges 

currently provide the same amount of 

time to come into compliance. 

j. Intermarket Spread Position and 

Intramarket Spread Position 

Proposed Rule: In the December 2013 

Position Limits Proposal, the 

Commission proposed to add to current 

§ 150.1 new definitions of the terms 

‘‘intermarket spread position’’ and 

‘‘intramarket spread position.’’ 314 These 

terms were defined in the December 

2013 Position Limits Proposal within 

the definition of ‘‘referenced contract.’’ 

In connection with its 2016 

Supplemental Position Limits Proposal 

to permit exchanges to process 

applications for exemptions from 

federal position limits for certain spread 

positions, the Commission proposed to 

expand the definitions of these terms as 

proposed in the December 2013 Position 

Limits Proposal. 

In particular, in the 2016 

Supplemental Position Limits Proposal, 


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315As noted above, the definitions of 

‘‘intermarket spread position’’ and ‘‘intramarket 

spread position’’ were included. 

316For position limits purposes, proposed § 150.1 

would define ‘‘physical commodity’’ to mean any 

agricultural commodity as that term is defined in 

§ 1.3 of this chapter or any exempt commodity as 

that term is defined in section 1a(20) of the Act. 

317 Vacated § 151.1 defined ‘‘Referenced 

Contract’’ to mean ‘‘on a futures-equivalent basis 

with respect to a particular Core Referenced Futures 

Contract, a Core Referenced Futures Contract listed 

in § 151.2, or a futures contract, options contract, 

swap or swaption, other than a basis contract or 

contract on a commodity index that is: (1) Directly 

or indirectly linked, including being partially or 

fully settled on, or priced at a fixed differential to, 

the price of that particular Core Referenced Futures 

Contract; or (2) directly or indirectly linked, 

including being partially or fully settled on, or 

priced at a fixed differential to, the price of the 

same commodity underlying that particular Core 

Referenced Futures Contract for delivery at the 

same location or locations as specified in that 

particular Core Referenced Futures Contract.’’ 

318Position Limits for Futures and Swaps, 76 FR 

at 71629. 

the Commission proposed to define an 

‘‘intermarket spread position’’ to mean 

‘‘a long (short) position in one or more 

commodity derivative contracts in a 

particular commodity, or its products or 

its by-products, at a particular 

designated contract market, and a short 

(long) position in one or more 

commodity derivative contracts in that 

same, or similar, commodity, or its 

products or its by-products, away from 

that particular designated contract 

market.’’ Similarly, the Commission 

proposed in the 2016 Supplemental 

Position Limits Proposal to define an 

‘‘intramarket spread position’’ to mean 

‘‘a long position in one or more 

commodity derivative contracts in a 

particular commodity, or its products or 

its by-products, and a short position in 

one or more commodity derivative 

contracts in the same, or similar, 

commodity, or its products or its byproducts, on the same designated 

contract market.’’ 

The Commission expressed the view 

that the expanded definitions proposed 

in the 2016 Supplemental Position 

Limits Proposal would take into account 

that a market participant may take 

positions in multiple commodity 

derivative contracts to establish an 

intermarket spread position or an 

intramarket spread position. The 

expanded definitions would also take 

into account that such spread positions 

may be established by taking positions 

in derivative contracts in the same 

commodity, in similar commodities, or 

in the products or by-products of the 

same or similar commodities. By way of 

example, the Commission noted that the 

expanded definitions would include a 

short position in a crude oil derivative 

contract and long positions in a gasoline 

derivative contract and a diesel fuel 

derivative contract (collectively, a 

reverse crack spread). 

Comments Received: The Commission 

did not receive any comments in 

response to the definitions of 

‘‘intermarket spread position’’ and 

‘‘intramarket spread position’’ proposed 

in the December 2013 Position Limits 

Proposal 315 or in response to the 2016 

Supplemental Position Limits Proposal. 

Commission Reproposal: The 

Commission has determined to 

repropose the definitions of the terms 

‘‘intermarket spread position’’ and 

‘‘intramarket spread position’’ as 

proposed in the 2016 Supplemental 

Position Limits Proposal. 

k. Long Position 

Proposed Rule: The term ‘‘long 

position’’ is currently defined in 

§ 150.1(g) to mean ‘‘a long call option, 

a short put option or a long underlying 

futures contract.’’ The Commission 

proposed to update the definition to 

make it also applicable to swaps such 

that a long position would include a 

long futures-equivalent swap. 

Commission Reproposal: Though no 

commenters suggested changes to the 

definition of ‘‘long position,’’ the 

Commission is concerned that the 

proposed definition does not clearly 

articulate that futures and options 

contracts are subject to position limits 

on a futures-equivalent basis in terms of 

the core referenced futures contract. 

Longstanding market practice has 

applied position limits on futures and 

options on a futures-equivalent basis, 

and the Commission believes that 

practice ought to be made explicit in the 

definition in order to prevent confusion. 

Thus, the Commission is reproposing an 

amended definition to clarify that a long 

position is ‘‘on a futures-equivalent 

basis, a long call option, a short put 

option, a long underlying futures 

contract, or a swap position that is 

equivalent to a long futures contract.’’ 

This clarification is consistent with the 

clarification to the definition of futuresequivalent basis proposed in the 2016 

Supplemental Position Limits Proposal. 

Though the substance of the definition 

is fundamentally unchanged, the 

revised language should prevent 

unnecessary confusion over the 

application of futures-equivalency to 

different kinds of commodity derivative 

contracts. 

l. Physical Commodity 

Proposed Rule: The December 2013 

Position Limits Proposal would amend 

§ 150.1 by adding in a definition of the 

term ‘‘physical commodity’’ for position 

limit purposes. Congress used the term 

‘‘physical commodity’’ in CEA sections 

4a(a)(2)(A) and 4a(a)(2)(B) to mean 

commodities ‘‘other than excluded 

commodities as defined by the 

Commission.’’ Therefore, the 

Commission interprets ‘‘physical 

commodities’’ to include both exempt 

and agricultural commodities, but not 

excluded commodities, and proposes to 

define the term as such.316

Comments Received: The Commission 

received no comments on the proposed 

definition. 

Commission Reproposal: The 

Commission has determined to 

repropose the definition as originally 

proposed. 

m. Pre-enactment Swap and PreExisting Position 

Proposed Rule: The December 2013 

Position Limits Proposal would amend 

§ 150.1 by adding in new definitions of 

the terms ‘‘pre-enactment swap’’ and 

‘‘pre-existing position’’ for position 

limit purposes. Under the definitions 

proposed in the December 2013 Position 

Limits Proposal, ‘‘pre-enactment swap’’ 

means any swap entered into prior to 

enactment of the Dodd-Frank Act of 

2010 (July 21, 2010), the terms of which 

have not expired as of the date of 

enactment of that Act, while ‘‘preexisting position’’ means any position in 

a commodity derivative contract 

acquired in good faith prior to the 

effective date of any bylaw, rule, 

regulation or resolution that specifies an 

initial speculative position limit level or 

a subsequent change to that level. 

Comments Received: The Commission 

received no comments on the proposed 

definitions either of the terms ‘‘preenactment swap’’ or ‘‘pre-existing 

position.’’ 

Commission Reproposal: The 

Commission has determined to 

repropose both definitions as previously 

proposed. 

n. Referenced Contract 

Proposed Rule: Part 150 currently 

does not include a definition of the 

phrase ‘‘referenced contract,’’ which 

was introduced and adopted in vacated 

part 151.317 As was noted when part 151 

was adopted, the Commission identified 

28 core referenced futures contracts and 

proposed to apply aggregate limits on a 

futures equivalent basis across all 

derivatives that met the definition of 

referenced contracts.318 The definition 

of referenced contract proposed in the 

December 2013 Position Limits Proposal 

was similar to that of vacated part 151, 


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319The commenters included AGA, APGA, 

Atmos, API, Better Markets, BG Group, Calpine, 

Citadel, CME, CMOC, COPE, DEU, EEI, EPSA, FIA, 

ICE, IECA, ISDA/SIFMA, GFMA, IATP, MFA, NEM, 

NFP, NGSA, OLAM, PAAP, SCS, and Vectra. 

320CL–IECA–59713 at 4. 

321CL–IECAssn–59679 at 31. 

322See, e.g., CL–FIA–59595 at 4 and 19, CL–EEI– 

EPSA–59602 at 3, CL–ISDA/SIFMA–59611 at 3 and 

34, CL–NEM–59620 at 2, CL–DEU–59627 at 7, CL– 

AGA–59632 at 4–5, CL–AGA–60382 at 10, CL– 

Olam–59658 at 3, CL–BG Group–59656 at 4, CL–BG 

Group–60383 at 4, CL–COPE–59662 at 5 and 8, CL– 

Calpine–59663 at 5, CL–PAAP–59664 at 4, CL– 

NGSA–59673 at 27–33, CL–ICE–59669 at 13, CL– 

EPSA–60381 at 4–5, CL–A4A–59714 at 5, CL–NFP– 

59690 at 7–8, CL–Working Group–59693 at 55–58, 

CL–API–59694 at 7, CL–IECAssn–59679 at 22, CL– 

IECAssn–59957 at 6–9, CL–Atmos–59705 at 4, CL– 

APGA–59722 at 9, CL–EEI–59945 at 5–6, CL– 

EPSA–55953 at 6–7, and CL–SCS–60399 at 3. 

323Trade Options, 81 FR 14966 (Mar. 21, 2016). 

324 Id. at 14971. 

325See, e.g., CL–CMC–59634 at 14, and CL– 

COPE–59662 at 7, n. 20 (stating ‘‘[i]t is one thing 

if the Commission means a reference to a contract 

that itself directly references a core referenced 

futures contract. It is more troubling and likely 

unworkable if the Commission means a more 

subjective economic link to a delivery location that 

is used in a core referenced futures contract. At a 

minimum, the Commission should provide 

examples of indirect linkage that triggers referenced 

contract status’’). 

326See, e.g., CL–COPE–59662 at 7, and CL–BG 

Group–59656 at 4. 

327See, e.g., CL–MFA–59606 at 4 and 15–16. 

328CL–COPE–59950 at 7. 

but there were certain differences, 

including an exclusion of guarantees of 

swaps and the incorporation of other 

terms into the definition of referenced 

contract. 

In the December 2013 Position Limits 

Proposal, the term ‘‘referenced contract’’ 

was proposed to be defined in § 150.1 to 

mean, on a futures-equivalent basis with 

respect to a particular core referenced 

futures contract, a core referenced 

futures contract listed in § 150.2(d) of 

this part, or a futures contract, options 

contract, or swap, other than a guarantee 

of a swap, a basis contract, or a 

commodity index contract: (1) That is: 

(a) Directly or indirectly linked, 

including being partially or fully settled 

on, or priced at a fixed differential to, 

the price of that particular core 

referenced futures contract; or (b) 

directly or indirectly linked, including 

being partially or fully settled on, or 

priced at a fixed differential to, the price 

of the same commodity underlying that 

particular core referenced futures 

contract for delivery at the same 

location or locations as specified in that 

particular core referenced futures 

contract; and (2) where: (a) 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 the 

settlement price of another contract 

month or another series of contract 

months’ settlement prices for the same 

agreement, contract or transaction; (b) 

commodity index contract means an 

agreement, contract, or transaction that 

is not a basis or any type of spread 

contract, based on an index comprised 

of prices of commodities that are not the 

same or substantially the same; (c) 

spread contract means either a calendar 

spread contract or an intercommodity 

spread contract; and (d) 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. 

Comments Received: The Commission 

received numerous comments 319

regarding various aspects of the 

definition of ‘‘referenced contract.’’ 

Some were generally supportive of the 

proposed definition while others 

suggested changes. One commenter 

expressly stated its support for 

speculative limits on futures, options, 

and swaps because each financial 

instrument ‘‘can be used to develop 

market power and increase 

volatility.’’ 320 Another commenter 

expressed its support for the exclusion 

of guarantees of swaps from the 

definition of referenced contract.321

These comments and the Commission’s 

response are detailed below. 

Commission Reproposal: The 

Commission is reproposing the 

definition of referenced contract with 

two substantive modifications from the 

original proposal, both of which are 

discussed further below. First, the 

Commission is now proposing to amend 

the definition of ‘‘referenced contract’’ 

to expressly exclude trade options. 

Second, the Reproposal would clarify 

the meaning of ‘‘indirectly linked.’’ The 

Reproposal also moves four definitions 

that were embedded in the proposed 

definition of referenced contract, 

specifically ‘‘calendar spread contract,’’ 

‘‘commodity index contract,’’ ‘‘spread 

contract,’’ and ‘‘intercommodity spread 

contract,’’ to their own definitions in 

§ 150.1, while otherwise retaining those 

definitions as proposed. In addition, the 

Reproposal makes non-substantive 

modifications to the definition of 

referenced contract to make it easier to 

read. 

Comments Received: In response to a 

specific request for comment in the 

December 2013 Position Limits 

Proposal, many commenters 

recommended excluding trade options 

from the definition of referenced 

contract.322

Commission Reproposal: In response 

to numerous comments, the reproposed 

definition of ‘‘referenced contract’’ 

expressly excludes trade options that 

meet the requirements of § 32.3. The 

Commission notes that in its trade 

options final rule,323 the cross-reference 

to vacated part 151 position limits was 

deleted from § 32.3(c). At that time, the 

Commission stated its belief that federal 

speculative position limits should not 

apply to trade options, as well as its 

intention to address trade options in the 

context of the any final rulemaking on 

position limits.324 Therefore, the 

Commission is reproposing the 

definition of ‘‘referenced contract’’ to 

expressly exclude trade options that 

meet the requirements of § 32.3 of this 

chapter. 

Comments Received: Commenters 

asserted that certain aspects of the 

definition of referenced contract are 

unclear and/or unworkable. For 

example, commenters suggested that the 

concept of ‘‘indirectly linked’’ is unclear 

and so market participants may not 

know whether a particular contract is 

subject to limits.325 Some commenters 

believe that the definition is overbroad 

and captures products that they state do 

not affect price discovery or impair 

hedging and are not truly economicallyequivalent.326 Commenters request that 

the Commission support its 

determination regarding which 

contracts are economically equivalent 

by providing a description of the 

methodology used to determine the 

contracts considered to be 

economically-equivalent, including 

examples of over-the-counter (‘‘OTC’’) 

and FBOT contracts.327 One commenter 

stated that support is necessary because 

‘‘mechanically assign[ing]’’ the label of 

economically-equivalent to any contract 

that references a core referenced futures 

contract does not make it equivalent.328

Commission Reproposal: The 

Commission agrees with commenters 

that there is a need to clarify the 

meaning of ‘‘indirectly linked.’’ The 

Commission notes that including 

contracts that are ‘‘indirectly linked’’ to 

the core referenced futures contract 

under the definition of referenced 

contract is intended to prevent the 

evasion of position limits through the 

creation of an economically equivalent 

contract that does not directly reference 

the core referenced futures contract 

price. Under the reproposed definition, 

‘‘indirectly linked’’ means a contract 

that settles to a price based on another 

derivative contract that, either directly 

or through linkage to another derivative 

contract, has a settlement price based on 


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329The Commission notes that while the outright 

derivative contract would not be indirectly linked 

to the core referenced contract, a derivative contract 

that settles to the difference between the core 

referenced futures contract and the PRA index 

would be directly linked because it settles in part 

to the core referenced futures contract price. 

330See, e.g., CL–Vectra–60369 at 3, and CL– 

Citadel–59717 at 9. 

331CL–Vectra–60369 at 3. 

332 Id. 

333 Incorporated as Title XIII of the Food, 

Conservation and Energy Act of 2008, Pub. L. 110– 

246, 122 Stat. 1624 (June 18, 2008), 

334CEA section 2(h)(7) (2009). 

335Under the reproposed definition, a cashsettled contract must be linked, directly or 

indirectly, to the core referenced futures contract or 

the same underlying commodity in the same 

delivery location in order to be considered a 

‘‘referenced contract.’’ 

336CL–Olam–59658 at 8–9. 

337See, Further Definition of ‘‘Swap,’’ ‘‘SecurityBased Swap,’’ and ‘‘Security-Based Swap 

Agreement’’; Mixed Swaps; Security-Based Swap 

Agreement Recordkeeping; Final Rule (‘‘Swap 

Definition Rulemaking’’), 77 FR 48208, 48231 (Aug. 

13, 2012). 

338 Id. at 48237. 

339See Commodity Options, 77 FR 25320, 75326 

(Apr. 27, 2012); see also Trade Options, 81 FR 

14966 (Mar. 21, 2016). 

the price of a core referenced futures 

contract or based on the price of the 

same commodity underlying that 

particular core referenced futures 

contract for delivery at the same 

location specified in that particular core 

referenced futures contract. Therefore, 

contracts that settle to the price of a 

referenced contract, for example, would 

be indirectly linked to the core 

referenced futures contract (e.g., a swap 

that prices to the ICE Futures US Henry 

LD1 Fixed Price Futures (H) contract, 

which is a referenced contract that 

settles directly to the price of the 

NYMEX Henry Hub Natural Gas (NG) 

core referenced futures contract). 

On the other hand, an outright 

derivative contract whose settlement 

price is based on an index published by 

a price reporting agency (‘‘PRA’’) that 

surveys cash market transaction prices 

(even if the cash market practice is to 

price at a differential to a futures 

contract) would not be directly or 

indirectly linked to the core referenced 

futures contract.329 Similarly, a 

derivative contract whose settlement 

price was based on the same underlying 

commodity at a different delivery 

location (e.g., ultra-low sulfur diesel 

delivered at L.A. Harbor) would not be 

linked, directly or indirectly, to the core 

referenced futures contract. The 

Commission is publishing an updated 

CFTC Staff Workbook of Commodity 

Derivative Contracts Under the 

Regulations Regarding Position Limits 

for Derivatives along with this release, 

which provides a non-exhaustive list of 

referenced contracts and may be helpful 

to market participants in determining 

categories of contracts that fit within the 

definition. Under the Reproposal, as 

always, market participants may request 

clarification from the Commission when 

necessary. 

Regarding comments that the 

definition is overbroad and captures 

products that commenters state do not 

affect price discovery or are not truly 

economically-equivalent, the 

Commission notes that commenters 

seem to be confusing the statutory 

definitions of ‘‘significant price 

discovery function’’ (in CEA section 

4a(a)(4)) and ‘‘economically equivalent’’ 

(in CEA section 4a(a)(5)). As a matter of 

course, contracts can be economically 

equivalent without serving a significant 

price discovery function. The 

Commission notes that there is no 

unpublished methodology used to 

determine which contracts are 

referenced contracts. Instead, the 

Commission proposed, and, following 

notice and comment, is now 

reproposing a definition for referenced 

contracts, and contracts that fit under 

that definition will be subject to federal 

speculative position limits. 

Comments Received: Several 

commenters suggested that cash-settled 

contracts should not be subject to 

position limits.330 One commenter 

asserted that non-deliverable cashsettled contracts are ‘‘fundamentally 

different’’ from deliverable commodity 

contracts and should not be subject to 

position limits.331 The commenter also 

asserted that subjecting penultimate-day 

contracts such as options to a limit 

structure would make managing an 

option portfolio ‘‘virtually impossible’’ 

and would result in confusion and 

uncertainty.332

Commission Reproposal: The 

Commission has determined not to 

make any changes in the Reproposal 

that would broadly exempt cash-settled 

contracts from position limits. Cashsettled contracts are economically 

equivalent to deliverable contracts, and 

Congress has required that the 

Commission impose limits on 

economically equivalent swaps. The 

Commission notes that Congress took 

action twice to address this issue. In 

CEA section 4a(a)(5)(A), Congress 

required the Commission to adopt 

position limits for swaps that are 

economically equivalent to futures or 

options on futures or commodities 

traded on a futures exchange, for which 

the Commission has adopted position 

limits. Previously, in the CFTC 

Reauthorization Act of 2008,333

Congress imposed a core principle for 

position limitations on swaps that are 

significant price discovery contracts.334

In addition, because cash-settled 

referenced contracts are economically 

equivalent to the physical delivery 

contract in the same commodity, a 

trader has an incentive to manipulate 

one contract in order to benefit the 

other.335 The Commission notes that a 

trader with positions in both the 

physically delivered and cash-settled 

referenced contracts would have, in the 

absence of position limits, increased 

ability to manipulate one contract to 

benefit positions in the other. 

Moreover, if speculators were 

incentivized to abandon physical 

delivery contracts for cash-settled 

contracts so as to avoid position limits, 

it could result in degradation of the 

physical delivery contract markets that 

position limits are intended and 

designed to protect. 

Comments Received: One commenter 

asked the Commission to confirm that a 

non-transferable repurchase right 

granted in connection with a hedged 

commodity transaction does not count 

towards position limits, citing CME 

Group and ICE Futures rules to that 

effect. The commenter is concerned that 

such a transaction could be deemed a 

commodity option and therefore legally 

a swap, but that it believed the 

transaction satisfies the criteria for 

exemption from definition as a swap.336

Commission Reproposal: As the 

commenter notes, whether the contract 

is subject to position limits depends on 

whether it is a swap. The Commission 

points out that the release adopting the 

definition of swap noted the 

Commission’s belief that its forward 

contract interpretation ‘‘provides 

sufficient clarity with respect to the 

forward contract exclusion from the 

swap and future delivery 

definitions.’’ 337 Also in that release, the 

Commission noted that commodity 

options are swaps.338 Separately, the 

Commission adopted Commission 

§ 32.3, providing an exemption from the 

commodity option definition for trade 

options; the exemption was recently 

further amended.339 The commenter 

should apply these rules to determine 

whether a given contract is a swap. In 

addition, the Commission notes that 

under Commission § 140.99, the 

commenter may request clarification or 

exemptive relief regarding whether a 

non-transferable repurchase right falls 

under the definition of a ‘‘swap.’’ To the 

extent the commenter seeks a 

clarification or change to the definition 

of a swap, the current rulemaking has 

not been expanded to revisit that 

definition. 


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340See, e.g., CL–MFA–59606 at 5 and 23. 

341The Commission notes that it is discussing 

bids, offers, and indications of interest in the 

context of whether these would violate position 

limits, and is not addressing other issues such as 

whether or not their use may indicate spoofing in 

violation of CEA section 4(c)(a)(5). 

342CL–NFP–59690 at 14–15. 

343See the Between NFP Electrics Exemptive 

Order (Order Exempting, Pursuant to Authority of 

the Commodity Exchange Act, Certain Transactions 

Between Entities Described in the Federal Power 

Act, and Other Electric Cooperatives, 78 FR 19670 

(Apr. 2, 2013) (‘‘Federal Power Act 201(f) Order’’). 

See also CL–NFP–59690 at 14–15. The Federal 

Power Act 201(f) Order exempted all ‘‘Exempt NonFinancial Energy Transactions’’ (as defined in the 

Federal Power Act 201(f) Order) that are entered 

into solely between ‘‘Exempt Entities’’ (also as 

defined in the Federal Power Act 201(f) Order, 

namely any electric facility or utility that is wholly 

owned by a government entity as described in the 

Federal Power Act (‘FPA’) section 201(f); (ii) any 

electric facility or utility that is wholly owned by 

an Indian tribe recognized by the U.S. government 

pursuant to section 104 of the Act of November 2, 

1994; (iii) any electric facility or utility that is 

wholly owned by a cooperative, regardless of such 

cooperative’s status pursuant to FPA section 201(f), 

so long as the cooperative is treated as such under 

Internal Revenue Code section 501(c)(12) or 

1381(a)(2)(C), and exists for the primary purpose of 

providing electric energy service to its member/ 

owner customers at cost; or (iv) any other entity that 

is wholly owned, directly or indirectly, by any one 

or more of the foregoing.). See Federal Power Act 

201(f) Order at 19688. 

344CL–GFMA–60314 at 4. 

345 Id. 

346 Id. 

347CL–CMOC–59720 at 4. 

348CL–IATP–59701 at 2. 

349CL–Better Markets–59716 at 1–35, and 

particularly at 32. 

Comments Received: One 

commenter 340 requested clarification 

that a bid, offer, or indication of interest 

for an OTC swap that does not 

constitute a binding transaction will not 

count towards position limits, noting 

that current CME Rule 562 provides that 

such bids or offers would be in violation 

of the limit. 

Commission Reproposal: The 

Reproposal does not change the 

definition originally proposed in 

response to the comment requesting 

clarification that a bid, offer, or 

indication of interest for an OTC swap 

that does not constitute a binding 

transaction will not count towards 

position limits. Nevertheless, the 

Commission clarifies that under the 

Reproposal, such bids, offers, or 

indications of interest do not count 

toward position limits.341

Comments Received: One commenter 

requested that the Commission exclude 

from the definition of referenced 

contract any agreement, contract, and 

transaction exempted from swap 

regulations by virtue of an exemption 

order, interpretation, no-action letter, or 

other guidance; the commenter stated 

that it believes the Commission can use 

its surveillance capacity and antimanipulation authority, along with its 

MOU with FERC, to monitor these 

nonfinancial commodity transactions as 

well as the market participants relying 

on the exemptive relief.342

Commission Reproposal: The 

Reproposal does not change the 

proposed definition in response to the 

comment requesting that the 

Commission exclude from the definition 

of referenced contract any agreement, 

contract, and transaction exempted from 

swap regulations by virtue of an 

exemption order, interpretation, noaction letter, or other guidance. The 

Commission notes that any contract that 

is not a commodity derivative contract, 

including one that has been excluded 

from the definition of swap, is not 

subject to position limits. The 

commenter is requesting a broad 

exclusion from the definition of 

referenced contract, based on other 

regulatory relief which may have been 

adopted for a variety of policy reasons 

unrelated to position limits. 

Consequently, in light of the many and 

varied policy reasons for issuing an 

exemption order, interpretation, noaction letter or other guidance from 

swap regulation, each such action 

would need to be considered in the 

context of the goals of the Commission’s 

position limits regime. Rather than 

issuing a blanket exemption from the 

definition of referenced contract for any 

agreement, contract, and transaction 

exempted from swap regulations, 

therefore, the Commission believes it 

would be better to consider each such 

action on its own merits prior to issuing 

an exemption from position limits. 

Under the Reproposal, if a market 

participant desires to extend a 

previously taken exemptive action by 

exempting certain agreements, 

contracts, and transactions from the 

definition of referenced contract, the 

market participant can request that the 

particular exemption order, 

interpretation, no-action letter, or other 

guidance be so extended. This would 

allow the Commission to consider the 

particular action taken and the merits of 

that particular exemption in the context 

of the position limits regime. 

The Commission notes that in the 

particular exemptive order cited by the 

commenter,343 certain delineated nonfinancial energy transactions between 

certain specifically defined entities were 

exempted, pursuant to CEA sections 

4(c)(1) and 4(c)(6), from all requirements 

of the CEA and Commission regulations 

issued thereunder, subject to certain 

anti-fraud, anti-manipulation, and 

record inspection conditions. All 

entities that meet the requirements for 

the exemption provided by the Federal 

Power Act 201(f) Order are, therefore, 

already exempt from position limits 

compliance for all transactions that 

meet the Order’s conditions. 

Comments Received: Commenters 

were divided with respect to the 

exclusion of ‘‘commodity index 

contracts’’ from the definition of 

referenced contract. As a result of the 

exclusion, the position of a market 

participant who enters into a 

commodity index contract with a dealer 

will not be subject to position limits. 

One commenter supported the 

exclusion of commodity index contracts 

from the definition of referenced 

contracts.344 The commenter was 

concerned, however, that a dealer who 

offsets his or her exposure in such 

contracts by purchasing futures 

contracts on the constituent components 

of the commodity index will be subject 

to position limits in the referenced 

contracts. The commenter urged the 

Commission to recognize as a bona fide 

hedge ‘‘the offsetting nature of the 

dealer’s position by exempting the 

futures contracts that a dealer acquires 

to hedge its commitments under 

commodity index contracts.’’ 345

Alternatively, the Commission should 

‘‘modify the definition of ‘referenced 

contract’ and the definition of 

‘commodity derivative contract’ by 

excluding core referenced futures 

contracts and related futures contracts, 

options contracts or swaps that are 

offset on an economically equivalent 

basis by the constituent portions of 

commodity index contracts.’’ 346

Another commenter supported the 

Commission’s proposal to exclude 

swaps that reference indices such as the 

Goldman Sachs Commodity Index 

(GSCI) from the definition of a 

referenced contract.347

One commenter asked that the 

Commission reconsider excluding 

commodity index contracts from the 

definition of referenced contract.348

Another commenter urged that 

commodity index contracts should be 

included in the definition of referenced 

contract in conjunction with (1) a class 

limit (as was proposed for vacated part 

151, but not included in final part 151); 

and (2) a lower position limit set at a 

level ‘‘aimed to maintain no more than’’ 

30 percent speculation in each 

commodity (based on COT report 

classifications) that is reset every 6 

months.349 The same commenter noted 

that trading by passive, long only 


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350CL–Better Markets–59716 at 5, and CL–Better 

Markets–60401 at 4, 16–17. 

351See also, December 2013 Position Limits 

Proposal, 78 FR at 75741. 

352The Commission’s Series ’03 reports required 

large traders to classify how much of their position 

was speculative and how much was hedging and 

formed the basis of the earliest versions of the CFTC 

Commitments of Traders Reports. See ‘‘Reporting 

Requirements for Contract Markets, Futures 

Commission Merchants, Members of Exchanges and 

Large Traders,’’ 46 FR 59960 (Dec. 8, 1981) 

(eliminating the routine of Series ’03 reports by 

large traders). 

353CL–ISDA/SIFMA–59611 at 3 and 32–33. 

354CL–NFP–59690 at 9–12. 355CL–NFP–59690 at 13 (citing to Further 

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

‘‘Security-Based Swap Agreement’’; Mixed Swaps; 

Security-Based Swap Agreement Recordkeeping, 77 

FR 48208 (Aug. 13, 2012). 

commodity index fund speculators does 

not provide liquidity, but rather takes 

net liquidity, dilutes the pool of market 

information to be less reflective of 

fundamental forces, causes volatility, 

and causes an increased frequency of 

contango attributed to frequent rolls 

from selling a nearby contract and 

buying a deferred (second month) 

contract. The commenter noted that, 

broadly, speculators in commodity 

futures historically constituted between 

15 and 30 percent of open interest 

without meaningfully disrupting the 

market and providing beneficial 

intermediation between hedging 

producers and hedging consumers.350

Commission Reproposal: The 

Commission is reproposing the 

provision excluding commodity index 

contracts from the definition of 

referenced contract as previously 

proposed. 

Regarding commenters who requested 

that the Commission alter the proposed 

definition to include commodity index 

derivative contracts, the Commission 

notes that if it were to include such 

contracts, the Commission’s rules would 

allow netting of such positions in 

commodity index contracts with other 

offsetting referenced contracts. The 

ability to net such commodity index 

derivative contracts positions with other 

offsetting referenced contracts would 

eliminate the need for a bona fide 

hedging exemption for such contracts. 

Thus, the Commission believes such 

netting would contravene Congressional 

intent, as expressed in CEA section 

4a(c)(B)(i) in its requirement to permit a 

pass-thru swap offset only if the 

counterparty’s position would qualify as 

a bona fide hedge. 

Another commenter suggested 

including commodity index contracts 

under the definition of referenced 

contract in conjunction with a class 

limit (e.g., a separate limit for 

commodity index contracts compared to 

all other categories of derivative 

contracts). The commenter suggested 

that the limit be set at a level aimed at 

maintaining a particular ratio of 

speculative trading in the market. In 

response to this commenter, the 

Commission declines in this Reproposal 

to propose class limits because it 

believes any adoption of a class limit 

would require a rationing scheme 

wherein unrelated legal entities would 

be limited by the positions of other 

unrelated legal entities. Further, the 

Commission is concerned that class 

limits (including the one proposed by 

the commenter) could impair liquidity 

in the relevant markets.351 The 

Commission also notes that it currently 

does not collect information to 

effectively enforce any ratio of 

speculative trading, and has not done so 

since the Commission eliminated Series 

’03 reporting in 1981.352 The Reproposal 

does not make any changes to the 

definition of referenced contract 

pursuant to this comment. 

Finally, in response to the commenter 

who suggested that, in addition to 

excluding commodity index contracts as 

proposed, the Commission should 

recognize as bona fide hedge positions 

those positions that offset a position in 

a commodity index derivative contract 

by using the component futures 

contracts, the Commission observes that 

it still believes, as discussed in the 

December 2013 Position Limits 

Proposal, that financial products do not 

meet the temporary substitute test. As 

such, the offset of financial risks arising 

from financial products is inconsistent 

with the statutory definition of a bona 

fide hedging position. The Commission 

also declines in this Reproposal to 

accept the commenter’s request to 

exempt these offsetting positions using 

its authority under CEA section 4a(a)(7) 

because it does not believe that 

permitting the offset of financial risks 

furthers the purposes of the 

Commission’s position limits regime as 

described in CEA section 4a(a)(3)(B). 

Finally, the commenter suggested as an 

alternative that the Commission modify 

the definition of referenced contract to 

broadly exclude any derivative contracts 

that are used to offset commodity index 

exposure. However, the Commission 

believes such a broad exclusion would, 

at best, be too difficult to administer 

and, at worst, provide an easy vehicle 

for entities to evade position limits 

regulations. 

Comments Received: One commenter 

suggested that the Commission 

unnecessarily limited the scope of 

permissible netting by not recognizing 

cross-commodity netting, 

recommending either a threshold 

correlation factor of 60 percent or an 

approach that would permit pro rata 

netting to the extent of demonstrated 

correlation.353

Commission Reproposal: The 

Commission believes that recognizing 

cross-commodity netting as requested 

by the commenter would substantially 

expand the definition of referenced 

contract and, thus, may weaken: (1) The 

protection of the price discovery 

function in the core referenced futures 

contract; (2) the prevention of excessive 

speculation; and (3) the prevention of 

market manipulation. Therefore, this 

Reproposal does not change the 

definition of referenced contract to 

accommodate cross-commodity netting. 

Comments Received: One commenter 

requested that all ‘‘nonfinancial 

commodity derivatives’’ used by 

commercial end-users for hedging 

purposes be expressly excluded from 

the definition of referenced contract 

(and so excluded from position limits). 

The commenter also suggested that the 

Commission allow an end-user to 

identify a swap as being used to ‘‘hedge 

or mitigate commercial risks’’ at the 

time the swap is executed and noted 

that such trades are highly-customized 

bilateral agreements that are difficult to 

convert into futures equivalents.354 The 

commenter also requested that 

‘‘customary commercial agreements’’ be 

excluded from referenced contract 

definition. The commenter stated that 

these contracts may reference a core 

referenced futures contract or may be 

misinterpreted as directly or indirectly 

linking to a core referenced futures 

contract, but that the Commission has 

already determined that Congress did 

not intend to regulate such agreements 

as swaps.355

Commission Reproposal: This 

Reproposal does not amend the 

definition of referenced contract in 

response to the request that 

‘‘nonfinancial commodity derivatives’’ 

used by commercial end-users for 

hedging purposes be expressly excluded 

from the definition of referenced 

contract. The Commission understands 

the comment to mean that when a 

particular transaction qualifies for the 

end-user exemption, it should also be 

exempt from position limits by 

excluding such transactions from the 

definition of ‘‘referenced contract.’’ The 

commenter quotes language from the 

end-user exemption definition, which 

was issued to provide relief from the 

clearing and trade execution mandates. 

The Commission notes that under the 

CEA’s statutory language, the 

commercial end user exemption 


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356 December 2013 Position Limits Proposal, 78 

FR at 75825. 

357 Id. at 75701. As noted in the December 2013 

Position Limits Proposal, ‘‘the various regulations 

and defined terms included use of maximum 

amounts ‘net long or net short,’ which limited what 

any one person could ‘hold or control,’ ‘one grain 

on any one contract market’ (or in ‘in one 

commodity’ or ‘a particular commodity’), and ‘in 

any one future or in all futures combined.’ For 

example, in 1936, Congress enacted the CEA, which 

authorized the CFTC’s predecessor, the CEC, to 

establish limits on speculative trading. Congress 

empowered the CEC to ‘fix such limits on the 

amount of trading . . . as the [CEC] finds is 

necessary to diminish, eliminate, or prevent such 

burden.’ [CEA section 6a(1) (Supp. II 1936)] It also 

noted that the first speculative position limits were 

issued by the CEC in December 1938, 3 FR 3145, 

Dec. 24, 1938, and that those first speculative 

position limits rules provided, also in § 150.1, for 

limits on position and daily trading in grain for 

future delivery, and adopted a maximum amount 

‘‘net long or net short position which any one 

person may hold or control in any one grain on any 

one contract market’’ as 2,000,000 bushels ‘‘in any 

one future or in all futures combined.’’ Id. 

358For example, the December 2013 Position 

Limits Proposal noted that the Commission’s 

annual report for 1983 includes in its glossary 

‘‘Position Limit: the maximum position, either net 

long or net short, in one commodity future 

combined which may be held or controlled by one 

person as prescribed by any exchange or by the 

CFTC.’’ Id. 

359 December 2013 Position Limits Proposal, 78 

FR at 75701–02; As noted in in the December 2013 

Position Limits Proposal, the definition proposed 

would be an expansion upon the definition 

currently found in § 150.1, but greatly simplified 

from the definition adopted in vacated § 151.3 (in 

the Part 151 regulations, the ‘‘spot month’’ 

definition in § 151.1 simply cited to the ‘‘spot 

month’’ definition provided in § 151.3). 

definition is broader than the bona fide 

hedging definition. Under the canons of 

statutory construction, when Congress 

writes one section differently than 

another, the differences should be 

assumed to have different meaning. 

Thus, the Commission believes that the 

more restrictive language in the bona 

fide hedging definition should be 

applied here. The definition of bona fide 

hedging position, as proposed in the 

December 2013 Position Limits 

Proposal, as amended by the 2016 

Supplemental Position Limits Proposal, 

and as reproposed here, would be 

consistent with the differences in the 

two definitions, as adopted by Congress. 

The Commission notes that under this 

Reproposal, commercial end-users may 

rely on any applicable bona fide hedge 

exemption. 

In response to the commenter’s 

concern regarding ‘‘customary 

commercial agreements,’’ the 

Commission reiterates its belief that 

contracts that are exempted or excluded 

from the definition of ‘‘swap’’ are not 

considered referenced contracts and so 

are not subject to position limits. 

o. Short Position 

Proposed Rule: The term ‘‘short 

position’’ is currently defined in 

§ 150.1(c) to mean a short call option, a 

long put option, or a short underlying 

futures contract. In the December 2013 

Position Limits Proposal, the 

Commission proposed to amend the 

definition to state that a short position 

means a short call option, a long put 

option or a short underlying futures 

contract, or a short futures-equivalent 

swap. This proposed revision reflects 

the fact that under the Dodd-Frank Act, 

the Commission is charged with 

applying the position limits regime to 

swaps. 

Comments Received: The Commission 

received no comments regarding the 

proposed amendment to the definition 

of ‘‘short position.’’ 

Commission Reproposal: Though no 

commenters suggested changes to the 

definition of ‘‘short position,’’ the 

Commission is concerned that the 

proposed definition, like the proposed 

definition of ‘‘long position’’ described 

supra, does not clearly articulate that 

futures and options contracts are subject 

to position limits on a futuresequivalent basis in terms of the core 

referenced futures contract. 

Longstanding market practice has 

applied position limits to futures and 

options on a futures-equivalent basis, 

and the Commission believes that 

practice ought to be made explicit in the 

definition in order to prevent confusion. 

Thus, in this Reproposal, the 

Commission is proposing to amend the 

definition to clarify that a short position 

is on a futures-equivalent basis, a short 

call option, a long put option, a short 

underlying futures contract, or a swap 

position that is equivalent to a short 

futures contract. Though the substance 

of the definition is fundamentally 

unchanged, the revised language should 

prevent unnecessary confusion over the 

application of futures-equivalency to 

different kinds of commodity derivative 

contracts. 

p. Speculative Position Limit 

The term ‘‘speculative position limit’’ 

is currently not defined in § 150.1. In 

the December 2013 Position Limits 

Proposal, the Commission proposed to 

define the term ‘‘speculative position 

limit’’ to mean ‘‘the maximum position, 

either net long or net short, in a 

commodity derivatives contract that 

may be held or controlled by one 

person, absent an exemption, such as an 

exemption for a bona fide hedging 

position. This limit may apply to a 

person’s combined position in all 

commodity derivative contracts in a 

particular commodity (all-monthscombined), a person’s position in a 

single month of commodity derivative 

contracts in a particular commodity, or 

a person’s position in the spot-month of 

commodity derivative contacts in a 

particular commodity. Such a limit may 

be established under federal regulations 

or rules of a designated contract market 

or swap execution facility. An exchange 

may also apply other limits, such as a 

limit on gross long or gross short 

positions, or a limit on holding or 

controlling delivery instruments.’’ 356

As explained in the December 2013 

Position Limits Proposal, the proposed 

definition is similar to definitions for 

position limits used by the Commission 

for many years,357 as well as glossaries 

published by the Commission for many 

years.358 For example, the December 

2013 Position Limits Proposal noted 

that the version of the staff glossary 

currently posted on the CFTC Web site 

defines speculative position limit as 

‘‘[t]he maximum position, either net 

long or net short, in one commodity 

future (or option) or in all futures (or 

options) of one commodity combined 

that may be held or controlled by one 

person (other than a person eligible for 

a hedge exemption) as prescribed by an 

exchange and/or by the CFTC.’’ 

The Commission received no 

comments on the proposed definition, 

and is reproposing the definition 

without amendment. 

q. Spot-Month 

Proposed Rule: In the December 2013 

Position Limits Proposal, the 

Commission proposed to adopt a 

definition of ‘‘spot-month’’ that expands 

upon the current § 150.1 definition.359

The definition, as proposed, specifically 

addressed both physical-delivery 

contracts and cash-settled contracts, and 

clarified the duration of ‘‘spot-month.’’ 

Under the proposed definition, the 

‘‘spot-month’’ for physical-delivery 

commodity derivatives contracts would 

be the period of time beginning at of the 

close of trading on the trading day 

preceding the first day on which 

delivery notices could be issued or the 

close of trading on the trading day 

preceding the third-to-last trading day, 

until the contract was no longer listed 

for trading (or available for transfer, 

such as through exchange for physical 

transactions). The proposed definition 

included similar, but slightly different 

language for cash-settled contracts, 

providing that the spot month would 

begin at the earlier of the start of the 

period in which the underlying cashsettlement price was calculated or the 

close of trading on the trading day 

preceding the third-to-last trading day 

and would continue until the contract 


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360See id. at 75825–6. 

361See, e.g., CL–FIA–59595 at 10, CL–NFP–59690 

at 19, CL–NGSA–59673 at 44, and CL–ICE–59669 at 

5–6. 

362CL–FIA–59595 at 10. 

363 Id. 

364See, e.g., CL–NGSA–59673 at 44, CL–ICE– 

59669 at 5–6. 

365See, CL–ICE–59669 at 5–6. 

366CL–NFP–59690 at 19. 

367CL–FIA–59595 at 10–11. 

368As noted above, this Reproposal does not 

address the three cash-settled contracts (Class III 

Milk, Feeder Cattle, and Lean Hogs) which, under 

the December 2013 Position Limits Proposal, were 

included in the list of core referenced futures 

contracts. Therefore, the reproposed spot month 

definition does not address those three contracts. 

369While the Commission realized that Sugar 16 

does not currently have a spot month, its delivery 

period takes place after the last trading day (similar 

to crude oil). Therefore, the Reproposal amends the 

spot month definition for Sugar No. 16 to mirror the 

three day period for other contracts that deliver 

after the end of trading. 

370 In regard to the modifier ‘‘until the contract 

expires,’’ the Commission views ‘‘expires’’ as 

meaning the end of delivery period or until cashsettled. 

371 In response to FIA’s comment, CL–FIA–59595 

at 10, the Commission notes that the spot periods 

for exchange-set limits on COMEX products begin 

at the close of trading and not the close of business. 

See http://www.cmegroup.com/market-regulation/ 

position-limits.html. However, the Commission 

understands that CME Group staff determines 

compliance with spot month limits in conjunction 

with the receipt of futures large trader reports. In 

consideration of the practicality of this approach, 

and in light of the definition of reportable position, 

the Commission believes that it would be more 

practical, clear, and consistent with existing 

exchange practices, for the spot month to begin ‘‘at 

the close of the market.’’ See CFTC Regulation 

15.00(p). 

372As a note of clarification, in light of the 

confusion of some commenters, position limits 

apply to open positions; once the position isn’t 

open the limits don’t apply. 

373See, e.g., Cotton No. 2. 

374See ICE Rule 6.19. 

375See, e.g., Cotton No. 2 Position Limits and 

Position Accountability information: ‘‘ICE (1) 

Delivery Month: Cocoa, Coffee ‘‘C’’, Cotton, World 

Cotton, FCOJ, Precious Metals—on and after First 

Notice Day Sugar#11 on and after the Second 

cash-settlement price was determined. 

In addition, the proposed definition 

included a proviso that, if the cashsettlement price was determined based 

on prices of a core referenced futures 

contract during the spot month period 

for that core referenced futures contract, 

then the spot month for that cash-settled 

contract would be the same as the spot 

month for that core referenced futures 

contract.360

Comments Received: The Commission 

received several comments regarding 

the definition of spot month.361 One 

commenter noted that the definition of 

the spot month for federal limits does 

not always coincide with the definition 

of spot month for purposes of any 

exchange limits and assumes that the 

Commission did not intend for this to 

happen. For example, the commenter 

noted the proposed definition of spot 

month would commence at the close of 

trading on the trading day preceding the 

first notice day, while the ICE Futures 

US definition commences as of the 

opening of trading on the second 

business day following the expiration of 

regular option trading on the expiring 

futures contract. Regarding the COMEX 

contracts, the commenter stated that the 

exchange spot month commences at the 

close of business, rather than at the 

close of trading, which would allow 

market participants to incorporate 

exchange of futures for related position 

transactions (EFRPs) that occur after the 

close of trading, but before the close of 

business.362 Finally, the commenter 

requested the Commission ensure the 

definition of spot month for federal 

limits is the same as the definition of 

spot month for exchange limits for all 

referenced contracts.363

Two commenters urged the 

Commission to reconsider its proposed 

definition of spot month for cash-settled 

contracts that encompasses the entire 

period for calculation of the settlement 

price, preferring the current exchange 

practice which is to apply the spot 

month limit during the last three days 

before final settlement.364 One 

commenter noted its concern that the 

proposed definition would discourage 

use of calendar month average price 

contracts.365

Another commenter recommended 

that the Commission define ‘‘spot 

month’’ in relation to each core 

referenced futures contract and all 

related physically-settled and cashsettled referenced contracts, to assure 

that the definition works appropriately 

in terms of how each underlying 

nonfinancial commodity market 

operates, and to ensure that commercial 

end-users of such nonfinancial 

commodities can effectively use such 

referenced contracts to hedge or mitigate 

commercial risks.366

The Commission also received the 

recommendation from one commenter 

that the Commission should publish a 

calendar listing the spot month for each 

Core Referenced Futures Contract to 

provide clarity to market participants 

and reduce the cost of identifying and 

tracking the spot month.367

Commission Reproposal: For core 

referenced futures contracts, the 

Commission agrees with the commenter 

that the definition of spot month for 

federal limits should be the same as the 

definition of spot month for exchange 

limits. The Commission is therefore the 

definition of spot month in this 

Reproposal generally follows exchange 

practices. In the reproposed version, 

spot month means the period of time 

beginning at the earlier of the close of 

business on the trading day preceding 

the first day on which delivery notices 

can be issued by the clearing 

organization of a contract market, or the 

close of business on the trading day 

preceding the third-to-last trading day, 

until the contract expires for physical 

delivery core referenced futures 

contracts,368 except for the following: (a) 

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

referenced contract for which the spot 

month means the period of time 

beginning at the opening of trading on 

the second business day following the 

expiration of the regular option contract 

traded on the expiring futures contract; 

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

referenced contract,369 for which the 

spot month means the period of time 

beginning on the third-to-last trading 

day of the contract month until the 

contract expires 370 and (c) Chicago 

Mercantile Exchange Live Cattle (LC) 

referenced contract, for which the spot 

month means the period of time 

beginning at the close trading on the 

fifth business day of the contract 

month.371

As noted above, in the December 2013 

Position Limits Proposal, spot month 

was proposed to be defined to begin at 

the earlier of: (1) ‘‘the close of trading 

on the trading day preceding the first 

day on which delivery notices can be 

issued to the clearing organization’’; or 

(2) ‘‘the close of trading on the trading 

day preceding the third-to-last trading 

day’’—based on the comment letters 

received, the proposed definition 

resulted in some confusion.372 The 

Commission observes that the current 

definition also seems to be a source of 

some confusion when it defines ‘‘spot 

month,’’ in current CFTC Regulation 

150.1(a), to begin ‘‘at the close of trading 

on the trading day preceding the first 

day on which delivery notices can be 

issued to the clearing organization.’’ 

The Commission understands current 

DCM practice for physical-delivery 

contracts permitting delivery before the 

close of trading generally is that the spot 

month begins at the start of the first 

business day on which the clearing 

house can issue ‘‘stop’’ notices to a 

clearing member carrying a long 

position, or, at the close of business on 

the day preceding the first business day 

on which the clearing house can issue 

‘‘stop’’ notices to a clearing member 

carrying a long position, but current 

DCM rules vary somewhat. For some 

ICE contracts,373 the spot month 

includes ‘‘any month for which delivery 

notices have been or may be issued,’’ 374

and begins at the open of trading; 375 the 


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Business Day following the expiration of the regular 

option contract traded on the expiring futures 

contract.’’ https://www.theice.com/products/254/ 

Cotton-No-2-Futures. 

376See current § 15.00(p). 

377CL–FIA–59595 at 10. 

378The Commission notes that DCM 

determinations of allowable blocks, EFRPs, and 

transfer trades, in regards to position limits, must 

also consider compliance with DCM Core Principle 

9; discussion of the interplay is beyond the scope 

of this Reproposal. 

379See Section III.A.1.r (Spot-month, singlemonth, and all-months-combined position limits) 

above for a discussion of the proposed definition of 

‘‘speculative position limit.’’ 

380 7 U.S.C. 1a(47) and 1a(49); § 1.3(xxx) (‘‘swap’’) 

and § 1.3(ggg) (‘‘swap dealer’’). See Further 

Definition of ‘‘Swap Dealer,’’ ‘‘Security-Based Swap 

Dealer,’’ ‘‘Major Swap Participant,’’ ‘‘Major 

Security-Based Swap Participant’’ and ‘‘Eligible 

Contract Participant,’’ 77 FR 30596 (May 23, 2012); 

see also, Swap Definition Rulemaking. 

CME spot month, as noted above, begins 

at the close of trading. However, the 

Commission understands that the 

amended ‘‘spot month’’ definition, as 

reproposed herein, would be consistent 

with the existing spot month practices 

of exchanges when enforcing the start of 

the spot month limits in any of the 25 

core referenced futures contracts, based 

on the timing of futures large trader 

reports, discussed below. 

Furthermore, based on Commission 

staff discussions with staff from several 

DCMs regarding exchange current 

practices, the Commission believes that 

the spot month should begin at the same 

time as futures large trader reports are 

submitted—that is, under the definition 

of reportable position, the spot month 

should begin ‘‘at the close of the 

market.’’ 376 The Commission views the 

‘‘close of the market’’ as consistent with 

‘‘the close of business.’’ 

In consideration of the practicality of 

this approach, and in light of the 

definition of ‘‘reportable position,’’ the 

Commission believes that it would be 

more practical, clear, and consistent 

with existing exchange practices, for the 

spot month to begin ‘‘at the close of 

business.’’ In addition, as noted by one 

commenter,377 when the exchange spot 

month commences at the close of 

business, rather than at the close of 

trading, it would allow market 

participants to incorporate exchange of 

futures for related position transactions 

(‘‘EFRPs’’) 378 that occur after the close 

of trading, but before the close of 

business. 

The Commission points out an 

additional correction made to the 

reproposed definition, changing it from 

‘‘preceding the first day on which 

delivery notices can be issued to the 

clearing organization of a contract 

market’’ to ‘‘preceding the first day on 

which delivery notices can be issued by 

the clearing organization of a contract 

market’’ [emphasis added]. The 

Commission understands that the spot 

periods on the exchanges commence the 

day preceding the first day on which 

delivery notices can be issued by the 

clearing organization of a contract 

market, not the first day on which 

notices can be issued to the clearing 

organization. The ‘‘spot month’’ 

definition in this Reproposal, therefore, 

has been changed to correct this error. 

The revisions included in the 

reproposed definition addresses the 

concerns of the commenter who 

suggested the Commission define the 

spot month according to each core 

referenced futures contract and for cashsettled and physical delivery referenced 

contracts that are not core referenced 

futures contracts, although for clarity 

and brevity the Commission has chosen 

to highlight contracts that are the 

exception to the general definition 

rather than list each of the 25 core 

referenced futures contracts and 

multitude of referenced contracts 

separately. 

In response to the commenters’ 

concern regarding cash-settled 

referenced contracts, the Reproposal 

changes the definition of spot month to 

agree with the limits proposed in 

§ 150.2. In the December 2013 Position 

Limits Proposal, the Commission 

defined the spot month for certain cashsettled referenced contracts, including 

calendar month averaging contracts, to 

be a longer period than the spot month 

period for the related core referenced 

futures contract. However, the 

Commission did not propose a limit for 

such contracts in proposed § 150.2, 

rendering superfluous that aspect of the 

proposed definition of spot month, at 

this time. The Commission is 

reproposing the definition of spot 

month without this provision, thereby 

addressing the concerns of the 

commenters regarding the impact of the 

definition on calendar month averaging 

contracts outside of the spot month for 

the relevant core referenced futures 

contract. In order to make clearer the 

relevant spot month periods for 

referenced contracts other than core 

referenced futures contracts, the 

Commission has included subsection (3) 

of the definition that states that the spot 

month for such referenced contracts is 

the same period as that of the relevant 

core referenced futures contract. 

The Commission believes that the 

revised definition reproposed here 

sufficiently clarifies the applicable spot 

month periods, which can also be 

determined via exchange rulebooks and 

defined contract specifications, such 

that a defined calendar of spot months 

is not necessary. Further, a published 

calendar would need to be revised every 

year to update spot month periods for 

each contract and each expiration. The 

Commission believes this constant 

revision may lead to more confusion 

than it is meant to correct. 

r. Spot-Month, Single-Month, and AllMonths-Combined Position Limits 

Proposed Rule: In addition to a 

definition for ‘‘spot month,’’ current 

part 150 includes definitions for ‘‘single 

month,’’ and for ‘‘all-months’’ where 

‘‘single month’’ is defined as ‘‘each 

separate futures trading month, other 

than the spot month future,’’ and ‘‘allmonths’’ is defined as ‘‘the sum of all 

futures trading months including the 

spot month future.’’ 

As noted in the December 2013 

Position Limits proposal, vacated part 

151 retained only the definition for spot 

month, and, instead, adopted a 

definition for ‘‘spot-month, singlemonth, and all-months-combined 

position limits.’’ The definition 

specified that, for Referenced Contracts 

based on a commodity identified in 

§ 151.2, the maximum number of 

contracts a trader could hold was as 

provided in § 151.4. 

In the December 2013 Position Limits 

Proposal, as noted above, the 

Commission proposed to amend § 150.1 

by deleting the definitions for ‘‘single 

month,’’ and for ‘‘all-months,’’ but, 

unlike the vacated part 151, the 

proposal did not include a definition for 

‘‘spot-month, single-month, and allmonths-combined position limits.’’ 

Instead, it proposed to adopt a 

definition for ‘‘speculative position 

limits’’ that should obviate the need for 

these definitions.379

Comments Received: The Commission 

received no comments regarding the 

deletion of these definitions. 

Commission Reproposal: This 

Reproposal, consistent with the 

December 2013 Position Limits 

Proposal, eliminates the definitions for 

‘‘single month,’’ and for ‘‘all-months,’’ 

for the reasons provided above. 

s. Swap and Swap Dealer 

Proposed Rule: While the terms 

‘‘swap’’ and ‘‘swap dealer’’ are not 

currently defined in § 150.1, the 

December 2013 Position Limits Proposal 

amended § 150.1 to define these terms 

as they are defined in section 1a of the 

Act and as further defined in section 1.3 

of this chapter.’’ 380

Comments Received: The Commission 

received no comments on these 

definitions. 


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381Those amendments to CEA section 4a(3), 

subsequently re-designated § 4a(c)(1), 7 U.S.C. 

6a(c)(1), provide that no rule of the Commission 

shall apply to positions which are shown to be bona 

fide hedging positions, as such term is defined by 

the Commission. See, sec. 404 of the Commodity 

Futures Trading Commission Act of 1974, Pub. L. 

93–463, 88 Stat. 1389 (Oct. 23, 1974). See 2013 

Position Limits Proposal, 78 FR at 75703 for 

additional discussion of the history of the definition 

of a bona fide hedging position. 

382 42 FR 42748 (Aug. 24, 1977). Previously, the 

Secretary of Agriculture, pursuant to section 404 of 

the Commodity Futures Trading Commission Act of 

1974 (Pub. L. 93–463), promulgated a definition of 

bona fide hedging transactions and positions. 40 FR 

111560 (March 12, 1975). That definition, largely 

reflecting the statutory definition previously in 

effect, remained in effect until the newlyestablished Commission defined that term. Id. 

383 46 FR 50938 at 50945 (Oct. 16, 1981). 

384 52 FR 34633 (Sept. 14, 1987) and 52 FR 27195 

(July 20, 1987). 385See December 2013 Position Limits Proposal, 

78 FR at 75704. 386Exchange rules for position accountability 

levels require a market participant whose position 

exceeds an accountability level to consent 

automatically to requests of the exchange: (1) To 

provide information about a position; and (2) to not 

increase or to reduce a position, if so ordered by 

the exchange. In contrast, a speculative position 

limit rule does not authorize an exchange to order 

a market participant to reduce a position. Rather, 

a position limit sets a maximum permissible size for 

a speculative position. The Commission notes that 

it may require a market participant to provide 

information about a position, for example, by 

issuing a special call under § 18.05 to a trader with 

a reportable position in futures contracts. 

387 DCM Core Principle 5 is codified in CEA 

section 5(d)(5), 7 U.S.C. 7(d)(5). See Section 111 of 

the Commodity Futures Modernization Act of 2000, 

Pub. L. No. 106–554, 114 Stat. 2763 (Dec. 21, 2000) 

(CFMA). 

388See § 13201 of the Food, Conservation and 

Energy Act of 2008, Pub. L. No. 110–246, 122 Stat. 

1624 (June 18, 2008) (Farm Bill of 2008). These 

provisions were subsequently superseded by the 

Dodd-Frank Act. 

389 66 FR 42270 (Aug. 10, 2001). Part 36 was 

removed and reserved to conform to the 

amendments to the CEA by the Dodd-Frank Act. 

390 17 CFR part 36, App. B (2010). 391 It should be noted that a 2011 final rule of the 

Commission would have amended the definition of 

a bona fide hedging position in § 1.3(z), to be 

applicable only to excluded commodities, and 

would have added a new definition of a bona fide 

hedging position to Part 151, to be applicable to 

physical commodities. Position Limits for Futures 

and Swaps, 76 FR 71626 (Nov.18, 2011). However, 

prior to the compliance date for that 2011 

rulemaking, a federal court vacated most provisions 

of that rulemaking, including the amendments to 

the definition of a bona fide hedging position. 

International Swaps and Derivatives Ass’n v. 

United State Commodity Futures Trading Comm’n, 

887 F. Supp. 2d 259 (D.D.C. 2012). Because the 

Commission has not instructed Federal Register to 

roll back the 2011 changes to the CFR, the current 

definition of a bona fide hedging position is found 

in the 2010 version of the Code of Federal 

Regulations. 17 CFR 1.3(z) (2010). 

392See December 2013 Position Limits Proposal, 

78 FR at 75705. 

393See December 2013 Position Limits Proposal, 

78 FR at 75702–23. In doing so, the Commission 

proposed to remove and reserve § 1.3(z). 

Commission Reproposal: The 

Commission has determined to 

repropose these definitions as originally 

proposed, for the reasons provided 

above. 

2. Bona Fide Hedging Definition 

a. Bona Fide Hedging Position (BFH) 

Definition—Background 

Prior to the 1974 amendments to the 

CEA, the definition of a bona fide 

hedging position was found in the 

statute. The 1974 amendments 

authorized the newly formed 

Commission to define a bona fide 

hedging position.381 The Commission 

published a final rule in 1977, providing 

a general definition of a bona fide 

hedging position in § 1.3(z)(1).382 The 

Commission listed certain positions, 

meeting the requirements of the general 

definition of a bona fide hedging 

position, in § 1.3(z)(2) (i.e., enumerated 

bona fide hedging positions). The 

Commission provided an application 

process for market participants to seek 

recognition of non-enumerated bona 

fide hedging positions in §§ 1.3(z)(3) 

and 1.48. 

During the 1980’s, exchanges were 

required to incorporate the 

Commission’s general definition of bona 

fide hedging position into their 

exchange-set position limit 

regulations.383 While the Commission 

had established position limits on only 

a few commodity futures contracts in 

§ 150.2, Commission rule § 1.61 

(subsequently incorporated into § 150.5) 

required DCMs to establish limits on 

commodities futures not subject to 

federal limits. The Commission directed 

in § 1.61(a)(3) (subsequently 

incorporated into § 150.5(d)(1)) that no 

DCM regulation regarding position 

limits would apply to bona fide hedging 

positions as defined by a DCM in 

accordance with § 1.3(z)(1). 

In 1987, the Commission provided 

interpretive guidance regarding the bona 

fide hedging definition and risk 

management exemptions for futures in 

financial instruments (now termed 

excluded commodities).384 This 

guidance permitted exchanges, for 

purposes of exchange-set limits on 

excluded commodities, to recognize risk 

management exemptions.385

In the 1990’s, the Commission 

allowed exchanges to experiment with 

substituting position accountability 

levels for position limits.386 The CFMA, 

in 2000, codified, in DCM Core 

Principle 5, position accountability as 

an acceptable practice.387 The CFMA, 

however, did not address the definition 

of a bona fide hedging position. 

With the passing of the CFMA in 

2000, the Commission’s requirements 

for exchanges to adopt position limits 

and associated bona fide hedging 

exemptions, in § 150.5, were rendered 

mere guidance. That is, exchanges were 

no longer required to establish limits 

and no longer required to use the 

Commission’s general definition of a 

bona fide hedging position. 

Nonetheless, the Commission continued 

to guide exchanges to adopt position 

limits, particularly for the spot month in 

physical-delivery physical commodity 

derivatives, and to provide for 

exemptions. 

The Farm Bill of 2008 authorized the 

Commission to regulate swaps traded on 

exempt commercial markets (ECM) that 

the Commission determined to be a 

significant price discovery contract 

(SPDC).388 The Commission 

implemented these provisions in part 36 

of its rules.389 The Commission 

provided guidance to ECMs in 

complying with Core Principle IV 

regarding position limitations or 

accountability.390 That guidance 

provided, as an acceptable practice for 

cleared trades, that the ECM’s position 

limit rules may exempt bona fide 

hedging positions. 

In 2010, the Dodd-Frank Act added a 

directive, for purposes of 

implementation of CEA section 4a(a)(2), 

for the Commission to define a bona fide 

hedging position for physical 

commodity derivatives consistent with, 

in the Commission’s opinion, the 

reasonably certain statutory standards in 

CEA section 4a(c)(2). Those statutory 

standards build on, but differ slightly 

from, the Commission’s general 

definition in rule 1.3(z)(1).391 The 

Commission interprets those statutory 

standards as directing the Commission 

to narrow the bona fide hedging 

position definition for physical 

commodities.392 The Commission 

discusses those differences, below. 

b. BFH Definition Summary 

Under the December 2013 Position 

Limits Proposal, the Commission 

proposed a new definition of bona fide 

hedging position, to replace the current 

definition in § 1.3(z), that would be 

applicable to positions in excluded 

commodities and in physical 

commodities.393 The proposed 

definition was organized into an 

opening paragraph and five numbered 

paragraphs. In the opening paragraph, 

for positions in either excluded 

commodities or physical commodities, 

the proposed definition would have 

applied two general requirements: The 

incidental test; and the orderly trading 

requirement. For excluded 

commodities, the Commission proposed 

in paragraph (1) a definition that 

conformed to the Commission’s 1987 


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394Section 140.99 sets out general procedures and 

requirements for requests to Commission staff for 

exemptive, no-action and interpretative letters. 

395See December 2013 Position Limits Proposal, 

78 FR 75719. 

396See 2016 Supplemental Position Limits 

Proposal, 81 FR at 38462–64. 

397 78 FR at 75706. 

398 81 FR at 38462. 

399See 2016 Supplemental Position Limits 

Proposal, 81 FR at 38462. 

400See, e.g., CL–NCFC–60930 at 2, CL–FIA–60937 

at 5 and 23, and CL–IECAssn–60949 at 5–7. 

401See, e.g., CL–CME–58718 at 47, and CL– 

NGFA–60941 at 2. 

402See, e.g., CL–IATP–60951 at 4, CL–AFR–60953 

at 2, CL–Better Markets–60928 at 5, and CL– 

Rutkowski–60962 at 1. 

403See CL–COPE–59662 at 13. 

404See CL–DEU–59627 at 5–7. 

405See, e.g., CL–FIA–59595 at 5, 33–34, CL–EEI– 

EPSA–59602 at 14–15, CL–ISDA/SIFMA–59611 at 

4, 39, CL–CME–59718 at 67, and CL–ICE–59669 at 

11. 

406See CL–Working Group–59693 at 14. 

407See CL–IATP–60951 at 4. 

interpretations permitting risk 

management exemptions in excluded 

commodity contracts. For physical 

commodities, the Commission proposed 

in paragraph (2) to amend the current 

general definition to conform to CEA 

section 4a(c) and to remove the 

application process in §§ 1.3(z)(3) and 

1.48, that permits market participants to 

seek recognition of non-enumerated 

bona fide hedging positions. Rather, the 

Commission proposed that a market 

participant may request either a staff 

interpretative letter under § 140.99 394 or 

seek CEA section 4a(a)(7) exemptive 

relief.395 Paragraphs (3) and (4) listed 

enumerated exemptions. Paragraph (5) 

listed the requirements for crosscommodity hedges of enumerated 

exemptions. 

In response to comments on the 

December 2013 Position Limits 

Proposal, in the 2016 Supplemental 

Proposal, the Commission amended the 

proposed definition of bona fide 

hedging position.396 The amended 

definition proposed in the 2016 

Supplemental Proposal would no longer 

apply the two general requirements (the 

incidental test and the orderly trading 

requirement). For excluded 

commodities, the Commission again 

proposed paragraph (1) of the definition, 

substantially as in 2013. For physical 

commodities, the Commission again 

proposed to conform paragraph (2) more 

closely to CEA section 4a(c), but also 

proposed an application process for 

market participants to seek recognition 

of non-enumerated bona fide hedging 

positions, without the need to petition 

the Commission. The Commission again 

proposed paragraphs (3) through (5). 

In response to comments on both the 

December 2013 Position Limits Proposal 

and the 2016 Supplemental Proposal, 

the Commission is now reproposing the 

definition of bona fide hedging position, 

generally as proposed in the 2016 

Supplemental Proposal, but with a few 

further amendments. First, for excluded 

commodities, the Commission clarifies 

further the discretion of exchanges in 

recognizing risk management 

exemptions. Second, for physical 

commodities, the Commission: (a) 

Clarifies the scope of the general 

definition of a bona fide hedging 

position; (b) conforms that general 

definition more closely to CEA section 

4a(c) by including recognition of 

positions that reduce risks attendant to 

a swap that was used as a hedge; and, 

(c) re-organizes additional requirements 

for enumerated hedges and 

requirements for other recognition as a 

non-enumerated bona fide hedging 

position, apart from the general 

definition. 

c. BFH Definition Discussion—Remove 

Incidental Test and Orderly Trading 

Requirement 

Proposed Rule: As noted above, the 

Commission proposed to retain, in its 

December 2013 Position Limits 

Proposal,397 then proposed to remove, 

in its 2016 Supplemental Position 

Limits Proposal,398 two general 

requirements contained in the § 1.3(z)(1) 

definition of bona fide hedging position: 

the incidental test; and the orderly 

trading requirement. The incidental test 

requires, for a position to be recognized 

as a bona fide hedging position, that the 

‘‘purpose is to offset price risks 

incidental to commercial cash, spot, or 

forward operations.’’ The orderly 

trading requirement mandates that 

‘‘such position is established and 

liquidated in an orderly manner in 

accordance with sound commercial 

practices.’’ 

Comments Received: Commenters 

generally objected to retaining the 

incidental test and the orderly trading 

requirement in the definition of bona 

fide hedging position, as proposed in 

2013.399 A number of commenters 

supported the Commission’s 2016 

Supplemental Proposal to remove the 

incidental test and the orderly trading 

requirement.400

Incidental Test: Commenters objected 

to the incidental test, because that test 

is not included in the standards in CEA 

section 4a(c) for the Commission to 

define a bona fide hedging position for 

physical commodities.401

However, other commenters noted 

their belief that eliminating the 

incidental test would permit swap 

dealers or purely financial entities to 

avail themselves of bona fide hedging 

exemptions, to the detriment of 

commercial hedgers.402

Orderly trading requirement: One 

commenter urged the Commission to 

eliminate the orderly trading 

requirement, because this requirement 

does not apply to over-the-counter 

markets, the Commission does not 

define orderly trading in a bi-lateral 

market, and this requirement imposes a 

duty on end users to monitor market 

activities to ensure they do not cause a 

significant market impact; additionally, 

the commenter noted the anti-disruptive 

trading prohibitions and polices apply 

regardless of whether the orderly 

trading requirement is imposed.403

Similarly, another commenter urged the 

Commission to exempt commercial endusers from the orderly trading 

requirement, arguing that an orderly 

trading requirement unreasonably 

requires commercial end-users to 

monitor markets to measure the impact 

of their activities without clear guidance 

from the Commission on what would 

constitute significant market impact.404

Other commenters to the 2013 

Proposal requested the Commission 

interpret the orderly trading 

requirement consistently with the 

Commission’s disruptive trading 

practices interpretation (i.e., a standard 

of intentional or reckless conduct) and 

not to apply a negligence standard.405

Yet another commenter requested 

clarification on the process the 

Commission would use to determine 

whether a position has been established 

and liquidated in an orderly manner, 

whether any defenses may be available, 

and what would be the consequences of 

failing the requirement.406

However, one commenter is 

concerned that eliminating the orderly 

trading requirement for bona fide 

hedging for swaps positions would 

discriminate against market participants 

in the futures and options markets. The 

commenter noted that, if the 

Commission eliminates this 

requirement, the Commission could not 

use its authority effectively to review 

exchange-granted exemptions for swaps 

from position limits to prevent or 

diminish excessive speculation.407

Commission Reproposal: In the 

reproposed definition of bona fide 

hedging position, the Commission is 

eliminating the incidental test and the 

orderly trading requirement. 

Incidental Test: Under the 

Reproposal, the incidental test has been 

eliminated, because the Commission 

views the economically appropriate test 

(discussed below) as including the 

concept of the offset of price risks 


asabaliauskas on DSK3SPTVN1PROD with PROPOSALS
96744 Federal Register / Vol. 81, No. 251 / Friday, December 30, 2016 / Proposed Rules 

408See December 2013 Position Limits Proposal, 

78 FR at 75707. 

409 40 FR 11560 (March 12, 1975). 

410 39 FR 39731 (Nov. 11, 1974). 

411 40 FR 11560 (Mar. 12, 1975). 

412 December 2013 Position Limits Proposal, 78 

FR at 75707; 2016 Supplemental Position Limits 

Proposal, 81 FR at 38505. 

413CL–BG Group–59656 at 9. 

414The Commission did not propose to apply to 

excluded commodities any of the additional 

standards in the general definition applicable to 

hedges of a physical commodity. 

incidental to commercial cash, spot, or 

forward operations. It was noted in the 

2013 Position Limits Proposal that, 

‘‘The Commission believes the concept 

of commercial cash market activities is 

also embodied in the economically 

appropriate test for physical 

commodities in [CEA section 

4a(c)(2)].’’ 408 It should be noted the 

incidental test has been part of the 

regulatory definition of bona fide 

hedging since 1975,409 but that the 

requirement was not explained in the 

1974 proposing notice (‘‘proposed 

definition otherwise deviates in only 

minor ways from the hedging definition 

presently contained in [CEA section 

4a(3)]’’).410

The Commission is not persuaded by 

the commenters who believe 

eliminating the incidental test would 

permit financial entities to avail 

themselves of a bona fide hedging 

exemption, because the incidental test is 

essentially embedded in the 

economically appropriate test. In 

addition, for a physical-commodity 

derivative, the reproposed definition, in 

mirroring the statutory standards of CEA 

section 4a(c), requires a bona fide 

hedging position to be a substitute for a 

transaction taken or to be taken in the 

cash market (either for the market 

participant itself or for the market 

participant’s pass-through swap 

counterparty), which generally would 

preclude financial entities from availing 

themselves of a bona fide hedging 

exemption (in the absence of qualifying 

for a pass-through swap offset 

exemption, discussed below). 

Orderly Trading Requirement: The 

Reproposal also eliminates the orderly 

trading requirement. That provision has 

been a part of the regulatory definition 

of bona fide hedging since March 12, 

1975 411 and previously was found in 

the statutory definition of bona fide 

hedging position prior to the 1974 

amendment removing the statutory 

definition from CEA section 4a(3). 

However, the Commission is not aware 

of a denial of recognition of a position 

as a bona fide hedging position, as a 

result of a lack of orderly trading. 

Further, the Commission notes that the 

meaning of the orderly trading 

requirement is unclear in the context of 

the over-the-counter (OTC) swap market 

or in the context of permitted offexchange transactions (e.g., exchange of 

futures for physicals). 

In regard to the anti-disruptive trading 

prohibitions of CEA section 4c(a)(5), 

those prohibitions apply to trading on 

registered entities, but not to OTC 

transactions. It should be noted that the 

anti-disruptive trading prohibitions in 

CEA section 4c(a)(5) make it unlawful to 

engage in trading on a registered entity 

that ‘‘demonstrates intentional or 

reckless disregard for orderly execution 

of trading during the closing period’’ 

(emphasis added); however, the 

Commission has not, under the 

authority of CEA section 4c(a)(6), 

prohibited the intentional or reckless 

disregard for the orderly execution of 

transactions on a registered entity 

outside of the closing period. 

The Commission notes that an 

exchange may impose a general orderly 

trading on all market participants. 

Market participants may request 

clarification from exchanges on their 

trading rules. The Commission does not 

believe that the absence of an orderly 

trading requirement in the definition of 

bona fide hedging position would 

discriminate against any particular 

trading venue for commodity derivative 

contracts. 

d. BFH Definition Discussion— 

Excluded Commodities 

Proposed Rule: In both the 2013 

Position Limits Proposal and the 2016 

Supplement Proposal, the proposed 

definition of bona fide hedging position 

for contracts in an excluded commodity 

included a standard that the position is 

economically appropriate to the 

reduction of risks in the conduct and 

management of a commercial enterprise 

(the economically appropriate test) and 

also specified that such position should 

be either (i) specifically enumerated in 

paragraphs (3) through (5) of the 

definition of bona fide hedging position; 

or (ii) recognized as a bona fide hedging 

position by a DCM or SEF consistent 

with the guidance on risk management 

exemptions in proposed Appendix A to 

part 150.412 As noted above, the 2016 

Supplemental Proposal would eliminate 

the two additional general requirements 

(the incidental test and the orderly 

trading requirement). 

Comments Received: One commenter 

believed that, to avoid an overly 

restrictive definition due to the limited 

set of examples provided by the 

Commission, only the general definition 

of a bona fide hedging position should 

be applicable to hedges of an excluded 

commodity.413

Commission Reproposal: After 

consideration of comments and review 

of the record, the Commission has 

determined in the Reproposal to apply 

the economically appropriate test to 

enumerated exemptions, as proposed.414

However, the Reproposal amends the 

proposed definition of a bona fide 

hedging position for an excluded 

commodity, to clarify that an exchange 

may otherwise recognize risk 

management exemptions in an excluded 

commodity, without regard to the 

economically appropriate test. 

Regarding risk management exemptions, 

the Commission notes that Appendix A 

(which codifies the Commission’s two 

1987 interpretations of the bona fide 

hedging definition in the context of 

excluded commodities) includes 

examples of risk altering transactions, 

such as a temporary increase in equity 

exposure relative to cash bond holdings. 

Such risk altering transactions appear 

inconsistent with the Commission’s 

interpretation of the economically 

appropriate test. Accordingly, the 

Reproposal removes the economically 

appropriate test from the guidance for 

exchange-recognized risk management 

exemptions in excluded commodities. 

Regarding an exchange’s obligation to 

comply with core principles pertaining 

to position limits on excluded 

commodities, as discussed further in 

§ 150.5, the Commission clarifies that 

under the Reproposal, exchanges have 

reasonable discretion as to whether to 

adopt the Commission’s definition of a 

bona fide hedging position, including 

whether to grant risk management 

exemptions, such as those that would be 

consistent with, but not limited to, the 

examples in Appendix A to part 150. 

That is, the set of examples in Appendix 

A to part 150 is non-restrictive, as it is 

guidance. The Reproposal also makes 

minor wording changes in Appendix A 

to part 150, including to clarify an 

exchange’s reasonable discretion in 

granting risk management exemptions 

and to eliminate a reference to the 

orderly trading requirement which has 

been deleted, as discussed above, but 

otherwise is adopting Appendix A as 

proposed. 

e. BFH Definition Discussion—Physical 

Commodities General Definition 

As noted in its proposal, the core of 

the Commission’s approach to defining 

bona fide hedging over the years has 

focused on transactions that offset a 


asabaliauskas on DSK3SPTVN1PROD with PROPOSALS
Federal Register / Vol. 81, No. 251 / Friday, December 30, 2016 / Proposed Rules 96745 

415 December 2013 Position Limits Proposal, 78 

FR at 75702–3. 

416 7 U.S.C. 6a(c)(1). 

417The Reproposal provides for a phased 

approach to implementation of CEA section 

4a(a)(2), to reduce the potential administrative 

burden on exchanges and market participants, and 

to facilitate adoption of monitoring policies, 

procedures and systems. See, e.g., December 2013 

Position Limits Proposal, 78 FR at 75725. The first 

phase of implementation of CEA section 4a(a)(2), in 

this Reproposal, initially sets federal limits on 25 

core referenced futures contracts and their 

associated referenced contracts. The Commission is 

establishing a definition of bona fide hedging 

position for physical commodities in connection 

with its implementation of CEA section 4a(a)(2), 

applicable to federal limits. However, the 

Reproposal does not mandate adoption of that 

definition of a bona fide hedging position for 

purposes of exchange-set limits in contracts that are 

not yet subject to a federal limit. See below 

regarding guidance and requirements under 

reproposed § 150.5 for exchange-set limits in 

physical commodities. 

418See, e.g., CL–FIA–59595 at 5, 34–35; CL– 

AMG–59709 at 2, 12–15; and CL–CME–59718 at 

67–69. 

419See, e.g., CL–Sen. Levin–59637 at 8, and CL– 

Better Markets–60325 at 2. 

420See December 2013 Position Limits Proposal, 

78 FR at 75709. 

recognized price risk.415 Once a bona 

fide hedge is implemented, the hedged 

entity should be price insensitive 

because any change in the value of the 

underlying physical commodity is offset 

by the change in value of the entity’s 

physical commodity derivative position. 

Because a firm that has hedged its 

price exposure is price neutral in its 

overall physical commodity position, 

the hedged entity should have little 

incentive to manipulate or engage in 

other abusive market practices to affect 

prices. By contrast, a party that 

maintains a derivative position that 

leaves it with exposure to price changes 

is not neutral as to price and, therefore, 

may have an incentive to affect prices. 

Further, the intention of a hedge 

exemption is to enable a commercial 

entity to offset its price risk; it was 

never intended to facilitate taking on 

additional price risk. 

The Commission recognizes there are 

complexities to analyzing the various 

commercial price risks applicable to 

particular commercial circumstances in 

order to determine whether a hedge 

exemption is warranted. These 

complexities have led the Commission, 

from time to time, to issue rule changes, 

interpretations, and exemptions. 

Congress, too, has periodically revised 

the Federal statutes applicable to bona 

fide hedging, most recently in the DoddFrank Act. 

CEA section 4a(c)(1),416 as redesignated by the Dodd-Frank Act, 

authorizes the Commission to define 

bona fide hedging positions ‘‘consistent 

with the purposes of this Act.’’ CEA 

section 4a(c)(2), as added by the DoddFrank Act, provides new requirements 

for the Commission to define bona fide 

hedging positions in physical 

commodity derivatives ‘‘[f]or the 

purposes of implementation of [CEA 

section 4a(a)(2)] for contracts of sale for 

future delivery or options on the 

contracts of commodities [traded on 

DCMs].’’ 417

General Definition: The Commission’s 

proposed general definition for physical 

commodity derivative contracts, 

mirroring CEA section 4a(c)(2)(a), 

specifies a bona fide hedging position is 

one that: 

(a) Temporary substitute test: 

represents a substitute for transactions 

made or to be made or positions taken 

or to be taken at a later time in the 

physical marketing channel; 

(b) Economically appropriate test: is 

economically appropriate to the 

reduction of risks in the conduct and 

management of a commercial enterprise; 

and 

(c) Change in value requirement: 

arises from the potential change in the 

value of assets, liabilities, or services, 

whether current or anticipated. 

In addition to the above, the 

Commission’s proposed general 

definition, mirroring CEA section 

4a(c)(2)(B)(i), also recognizes a bona fide 

hedging position that: 

(d) Pass-through swap offset: reduces 

risks attendant to a position resulting 

from a swap that was executed opposite 

a counterparty for which the transaction 

would qualify as a bona fide hedging 

transaction under the general definition 

above. 

The Commission proposed another 

provision, based on the statutory 

standards, to recognize as a bona fide a 

position that: 

(e) Pass-through swap: is itself the 

swap executed opposite a pass-through 

swap counterparty, provided that the 

risk of that swap has been offset. 

The Commission received a number 

of comments on the December 2013 

Position Limits Proposal and the 2016 

Supplemental Proposal. Those 

concerning the incidental test and the 

orderly trading requirement are 

discussed above. Others are discussed 

below. 

i. Temporary Substitute Test and Risk 

Management Exemptions 

Proposed Rule: The temporary 

substitute test is discussed in the 2013 

Position Limits Proposal at 75708–9. As 

the Commission noted in the proposal, 

it believes that the temporary substitute 

test is a necessary condition for 

classification of positions in physical 

commodities as bona fide hedging 

positions. The proposed test mirrors the 

statutory test in CEA section 

4a(c)(2)(a)(i). The statutory test does not 

include the adverb ‘‘normally’’ to 

modify the verb ‘‘represents’’ in the 

phrase ‘‘represents a substitute for 

transactions taken or to be taken at a 

later time in a physical marketing 

channel.’’ Because the definition in 

§ 1.3(z)(1) includes the adverb 

‘‘normally,’’ the Commission interpreted 

that provision to be merely a temporary 

substitute criterion, rather than a test. 

Accordingly, the Commission 

previously granted risk management 

exemptions for persons to offset the risk 

of swaps and other financial 

instruments that did not represent 

substitutes for transactions or positions 

to be taken in a physical marketing 

channel. However, given the statutory 

change in direction, positions that 

reduce the risk of such speculative 

swaps and financial instruments would 

no longer meet the requirements for a 

bona fide hedging position under the 

proposed definition in § 150.1. 

Comments Received: A number of 

commenters urged the Commission not 

to deny risk-management exemptions 

for financial intermediaries who utilize 

referenced contracts to offset the risks 

arising from the provision of diversified, 

commodity-based returns to the 

intermediaries’ clients.418

However, other commenters noted the 

‘‘proposed rules properly refrain from 

providing a general exemption to 

financial firms seeking to hedge their 

financial risks from the sale of 

commodity-related instruments such as 

index swaps, Exchange Traded Funds 

(ETFs), and Exchange Traded Notes 

(ETNs),’’ because such instruments are 

inherently speculative and may 

overwhelm the price discovery function 

of the derivative market.419

Commission Reproposal: The 

Reproposal would retain the temporary 

substitute test, as proposed. The 

Commission interprets the statutory 

temporary substitute test as more 

stringent than the temporary substitute 

criterion in § 1.3(z)(1); 420 that is, the 

Commission views the statutory test as 

narrowing the standards for a bona fide 

hedging position. Further, the 

Commission believes that retaining a 

risk management exemption for swap 

intermediaries, without regard to the 

purpose of the counterparty’s swap, 

would fly in the face of the statutory 

restrictions on pass-through swap 

offsets (requiring the position of the 

pass-through swap counterparty to 


asabaliauskas on DSK3SPTVN1PROD with PROPOSALS
96746 Federal Register / Vol. 81, No. 251 / Friday, December 30, 2016 / Proposed Rules 

421See CEA section 4a(c)(2)(B)(i). 

422See December 2013 Position Limits Proposal, 

78 FR at 75734–5 and 75739–41. 

423See, e.g., CL–AMG–59709 at 2, 18. 

424See, e.g., id. at 18–19. 

425CL–FIA–59595 at 5,34–35; CL–AMG–59709 at 

2, 12–15; and CL–CME–59718 at 67–69. 

426CL–Sen. Levin–59637 at 8; and CL–Better 

Markets–60325 at 2. 

427CL–CMOC–59720 at 4–5. 

428See, e.g., CL–NCGA–NGSA–60919 at 4, CL– 

EEI–EPSA–60925 at 14, CL–API–60939 at 2, CL– 

CMC–60950 at 4–5, CL–NCFC–60930 at 2, CL– 

ADM–60934 at 2–6, CL–FIA–60937 at 5 and 20, CL– 

NGFA–60941 at 4, and CL–Associations–60972 at 2. 

429See, e.g., CL–CMC–60950 at 4–5, and CL– 

Olam–59946 at 2–4. 

430CL–ICE–60929 at 10. 

431See, e.g., CL–ADM–60934 at 2–6, and CL– 

API–60939 at 2. 

432See December 2013 Position Limits Proposal, 

78 FR at 75709–10. 

433 Id. at 75710. 

434See, e.g., CL–MGEX–60936 at 11, CL–CMC– 

60950 at 6, CL–Associations–60972 at 2. 

qualify as a bona fide hedging 

transaction).421

Proposed Rule on risk management 

exemption grandfather provisions: The 

Commission proposed in § 150.2(f) and 

§ 150.3(f) to grandfather previously 

granted risk-management exemptions, 

as applied to pre-existing positions.422

Comments Received: Commenters 

requested that the Commission extend 

the grandfather relief to permit preexisting risk management positions to 

be increased after the effective date of a 

limit.423 Commenters also requested 

that the Commission permit the risk 

associated with a pre-existing position 

to be offset by a futures position in a 

deferred contract month, after the 

liquidation of an offsetting position in a 

nearby futures contract month.424

Some commenters urged the 

Commission not to deny riskmanagement exemptions for financial 

intermediaries who utilize referenced 

contracts to offset the risks arising from 

the provision of diversified commoditybased returns to the intermediaries’ 

clients.425

In contrast, other commenters noted 

that the proposed rules ‘‘properly 

refrain’’ from providing a general 

exemption to financial firms seeking to 

hedge their financial risks from the sale 

of commodity-related instruments such 

as index swaps, ETFs, and ETNs 

because such instruments are 

‘‘inherently speculative’’ and may 

overwhelm the price discovery function 

of the derivative market.426 Another 

commenter noted, because commodity 

index contracts are speculative, the 

Commission should not provide a 

regulatory exemption for such 

contracts.427

Commission Reproposal: The 

Reproposal clarifies and expands the 

relief in § 150.3(f) (previously granted 

exemptions) by: (1) Clarifying that such 

previously granted exemptions may 

apply to pre-existing financial 

instruments that are within the scope of 

existing § 1.47 exemptions, rather than 

only to pre-existing swaps; and (2) 

recognizing exchange-granted nonenumerated exemptions in non-legacy 

commodity derivatives outside of the 

spot month (consistent with the 

Commission’s recognition of risk 

management exemptions outside of the 

spot month), and provided such 

exemptions are granted prior to the 

compliance date of the final rule, once 

adopted, and apply only to pre-existing 

financial instruments as of the effective 

date of that final rule. These two 

changes are intended to reduce the 

potential for market disruption by 

forced liquidations, since a market 

intermediary would continue to be able 

to offset risks of pre-effective-date 

financial instruments, pursuant to 

previously-granted federal or exchange 

risk management exemptions. 

The Reproposal clarifies that the 

Commission will continue to recognize 

the offset of the risk of a pre-existing 

financial instrument as bona fide using 

a derivative position, including a 

deferred derivative contract month 

entered after the effective date of a final 

rule, provided a nearby derivative 

contract month is liquidated. However, 

under the Reproposal, such relief will 

not be extended to an increase in 

positions after the effective date of a 

limit, because that appears contrary to 

Congressional intent to narrow the 

definition of a bona fide hedging 

position, as discussed above. 

ii. Economically Appropriate Test 

Commission proposal: The 

economically appropriate test is 

discussed in the 2013 Position Limits 

Proposal at 75709–10. The proposed 

economically appropriate test mirrors 

the statutory test, which, in turn, 

mirrors the test in current § 1.3(z)(1). 

Comments received: Several 

commenters requested that the 

Commission broadly interpret the 

phrase ‘‘economically appropriate’’ to 

include more than just price risk, stating 

that there are other types of risk that are 

economically appropriate to address in 

the management of a commercial 

enterprise including operational risk, 

liquidity risk, credit risk, locational risk, 

and seasonal risk.428

Commenters suggested that if the 

Commission objected to expanding its 

interpretation of ‘‘economically 

appropriate’’ risks, then the Commission 

should allow the exchanges to utilize 

discretion in their interpretations of the 

economically appropriate test.429

Another commenter believed that the 

Commission should provide ‘‘greater 

flexibility’’ in the various bona fide 

hedging tests, because hedging that 

reduces all the various types of risk 

should be deemed ‘‘economically 

appropriate.’’ 430 Commenters suggested 

that a broader view of the types of risks 

considered to be ‘‘economically 

appropriate’’ should not be perceived as 

being at odds with the Commission’s 

view of ‘‘price risk’’ because all of these 

risks can inform and determine price, 

noting that firms evaluate different risks 

and determine a price impact based on 

a combination of their likelihood of 

occurrence and the price impact in the 

event of occurrence.431

Commission Reproposal: The 

Reproposal does not broaden the 

interpretation of the phrase 

‘‘economically appropriate.’’ The 

Commission notes that it has provided 

interpretations and guidance over the 

years as to the meaning of 

‘‘economically appropriate.’’ 432 The 

Commission reiterates its view that, to 

satisfy the economically appropriate test 

and the change in value requirement of 

CEA section 4a(c)(2)(A)(iii), the purpose 

of a bona fide hedging position must be 

to offset price risks incidental to a 

commercial enterprise’s cash 

operations.433

The Commission notes that an 

exchange is permitted to recognize nonenumerated bona fide hedging positions 

under the process of § 150.9, discussed 

below, subject to assessment of the 

particular facts and circumstances, 

where price risk arises from other types 

of risk. The Reproposal does not, 

however, allow the exchanges to utilize 

unbounded discretion in interpreting 

‘‘economically appropriate’’ in such 

recognitions. The Commission believes 

that such a broad delegation is not 

authorized by the CEA and, in the 

Commission’s view, would be contrary 

to the reasonably certain statutory 

standard of the economically 

appropriate test. Further, as explained 

in the discussion of § 150.9, exchange 

determinations will be subject to the 

Commission’s de novo review. 

Comments on gross vs. net hedging: A 

number of commenters requested that 

the Commission recognize as bona fide 

both ‘‘gross hedging’’ and ‘‘net 

hedging,’’ without regard to overall 

risk.434 Commenters generally 

requested, as ‘‘gross hedging,’’ that an 

enterprise should be permitted the 

flexibility to use either a long or short 

derivative to offset the risk of any cash 

position, identified at the discretion of 


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435See, e.g., CL–Olam–59658 at 4–6. 

436CL–FIA–59595 at 20–21. 

437CL–Working Group–60947 at 15. 

438CL–CMC–60950 at 5. 

439See, e.g., instructions to Form 204. 

440 42FR 14832 at 14834 (Mar. 16, 1977). 

441 Id. 

442 Id. 

443See, Letter from Roger R. Kauffman, Adm’r, 

Commodity Exchange Authority, to Reid 

Bondurant, Cotton Exchange (Feb. 13, 1959) 

(emphasis added), cited in CL–Olam–59658 at 5. 

444See, e.g., CL–API–59694 at 4, CL–IECAssn– 

59679 at 10–11, CL–APGA–59722 at 9–10, CL– 

NCFC–59942 at 5, CL–EEI–EPSA–59602 at 15, and 

CL–EEI-Sup–60386 at 7. 

445CL–CMC–60950 at 5. 

446CEA section 4a(c)(2)(A)(ii). 

the commercial enterprise, irrespective 

of the commercial enterprise’s net cash 

market position.435 For example, a 

commenter contended that a 

commercial enterprise should be able to 

hedge fixed-price purchase contracts 

(e.g., with a short futures position), 

without regard to the enterprise’s fixedprice sales contracts, even if such a 

short derivative position may increase 

the enterprise’s risk.436 One commenter 

stated that the ‘‘new proposed 

interpretation’’ of the ‘‘economically 

appropriate’’ test requires a commercial 

enterprise to include, and consider for 

purposes of bona fide hedging, portions 

of its portfolio it would not otherwise 

consider in managing risk.437 Another 

commenter did not agree that market 

participants should be required to 

calculate risk on a consolidated basis, 

because this approach would require 

commercial entities to build out new 

systems. As an alternative, that 

commenter requests the Commission 

recognize current risk management 

tools.438

Commission Reproposal: The 

Reproposal retains the Commission’s 

interpretation, as proposed, of 

economically appropriate gross hedging: 

that in circumstances where net hedging 

does not measure all risk exposures, an 

enterprise may appropriately enter into, 

for example, a calendar month spread 

position as a gross hedge. A number of 

comments misconstrued the 

Commission’s historical interpretation 

of gross and net hedging. The 

Commission has not recognized 

selective identification of cash positions 

to justify a position as bona fide; rather, 

the Commission has permitted a regular 

practice of excluding certain 

commodities, products, or by-products, 

in determining an enterprise’s risk 

position.439 As proposed, the 

Reproposal requires such excluded 

commodities to be de minimis or 

difficult to measure, because a market 

participant should not be permitted to 

ignore material cash market positions 

and enter into derivative positions that 

increase risk while avoiding a position 

limit restriction; rather, such a market 

participant’s speculative activity must 

remain below the level of the 

speculative position limit. 

Note, however, under a partial 

reading of a preamble to a 1977 

proposal, the Commission has appeared 

to recognize gross hedging, without 

regard to net risk, as bona fide; the 

Commission noted in 1977 that: ‘‘The 

previous statutory definition of bona 

fide hedging transactions or positions 

contained in section 4a of the Act before 

amendment by the CFTC Act and the 

present definition permit persons to 

classify as hedging any purchase or sale 

for future delivery which is offset by 

their gross cash position irrespective of 

their net cash position.’’ 440 However, 

under a full reading of that 1977 

proposal, the Commission made clear 

that gross hedging was appropriate in 

circumstances where ‘‘net cash 

positions do not necessarily measure 

total risk exposure due to differences in 

the timing of cash commitments, the 

location of stocks, and differences in 

grades or types of the cash 

commodity.’’ 441 Thus, the 1977 

proposal noted the Commission ‘‘does 

not intend at this time to alter the 

provisions of the present definition with 

respect to the hedging of gross cash 

position.’’ 442 At the time of the 1977 

proposal, the ‘‘present definition’’ had 

been promulgated in 1975 by the 

Administrator of the Commodity 

Exchange Authority based on the 

statutory definition; and the 

Administrator had interpreted the 

statutory definition to recognize gross 

hedging as bona fide in the context of 

a merchant who ‘‘may hedge his fixedprice purchase commitments by selling 

futures and at the same time hedge his 

fixed-price sale commitments by buying 

futures,’’ rather than hedging only his 

net position.443

Comments on specific, identifiable 

risk: Commenters requested the 

Commission consider as economically 

appropriate any derivative position that 

a business can reasonably demonstrate 

reduces or mitigates one or more 

specific, identifiable risks related to 

individual or aggregated positions or 

transactions, based on its own business 

judgment and risk management policies, 

whether risk is managed enterprisewide or by legal entity, line of business, 

or profit center.444 One commenter 

disagreed with what it called a ‘‘onesize-fits-all’’ risk management paradigm 

that requires market participants to 

calculate risk on a consolidated basis 

because this approach would require 

commercial entities to build out new 

systems in order to manage risk this 

way. The commenter requests that the 

Commission instead recognize that 

current risk management tools are used 

effectively for positions that are below 

current limits and those tools remain 

effective above position limit levels as 

well.445

Commission Reproposal: The 

Reproposal declines to assess the bona 

fides of a position based solely on 

whether a commercial enterprise can 

identify any particular cash position 

within an aggregated person, the risks of 

which such derivative position offsets. 

The Commission believes that such an 

approach would run counter to the 

aggregation rules in § 150.4 and would 

permit an enterprise to cherry pick cash 

market exposures to justify exceeding 

position limits, with either a long or 

short derivative position, even though 

such derivative position increases the 

enterprise’s risk. 

The Commission views a derivative 

position that increases an enterprise’s 

risk as contrary to the plain language of 

CEA section 4a(c) and the Commission’s 

bona fide hedging definition, which 

requires that a bona fide hedging 

position ‘‘is economically appropriate to 

the reduction of risks in the conduct 

and management of a commercial 

enterprise.’’ 446

If a transaction that increases a 

commercial enterprise’s overall risk 

should be considered a bona fide 

hedging position, this would result in 

position limits not applying to certain 

positions that should be considered 

speculative. For example, assume an 

enterprise has entered into only two 

cash forward transactions and has no 

inventory. The first cash forward 

transaction is a purchase contract (for a 

particular commodity for delivery at a 

particular later date). The second cash 

forward transaction is a sales contract 

(for the same commodity for delivery on 

the same date as the purchase contract). 

Under the terms of the cash forward 

contracts, the enterprise may take 

delivery on the purchase contract and 

re-deliver the commodity on the sales 

contract. Such an enterprise does not 

have a net cash market position that 

exposes it to price risk, because it has 

both purchased and sold the same 

commodity for delivery on the same 

date (such as cash forward contracts for 

the same cargo of Brent crude oil). The 

enterprise could establish a short 

derivative position that would offset the 

risk of the purchase contract; however, 

that would increase the enterprise’s 

price risk. Alternatively, the enterprise 


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447See discussion under section II.B.3 (Criteria 

for Aggregation Relief in Rule 150.4(b)(2)(i)) of the 

2016 Final Aggregation Rule. 

448CL–Cargill–59638 at 2–4. 

449 December 2013 Position Limits Proposal, 78 

FR at 75709. 

450See, e.g., CL–Cargill–59638 at 2–4. 

451 17 CFR 1.3(z)(2) and 1.48 (2010). 

452 December 2013 Position Limits Proposal, 78 

FR at 75720. 

453 Id. at 75719. 

454 Id. at 75710. 

455 17 CFR 1.3(z) (2010). 

456As noted in the December 2013 Position 

Limits Proposal, 78 FR at 75710, CEA section 

4a(c)(2)(A)(iii)(II) uses the phrase ‘‘liabilities that a 

person owns or anticipates incurring.’’ The 

Commission interprets the word ‘‘owns’’ to be a 

typographical error, and interprets the word 

‘‘owns’’ to be ‘‘owes.’’ A person may owe on a 

liability, and may anticipate incurring a liability. If 

a person ‘‘owns’’ a liability, such as a debt 

instrument issued by another, then such person 

owns an asset. Because assets are included in CEA 

section 4a(c)(2)(A)(iii)(I), the Commission interprets 

‘‘owns’’ to be ‘‘owes.’’ 

457CL–PMAA–NEFI–60952 at 2. 

could establish a long derivative 

position that would offset the risk of the 

sales contract; however, that would 

increase the enterprise’s price risk. If 

price risk reduction at the level of the 

aggregate person is not a requirement of 

a bona fide hedging position, such an 

enterprise could establish either a long 

or short derivative position, at its 

election, and claim an exemption from 

position limits for either derivative 

position, ostensibly as a bona fide 

hedging position. If either such position 

could be recognized as bona fide, 

position limits would simply not apply 

to such an enterprise’s derivative 

position, even though the enterprise had 

no price risk exposure to the commodity 

prior to establishing such derivative 

position and created price risk exposure 

to the commodity by establishing the 

derivative position. Based on the 

Commission’s experience and expertise, 

it believes that such a result (entering 

either a long or short derivative 

position, whichever the market 

participant elects) simply cannot be 

recognized as a legitimate risk reduction 

that should be exempt from position 

limits; rather, such a position should be 

considered speculative for purposes of 

position limits. 

The Commission notes that a 

commercial enterprise that wishes to 

separately manage its operations, in 

separate legal entities, may, under the 

aggregation requirements of § 150.4, 

establish appropriate firewalls and file a 

notice for an aggregation exemption, 

because separate legal entities with 

appropriate firewalls are treated as 

separate persons for purposes of 

position limits. The Commission 

explained that an aggregation exemption 

was appropriate in circumstances where 

the risk of coordinated activity is 

mitigated by firewalls.447

Comments on processing hedge: A 

commenter requested the Commission 

recognize, as bona fide, a long or short 

derivative position that offsets either 

inputs or outputs in a processing 

operation, based on the business 

judgment of the commercial enterprise 

that it might not be an appropriate time 

to hedge both inputs and outputs, and 

requested the Commission withdraw the 

processing hedge example on pages 

75836–7 of the 2013 Position Limits 

Proposal (proposed example 5 in 

Appendix C to part 150).448

Commission Reproposal: For the 

reasons discussed above regarding gross 

hedging and specific, identifiable risks, 

the Reproposal does not recognize as a 

bona fide hedging position a derivative 

position that offsets either inputs or 

outputs in a processing operation, 

absent additional facts and 

circumstances. The Commission 

reiterates its view that, as explained in 

the Commission’s 2013 Position Limits 

Proposal, by way of example, processing 

by a soybean crush operation or a fuel 

blending operation may add relatively 

little value to the price of the input 

commodity. In such circumstances, it 

would be economically appropriate for 

the processor or blender to offset the 

price risks of both the unfilled 

anticipated requirement for the input 

commodity and the unsold anticipated 

production; such a hedge would, for 

example, fully lock in the value of 

soybean crush processing.449 However, 

under such circumstances, merely 

entering an outright derivative position 

(i.e., either a long position or a short 

position, at the processor’s election) 

appears to be risk increasing, since the 

price risk of such outright position 

appears greater than, and not offsetting 

of, the price risk of anticipated 

processing and, thus, such outright 

position would not be economically 

appropriate to the reduction of risks. 

Comments on economically 

appropriate anticipatory hedges: 

Commenters requested the Commission 

recognize derivative positions as 

economically appropriate to the 

reduction of certain anticipatory risks, 

such as irrevocable bids or offers.450

Commission Reproposal: The 

Commission has a long history of 

providing for the recognition, in 

§ 1.3(z)(2), as enumerated bona fide 

hedging positions, of anticipatory 

hedges for unfilled anticipated 

requirements and unsold anticipated 

production, under the process of 

§ 1.48.451 The Reproposal continues to 

enumerate those two anticipatory 

hedges, along with two new anticipatory 

hedges for anticipated royalties and 

contracts for services, as discussed 

below. 

The Commission did not propose an 

enumerated exemption for binding, 

irrevocable bids or offers as the 

Commission believes that an analysis of 

the facts and circumstances would be 

necessary prior to recognizing such an 

exemption. Consequently, the 

Reproposal does not provide for such an 

enumerated exemption. However, the 

Commission withdraws the view that a 

binding, irrevocable bid or offer fails to 

meet the economically appropriate 

test.452 Rather, the Commission will 

permit exchanges, under § 150.9, to 

make a facts-and-circumstances 

determination as to whether to 

recognize such and other anticipatory 

hedges as non-enumerated bona fide 

hedges, consistent with the 

Commission’s recognition ‘‘that there 

can be a gradation of probabilities that 

an anticipated transaction will 

occur.’’ 453

iii. Change in Value Requirement 

Commission proposal: To satisfy the 

change in value requirement, the 

hedging position must arise from the 

potential change in the value of: (I) 

Assets that a person owns, produces, 

manufactures, processes, or 

merchandises or anticipates owning, 

producing, manufacturing, processing, 

or merchandising; (II) liabilities that a 

person owes or anticipates incurring; or 

(III) services that a person provides, 

purchases, or anticipates providing or 

purchasing.454 The proposed definition 

incorporated the potential change in 

value requirement in current 

§ 1.3(z)(1).455 This provision largely 

mirrors the provision of CEA section 

4a(c)(2)(A)(iii).456

Comments on change in value: One 

commenter urged a more narrow 

definition of bona fide hedging that 

restricts exemptions to ‘‘commercial 

entities that deal exclusively in the 

production, processing, refining, 

storage, transportation, wholesale or 

retail distribution, or consumption of 

physical commodities.’’ 457 However, 

numerous commenters urged the 

Commission to enumerate new 

exemptions consistent with the change 

in value requirement, such as for 

merchandising, as discussed below. 

Commission Reproposal: The 

Reproposal retains the change in value 

requirement as proposed, which mirrors 

CEA section 4a(c)(2)(A)(iii). Rather than 

further restrict the types of commercial 

entities who may avail themselves of a 


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458See, e.g., CL–FIA–59595 at 30–31, CL–FIA– 

60303 at 6, CL–EEI–EPSA–59602 at 17–18, CL–EEI– 

59945 at 6, CL–CMC–60950 at 6, CL–CMC–60391 at 

4–5, CL–CMC–60318 at 5, CL–CMC–59634 at 3, 20– 

22, CL–Cargill–59638 at 2–4, CL–ADM–59640 at 2– 

3, CL–Olam–59946 at 4, CL–BG Group–59656 at 

10–11, CL–ASCA–59667 at 2, CL–NGSA–60379 at 

5, CL–NGSA–59674 at 2, 18–24, CL–Working 

Group–60383 at 15, CL–Working Group–59937 at 

5–6, 10–12, CL–Working Group–59656 at 16–18, 

21–23, 26, CL–API–59694 at 5–6, CL–MSCGI–59708 

at 2–3, 18–20, CL–CME–59718 at 56–57, 59, CL– 

Armajaro–59729 at 1, CL–AFBF–59730 at 2, CL– 

NCFC–59942 at 2–4, CL–ICE–60310 at 4, CL–ICE– 

60387 at 9, CL–ISDA/SIFMA–59611 at 37–38, CL– 

COPE–59662 at 15–16, and CL–GSC–59703 at 3–4. 

459See, e.g., CL–Cargill–59638 at 2–4, CL–CME– 

59718 at 57–58, CL–NEM–59586 at 4, CL–FIA– 

59595 32–33, CL–ISDA/SIFMA–59611 at 4, CL– 

CMC–59634 at 5, CL–LDC–59643 at 2, CL–BG 

Group-59656 at 10, CL–COPE–59950 at 5, CL– 

COPE–59662 at 14–15, CL—Working Group–59693 

at 23–26, CL–GSC–59703 at 2–3, CL–AFBF–59730 

at 2, CL–SEMP–59926 at 6–7, CL–EDF–60398 at 8– 

9, CL–EDF–59961 at 2–3, CL–Andersons–60256 at 

1–3, and CL–SEMP–60384 at 4–5. 

460CL–ISDA/SIFMA–59611, Annex B at 7. 

461CL–EEI–EPSA–60925 at 13. 

462 December 2013 Position Limits Proposal, 78 

FR at 75718. 

463See, e.g., CL–Olam–59946 at 4, and CL–NCFC 

–59942 at 2–4. 

464CL–NCGA–NGSA–60919 at 4–5. 

465CL–NGFA–60941 at 4. 

466CL–NCGA–NGSA–60919 at 5. 

bona fide hedging exemption under the 

change in value requirement, the 

Commission notes that the reproposed 

definition also reflects the statutory 

requirement under the temporary 

substitute test, that the hedging position 

be a substitute for a position taken or to 

be taken in a physical marketing 

channel, either by the market 

participant or the market participant’s 

pass-through swap counterparty. 

Comments on anticipatory 

merchandising or storage: Numerous 

commenters asserted the Commission 

should recognize anticipatory 

merchandising as a bona fide hedge, as 

included in CEA section 4a(c)(A)(iii), 

such as (1) a merchant desiring to lock 

in the price differential between an 

unfixed price forward commitment and 

an anticipated offsetting unfixed price 

forward commitment, where there is a 

reasonable basis to infer that an 

offsetting transaction was likely to occur 

(such as in anticipation of shipping), (2) 

a bid or offer, where there is a 

reasonably anticipated risk that such bid 

or offer will be accepted, or (3) an 

anticipated purchase and/or anticipated 

storage of a commodity, prior to 

anticipated merchandising (or usage).458

Commenters recommended the 

Commission recognize unfilled storage 

capacity as the basis of a bona fide 

hedge of, either (1) anticipated rents 

(e.g., a type of anticipated asset or 

liability), (2) anticipated merchandising, 

or (3) anticipated purchase and storage 

prior to usage.459 By way of example, 

one commenter contended anticipated 

rent on a storage asset is like an option 

and the appropriate hedge position 

should be dynamically adjusted.460 Also 

by way of example, another commenter 

suggested enumerated hedges should 

include (1) offsetting long and short 

positions in commodity derivative 

contracts as hedges of storage or 

transportation of the commodity 

underlying such contracts; and (2) 

positions that hedge the value of assets 

owned, or anticipated to be owned, used 

to produce, process, store or transport 

the commodity underlying the 

derivative.461

Commission Reproposal: The 

Commission notes that an exchange, 

under reproposed § 150.9, as discussed 

below, is permitted to recognize 

anticipated merchandising or 

anticipated purchase and storage, as 

potential non-enumerated bona fide 

hedging positions, subject to assessment 

of the particular facts and 

circumstances, including such 

information as the market participant’s 

activities (taken or to be taken) in the 

physical marketing channel and 

arrangements for storage facilities. 

While the Commission previously 

discussed its doubt that storage hedges 

generally will meet the economically 

appropriate test, because the value 

fluctuations in a calendar month spread 

in a commodity derivative contract will 

likely have at best a low correlation 

with value fluctuations in expected 

returns (e.g., rents) on unfilled storage 

capacity,462 the Commission now 

withdraws that discussion of doubt and, 

as reproposed, would review exchangegranted non-enumerated bona fide 

hedging exemptions for storage with an 

open mind. 

The Commission does not express a 

view as this time on one commenter’s 

assertion that the anticipated rent on a 

storage asset is like an option; the 

commenter did not provide data 

regarding the relationship between 

calendar spreads and the ‘‘profitability 

of filling storage.’’ The Commission 

notes that, under the Reproposal, an 

exchange could evaluate the particulars 

of such a situation in an application for 

a non-enumerated hedging position. 

Similarly, as reproposed, an exchange 

could evaluate the particulars of other 

situations, such as a commenter’s 

example of storage or transportation 

hedges. The Commission notes that it is 

not clear from the comments how the 

value fluctuations of calendar month or 

location differentials are related to the 

fluctuations in value of storage or 

transportation. Regarding a commenter’s 

examples of assets owned or anticipated 

to be owned, it is not clear how the 

value fluctuations of whatever would be 

the relevant hedging position (e.g., long, 

short, or calendar month spread) are 

related to the fluctuations in value of 

whatever would be the particular assets 

(e.g., tractors, combines, silos, semitrucks, rail cars, pipelines) to be used to 

produce, process, store or transport the 

commodity underlying the derivative. 

Comments on unfixed price 

commitments: Commenters 

recommended the Commission 

recognize, as a bona fide hedge, the 

fixing of the price of an unfixed price 

commitment, for example, to reduce the 

merchant’s operational risk and 

potentially to acquire a commodity 

through the delivery process on a 

physical-delivery futures contract.463

Another commenter provided an 

example of a preference to shift unfixedprice exposure on cash commitments 

from daily index prices to the first-ofmonth price under the NYMEX Henry 

Hub Natural Gas core referenced futures 

contract.464 A commenter suggested that 

the interpretation of a fixed price 

contract should include ‘‘basis priced 

contracts which are purchases or sales 

with the basis value fixed between the 

buyer and the seller against a prevailing 

futures’’ contract; the commenter noted 

such basis risk could be hedged with a 

calendar month spread to lock in their 

purchase and sale margins.465 Another 

commenter requested the Commission 

explicitly recognize index price 

transactions as appropriate for a bona 

fide hedging exemption, citing concerns 

that the price of an unfixed price 

forward sales contract may fall below 

the cost of production.466

Commission Reproposal: The 

Commission affirms its belief that a 

reduction in a price risk is required 

under the economically appropriate test 

of CEA section 4a(c)(2)(A)(ii); consistent 

with the economically appropriate test, 

a potential change in value (i.e., a price 

risk) is required under CEA section 

4a(c)(2)(A)(iii). In both the reproposed 

and proposed definitions of bona fide 

hedging position, the incidental test 

would require a reduction in price risk. 

Although the Reproposal deletes the 

incidental test from the first paragraph 

of the bona fide hedging position 

definition (as discussed above), the 

Commission notes that it interprets risk 

in the economically appropriate test as 

price risk, and does not interpret risk to 

include operational risk. Interpreting 

risk to include operational risk would 

broaden the scope of a bona fide 

hedging position beyond the 

Commission’s historical interpretation 


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467The Commission distinguishes operational 

risk, which may arise from a potential failure of a 

counterparty to a cash market forward transaction, 

from price risks in the conduct and management of 

a commercial enterprise. 

468 42 FR 14832 at 14833 (March 16, 1977) 

(proposed definition). The Commission also 

adopted the incidental test (requiring that the 

‘‘purpose is to offset price risks incidental to 

commercial cash or spot operations’’). 42 FR 42748 

at 42751 (Aug. 24, 1977) (final definition). 

Previously, the Secretary of Agriculture 

promulgated a definition of bona fide hedging 

position that required a purpose ‘‘to offset price 

risks incidental to commercial cash or spot 

operations.’’ 40 FR 11560 at 11561 (Mar. 12, 1975). 

469See, e.g., CL–Armajaro–59729 at 2. 

470 2016 Supplemental Position Limits Proposal, 

81 FR at 38479. 

471 December 2013 Position Limits Proposal, 78 

FR at 75710. 

472CL–NCGA–NGSA–60919 at 8–9. 

473For example, assume a market participant 

entered a swap as a bona fide hedging position and, 

subsequently, offset (that is, lifted) that hedge using 

a futures contract. The Commission’s original 

proposal would not have recognized the lifting of 

the hedge as a bona fide hedging transaction, 

although the statute does. 

and may have adverse impacts that are 

inconsistent with the policy objectives 

of limits in CEA section 4a(a)(3)(B). 

The Commission has consistently 

required a bona fide hedging position to 

be a position that is shown to reduce 

price risk in the conduct and 

management of a commercial 

enterprise.467 By way of background, the 

Commission notes, in promulgating the 

definition of bona fide hedging position 

in § 1.3(z), it explained that a bona fide 

hedging position ‘‘must be economically 

appropriate to risk reduction, such risks 

must arise from operation of a 

commercial enterprise, and the price 

fluctuations of the futures contracts 

used in the transaction must be 

substantially related to fluctuations of 

the cash market value of the assets, 

liabilities or services being hedged.’’ 468

As noted above, the Dodd-Frank Act 

added CEA section 4a(c)(2), which 

copied the economically appropriate 

test from the Commission’s definition in 

§ 1.3(z)(1). Thus, the Commission 

believes it is reasonable to interpret that 

statutory standard in the context of the 

Commission’s historical interpretation 

of § 1.3(z). 

While the Commission has 

enumerated a calendar month spread as 

a bona fide hedge of offsetting unfixedprice cash commodity sales and 

purchases, the Reproposal will permit 

an exchange, under reproposed § 150.9, 

to conduct a facts-and-circumstances, 

case-by-case review to determine 

whether a calendar month spread is 

appropriately recognized as a bona fide 

hedging position for only a cash 

commodity purchase or sales contract. 

For example, assume a merchant enters 

into an unfixed-price sales contract (e.g., 

priced at a fixed differential to a 

deferred month futures contract), and 

immediately enters into a calendar 

month spread to reduce the risk of the 

fixed basis moving adversely. It may not 

be economically appropriate to 

recognize as bona fide a long futures 

position in the spot (or nearby) month 

and a short futures position in a 

deferred calendar month matching the 

merchant’s cash delivery obligation, in 

the event the spot (or nearby) month 

price is higher than the deferred 

contract month price (referred to as 

backwardation, and characteristic of a 

spot cash market with supply 

shortages), because such a calendar 

month futures spread would lock in a 

loss and may be indicative of an attempt 

to manipulate the spot (or nearby) 

futures price. 

Regarding the risk of an unfixed price 

forward sales contract falling below the 

cost of production, the Reproposal 

enumerates a bona fide hedging 

exemption for unsold anticipated 

production; the Commission clarifies, as 

discussed below, that such an 

enumerated hedge is available 

regardless of whether production has 

been sold forward at an unfixed (that is, 

index) price. 

Comments on cash and carry: 

Commenters requested the Commission 

enumerate, as a bona fide hedging 

position, a ‘‘cash and carry’’ trade, 

where a market participant enters a 

nearby long futures position and a 

deferred short futures position, with the 

intention to take delivery and carry the 

commodity for re-delivery.469

Commission Reproposal: The 

Reproposal does not propose to 

enumerate a cash and carry trade as a 

bona fide hedging position. A cash and 

carry trade appears to fail the temporary 

substitute test, since such market 

participant is not using the derivative 

contract as a substitute for a position 

taken or to be taken in the physical 

marketing channel. The long futures 

position in the cash and carry trade is 

in lieu of a purchase in the cash market. 

In the 2016 Supplemental Proposal, the 

Commission asked whether, and subject 

to what conditions (e.g., potential 

facilitation of liquidity for a bona fide 

hedger of inventory), a cash and carry 

position might be recognized by an 

exchange as a spread exemption under 

§ 150.10, subject to the Commission’s de 

novo review.470 This issue is discussed 

under § 150.10, regarding exchange 

recognition of spread exemptions. 

iv. Pass-Through Swap Offsets and 

Offsets of Hedging Swaps 

Commission proposal: The 

Commission proposed to recognize as 

bona fide a commodity derivative 

contract that reduces the risk of a 

position resulting from a swap executed 

opposite a counterparty for which the 

position at the time of the transaction 

would qualify as a bona fide hedging 

position.471 This proposal mirrors the 

requirements in CEA section 4a(c)(B)(i). 

The proposal also clarified that the 

swap itself is a bona fide hedging 

position to the extent it is offset. 

However, the Commission proposed 

that it would not recognize as bona fide 

hedges an offset in physical-delivery 

contracts during the shorter of the last 

five days of trading or the time period 

for the spot month in such physicaldelivery commodity derivative contract 

(the ‘‘five-day’’ rule, discussed further 

below). 

Comments received: As noted above, 

commenters recommended that the 

Commission’s bona fide hedging 

definition should reflect the standards 

in CEA section 4a(c). One commenter 

suggested that the Commission broaden 

the pass-through swap offset provisions 

to accommodate secondary pass-through 

transactions among affiliates within a 

corporate organization to make ‘‘the 

most efficient and effective use of their 

existing corporate structures.’’ 472

Commission Reproposal: The 

Commission agrees that the bona fide 

hedging definition, in general, and the 

pass-through swap provision, in 

particular, should more closely reflect 

the statutory standards in CEA section 

4a(c). Under the proposed definition, a 

market participant who reduced the risk 

of a swap, where such swap was a bona 

fide hedging position for that market 

participant, would not have received 

recognition for the swap offset as a bona 

fide hedging position, as this provision 

in CEA section 4a(c)(2)(B)(ii) was not 

mirrored in the proposed definition.473

To adhere more closely to the statutory 

standards, the Reproposal recognizes 

such offset as a bona fide hedging 

position. Consistent with the proposal 

for offset of a pass-through swap, the 

Reproposal imposes a five-day rule 

restriction on the offset in a physicaldelivery contract of a swap used as a 

bona fide hedge; however, as 

reproposed, an exchange listing a 

physical-delivery contract may 

recognize, on a case-by-case basis, such 

offset as a non-enumerated bona fide 

hedging position pursuant to the 

process in reproposed § 150.9. 

The Reproposal retains and clarifies 

in subparagraph (ii)(A) that the bona 

fides of a pass-through swap may be 


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474 December 2013 Position Limits Proposal, 78 

FR at 75711. 

475 2016 Supplemental Position Limits Proposal, 

81 FR at 38505. 

476See, e.g., CL–CME–59718 at 47–53, and CL– 

BG Group–59656 at 9. 

477See, e.g., CL–FIA–59595 at 32, CL–FIA–60303 

at 6, CL–API–60939 at 3, CL–AGA–60943 at 4, CL– 

CMC–60950 at 6–9, CL–EEI–EPSA–60925 at 13, and 

CL–FIA–60937 at 5 and 21. 

478However, as noted above, as reproposed, an 

exchange listing a physical-delivery contract may 

recognize, on a case-by-case basis, a pass-through 

swap offset, or the offset of a swap used as a bona 

fide hedge, during the last five days of trading in 

a spot month, as a non-enumerated bona fide hedge 

pursuant to the process in reproposed § 150.9. 

479 December 2013 Position Limits Proposal, 78 

FR at 75713. 

480See, e.g., Ex Parte No-869, notes of Feb. 25, 

2015 ex parte meeting with The Hershey Company, 

The J.M. Smucker Co., Louis Dreyfus Commodities, 

Noble Americans Corp., et al. 

481See, e.g., CL–NGFA–60941 at 8. 

determined at the time of the 

transaction by the intermediary. The 

clarification is intended to reduce the 

burden on such intermediary of 

otherwise needing to confirm the 

continued bona fides of its counterparty 

over the life of the pass-through swap. 

In addition, the Reproposal retains, as 

proposed, application of the five-day 

rule to pass-through swap offsets in a 

physical-delivery contract. However, the 

Commission notes that under the 

Reproposal, an exchange listing a 

physical-delivery contract may 

recognize, on a case-by-case basis, a 

pass-through swap offset (in addition to 

the offset of a swap used as a bona fide 

hedge), during the last five days of 

trading in a spot month, as a nonenumerated bona fide hedge pursuant to 

the process in reproposed § 150.9. 

Further, the Reproposal retains the 

recognition of a pass-through swap itself 

that is offset, not just the offsetting 

position (and, thus, permitting the 

intermediary to exclude such passthrough swap from position limits, in 

addition to excluding the offsetting 

position). 

Regarding the request to broaden the 

pass-through swap offset provisions to 

accommodate secondary pass-through 

transactions among affiliates, the 

Commission declines in this Reproposal 

to broaden the pass-through swap offset 

exemption beyond the provisions in 

CEA section 4a(c)(2)(B)(i). However, the 

Commission notes that a group of 

affiliates under common ownership is 

required to aggregate positions under 

the Commission’s requirements in 

§ 150.4, absent an applicable aggregation 

exemption. In the circumstance of 

aggregation of positions, recognition of 

a secondary pass-through swap 

transaction would not be necessary 

among such an aggregated group, 

because the group is treated as one 

person for purposes of position limits. 

v. Additional Requirements for 

Enumeration or Other Recognition 

Commission proposal: In 2013, the 

Commission proposed in subparagraph 

(2)(i)(D) of the definition of a bona fide 

hedging position, that, in addition to 

satisfying the general definition of a 

bona fide hedging position, a position 

would not be recognized as bona fide 

unless it was enumerated in paragraph 

(3), (4), or (5)(discussed below), or 

recognized as a pass-through swap offset 

or pass-through swap.474 In 2016, in 

response to comments on the 2013 

proposed definition, the Commission 

proposed, in subparagraph (2)(i)(D)(2) of 

the definition, to also recognize as bona 

fide any position that has been 

otherwise recognized as a nonenumerated bona fide hedging position 

by either a designated contract market 

or a swap execution facility, each in 

accordance with § 150.9(a), or by the 

Commission.475

Comments received: Commenters 

objected to the requirement for a 

position to be specifically enumerated 

in order to be recognized as bona fide, 

noting that the enumerated requirement 

is not supported by the legislative 

history of the Dodd-Frank Act, conflicts 

with longstanding Commission practice 

and precedent, and may be overly 

restrictive due to the limited set of 

specific enumerated hedges.476 Other 

commenters recommended that the 

Commission expand the list of 

enumerated bona fide hedge positions, 

to encompass all transactions that 

reduce risks in the conduct and 

management of a commercial enterprise, 

such as anticipatory merchandising 

hedges and other general examples.477

Commission Reproposal: In response 

to comments, the Reproposal retains, as 

proposed in 2016, a proposed definition 

that recognizes as bona fide, in addition 

to enumerated positions, any position 

that has been otherwise recognized as a 

non-enumerated bona fide hedging 

position by either a designated contract 

market or a swap execution facility, 

each in accordance with reproposed 

§ 150.9(a), or by the Commission. These 

provisions for recognition of nonenumerated positions are included in 

re-designated subparagraph (2)(iii)(C) of 

the reproposed definition of a bona fide 

hedging position. 

The Commission notes that it is not 

possible to list all positions that would 

meet the general definition of a bona 

fide hedging position. However, the 

Commission observes that the 

commenters’ many general examples, 

which they recommended be included 

in the list of enumerated bona fide 

hedging positions, generally did not 

provide sufficient context or facts and 

circumstances to permit the 

Commission to evaluate whether 

recognition as a non-enumerated bona 

fide hedging position would be 

warranted. Context would be supplied, 

for instance, by the provision of the 

particular market participant’s historical 

activities in the physical marketing 

channel and such participant’s estimate, 

in good faith, of its reasonably expected 

activities to be taken in the physical 

marketing channel. 

In a clarifying change, the 

Commission notes that the Reproposal 

has re-designated the provisions 

proposed in subparagraph (2)(i)(D), in 

new subparagraph 2(iii), regarding the 

additional requirements for recognition 

of a position in a physical commodity 

contract as a bona fide hedging position. 

Concurrent with this re-designation, the 

Commission notes the Reproposal reorganizes, also for clarity, the 

application of the five-day rule to passthrough swaps and hedging swaps in 

subparagraph (2)(iii)(B), as discussed 

above.478

3. Enumerated Hedging Positions 

a. Proposed Enumerated Hedges 

In paragraph (3) of the proposed 

definition of a bona fide hedging 

position, the Commission proposed four 

enumerated hedging positions: (i) 

Hedges of inventory and cash 

commodity purchase contracts; (ii) 

hedges of cash commodity sales 

contracts; (iii) hedges of unfilled 

anticipated requirements; and (iv) 

hedges by agents.479

Comments received: Numerous 

commenters objected to the provision in 

proposed subparagraph (3)(iii)(A) that 

would have limited recognition of a 

hedge for unfilled anticipated 

requirements to one year for agricultural 

commodities. For example, commenters 

noted a need to hedge unfilled 

anticipated requirements for sugar for a 

time period longer than twelve 

months.480 Similarly, other commenters 

noted there may be a need to offset risks 

arising from investments in processing 

capacity in agricultural commodities for 

a period in excess of twelve months.481

Other commenters recommended the 

Commission (1) remove the restriction 

that unfilled anticipated requirement 

hedges by a utility be ‘‘required or 

encouraged to hedge by its public utility 

commission’’ because most public 

utility commissions do not require or 

encourage such hedging, (2) expand the 

reach beyond utilities, by including 


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482See, e.g., CL–Working Group–59693 at 27–28, 

CL–EEI–EPSA–55953 at 19. CFTC Staff Letter No. 

12–07 notes that unfilled anticipated requirements 

may be recognized as the basis of a bona fide 

hedging position or transaction under Commission 

Regulation 151.5(a)(2)(ii)(C) when a commercial 

enterprise has entered into long-term, unfixed-price 

supply or requirements contracts as the price risk 

of such ‘‘unfilled’’ anticipated requirements is not 

offset by an unfixed price forward contract as the 

price risk remains with the commercial, even 

though the commercial enterprise has contractually 

assured a supply of the commodity. Instead, the 

price risk continues until the forward contract’s 

price is fixed; once the price is fixed on the supply 

contract, the commercial enterprise no longer has 

price risk and the derivative position, to the extent 

the position is above an applicable speculative 

position limit, must be liquidated in an orderly 

manner in accordance with sound commercial 

practices. 

483 December 2013 Position Limits Proposal, 78 

FR at 75714. 

484See, e.g., CL–NGFA–60941 at 8. 

485 December 2013 Position Limits Proposal, 78 

FR at 75716. 

486See, e.g., CL–ICE–60929 at 16, CL–NCGA– 

NGSA–60919 at 6–7, CL–NCFC–60930 at 2–3, CL– 

API–60939 at 2, CL–NGFA–60941 at 8, CL–EEI– 

EPSA–60925 at 10, and CL–IECAssn–60949 at 5–7. 

487CL–CME–60926 at 6. 

entities designated as providers of last 

resort who serve the same role as 

utilities, and (3) clarify the meaning of 

unfilled anticipated requirements, 

consistent with CFTC Staff Letter No. 

12–07.482

Commission Reproposal: The 

Reproposal retains the enumerated 

exemptions as proposed, with two 

amendments. First, the Commission 

agrees with the commenters’ request to 

remove the twelve month constraint on 

hedging unfilled anticipated 

requirements for agricultural 

commodities, as that provision appears 

no longer to be a necessary prudential 

constraint. Second, the Commission 

agrees with the commenters’ request to 

remove the condition that a utility be 

‘‘required or encouraged to hedge by its 

public utility commission.’’ 

Accordingly, the condition that a utility 

be ‘‘required or encouraged to hedge by 

its public utility commission’’ is 

omitted from the reproposed definition. 

The Commission notes that under the 

Reproposal, a market participant, who is 

not a utility, may request that an 

exchange consider recognizing a nonenumerated exemption, as it is not clear 

who would be appropriately identified 

as a ‘‘provider of last resort’’ and under 

what circumstance such person would 

reasonably estimate its unfilled 

requirements. 

Consistent with CFTC Staff Letter No. 

12–07, the Commission affirms its belief 

that unfilled anticipated requirements 

are those anticipated inputs that are 

estimated in good faith and that have 

not been filled. Under the Reproposal, 

an anticipated requirement may be 

filled, for example, by fixed-price 

purchase commitments, holdings of 

commodity inventory by the market 

participant, or unsold anticipated 

production of the market participant. 

However, an unfixed-price purchase 

commitment does not fill an anticipated 

requirement, in that the market 

participant’s price risk to the input has 

not been fixed. 

b. Proposed Other Enumerated Hedges 

Subject to the Five-Day Rule 

In paragraph (4) of the proposed 

definition of a bona fide hedging 

position, the Commission proposed four 

other enumerated hedging positions: (i) 

Hedges of unsold anticipated 

production; (ii) hedges of offsetting 

unfixed-price cash commodity sales and 

purchases; (iii) hedges of anticipated 

royalties; and (iv) hedges of services.483

The Commission proposed to apply the 

five-day rule to all such positions. 

Comments received on the five-day 

rule: Numerous commenters requested 

that the five-day rule be removed from 

the Commission’s other enumerated 

bona fide hedging positions, as that 

condition is not included in CEA 

section 4a(c). 

Commission Reproposal on the fiveday rule: The Commission is retaining 

the prudential condition of the five-day 

rule in the other enumerated hedging 

positions. The Commission has a long 

history of applying the five-day rule, in 

its legacy agricultural federal position 

limits, to hedges of unsold anticipated 

production and hedges of offsetting 

unfixed-price cash commodity sales and 

purchases. However, as discussed in 

relation to reproposed § 150.9, the 

Commission will permit an exchange, in 

effect, to remove the five-day rule on a 

case-by-case basis in physical-delivery 

contracts, as a non-enumerated bona 

fide hedging position, by applying the 

exchange’s experience and expertise in 

protecting its own physical-delivery 

market. 

Comments on other enumerated 

exemptions: As noted above, 

commenters recommended removing 

the twelve-month limitation on 

agricultural production, as 

unnecessarily short in comparison to 

the expected life of investment in 

production facilities.484

Commission Reproposal on other 

enumerated exemptions: The 

Reproposal removes the twelve-month 

limitations on unsold anticipated 

agricultural production and hedges of 

services for agricultural commodities. 

As noted above, that provision appears 

no longer to be a necessary prudential 

constraint. Otherwise, the Reproposal 

retains the other enumerated 

exemptions, as proposed. 

c. Proposed Cross-Commodity Hedges 

In paragraph (5) of the proposed 

definition of a bona fide hedging 

position, the Commission proposed to 

recognize as bona fide cross-commodity 

hedges.485 Cross-commodity hedging 

would be conditioned on: (i) The 

fluctuations in value of the position in 

the commodity derivate contract (or the 

commodity underlying the commodity 

derivative contract) being substantially 

related to the fluctuations in value of 

the actual or anticipated cash position 

or pass-through swap (the substantially 

related test); and (ii) the five-day rule 

being applied to positions in any 

physical-delivery commodity derivative 

contract. The Commission proposed a 

non-exclusive safe harbor for crosscommodity hedges that would have two 

factors: A qualitative factor; and a 

quantitative factor. 

Comments on cross-commodity 

hedges: Numerous commenters 

requested the Commission withdraw the 

safe harbor quantitative ‘‘test,’’ and 

noted such test is impracticable where 

there is no relevant cash market price 

series for the commodity being 

hedged.486 Some commenters requested 

the Commission retain a qualitative 

approach to assessing whether the 

fluctuations in value of the position in 

the commodity derivate contract are 

substantially related to the fluctuations 

in value of the actual or anticipated cash 

position. 

One commenter urged the 

Commission to clarify that market 

participants need not treat as 

enumerated cross-commodity hedges 

strategies where the cash position being 

hedged is the same cash commodity as 

the commodity underlying the futures 

contract even if the cash commodity is 

not deliverable against the contract. The 

commenter believes that this 

clarification would verify that nondeliverable grades of certain 

commodities could be deemed as the 

same cash commodity and thus not be 

deemed a cross-commodity hedge 

subject to the five-day rule.487

Commenters requested the 

Commission not apply a five-day rule to 

cross-commodity hedges or, 

alternatively, permit exchanges to 

determine the appropriate facts and 

circumstances where a market 

participant may be permitted to hold 

such positions into the spot month, 


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488See, e.g., CL–FIA–60937 at 22, CL–CCI–60935 

at 8–9. 

489 December 2013 Position Limits Proposal, 78 

FR at 75711. The Commission also requested 

comment on whether it would be appropriate to 

exclude commodity trade options from the 

definition of referenced contract. As discussed 

above, the Commission has determined to exclude 

trade options from the definition of referenced 

contract. Previous to this reproposed rule, the 

Commission observed that federal position limits 

should not apply to trade options. 81 FR 14966 at 

14971 (Mar. 21, 2016). 

490See, e.g., CL–EEI–EPSA–60925 at 15. 

491See the discussion of the definition of futuresequivalent in reproposed § 150.1, above. 

492 December 2013 Position Limits Proposal, 78 

FR at 75739, 75828. 

493CL–FIA–59595 at 35, CL–FIA–59566 at 3–7, 

citing December 2013 Position Limits Proposal, 78 

FR at 75837. 

noting that a cross-commodity hedge in 

a physical-delivery contract may be the 

best hedge of its commercial 

exposure.488

Commission Reproposal: The 

Reproposal retains the cross-commodity 

hedge provision in paragraph (5) of the 

definition of a bona fide hedging 

position as proposed. However, for the 

reasons requested by commenters and 

because of confusion regarding 

application of a safe harbor, the 

Reproposal does not include the safe 

harbor quantitative test. If questions 

arise regarding the bona fides of a 

particular cross-commodity hedge, it 

would, as reproposed, be reviewed 

based on facts and circumstances, 

including a market participant’s 

qualitative review of a particular crosscommodity hedge. 

The Reproposal retains the five-day 

rule, because a market participant who 

is hedging the price risk of a nondeliverable cash commodity has no 

need to make or take delivery on a 

physical-delivery contract. However, the 

Commission notes that an exchange may 

consider, on a case-by-case basis in 

physical-delivery contracts, whether to 

recognize such cross-commodity 

positions as non-enumerated bona fide 

hedges during the shorter of the last five 

days of trading or the time period for the 

spot month, by applying the exchange’s 

experience and expertise in protecting 

its own physical-delivery market, under 

the process of § 150.9. 

4. Commodity Trade Options Deemed 

Cash Equivalents 

Commission proposal: The 

Commission requested comment as to 

whether the Commission should use its 

exemptive authority under CEA section 

4a(a)(7) to provide that the offeree of a 

commodity option would be presumed 

to be a pass-through swap counterparty 

for purposes of the offeror of the trade 

option qualifying for the pass-through 

swap offset exemption.489 Alternatively, 

the Commission, noting that forward 

contracts may serve as the basis of a 

bona fide hedging position exemption, 

proposed that it may similarly include 

trade options as one of the enumerated 

bona fide hedging exemptions. The 

Commission noted, for example, such 

an exemption could be similar to the 

enumerated exemption for the offset of 

the risk of a fixed-price forward contract 

with a short futures position. 

Comments on trade option 

exemptions: Commenters requested that 

the Commission clarify that hedges of 

commodity trade options be recognized 

as bona fide hedges, as would be 

available for other cash positions.490

Commission Reproposal: The 

Commission agrees with the 

commenters and has determined to 

address the request that commodity 

trade options should be recognized as 

the basis for a bona fide hedging 

position, as would be available for other 

cash positions. The reproposed 

definition of a bona fide hedging 

position adds new paragraph (6), 

specifying that a commodity trade 

option meeting the requirements of 

§ 32.3 may be deemed a cash 

commodity purchase or sales contract, 

as the case may be, provided that such 

option is adjusted on a futuresequivalent basis. The reproposed 

definition also provides non-exclusive 

guidance on making futures-equivalent 

adjustments to a commodity trade 

option. For example, the guidance 

provides that the holder of a trade 

option, who has the right, but not the 

obligation, to call the commodity at a 

fixed price, may deem that trade option, 

converted on a futures-equivalent basis, 

to be a position in a cash commodity 

purchase contract, for purposes of 

showing that the offset of such cash 

commodity purchase contract is a bona 

fide hedging position. 

Because the price risk of an option, 

including a trade option with a fixed 

strike price, should be measured on a 

futures-equivalent basis,491 the 

Commission has determined that under 

the reproposed definition, a trade option 

should be deemed equivalent to a cash 

commodity purchase or sales contract 

only if adjusted on a futures-equivalent 

basis. The Commission notes that it may 

not be possible to compute a futuresequivalent basis for a trade option that 

does not have a fixed strike price. Thus, 

under the reproposed definition, a 

market participant may not use a trade 

option as a basis for a bona fide hedging 

position until a fixed strike price 

reasonably may be determined. 

5. App. C to Part 150—Examples of 

Bona Fide Hedging Positions for 

Physical Commodities 

Commission proposal: The 

Commission proposed a non-exhaustive 

list of examples meeting the 

requirements of the proposed definition 

of a bona fide hedging position, noting 

that market participants could see 

whether their practices fall within the 

list.492

Comments on examples: Comments 

regarding the processing hedge example 

number 5 of proposed Appendix C to 

part 150 are discussed above. Another 

commenter requested the Commission 

affirm that aggregation is required 

pursuant to an express or implied 

agreement when that agreement is to 

trade referenced contracts, and that 

aggregation is not triggered by the 

condition in example number 7 of 

proposed Appendix C to part 150, 

where a Sovereign grants an option to a 

farmer at no cost, conditioned on the 

farmer entering into a fixed-price 

forward sale.493

Commission Reproposal: The 

Commission agrees with the commenter 

that aggregation is required pursuant to 

an express or implied agreement when 

that agreement is to trade referenced 

contracts. Proposed example number 7 

was focused on recognizing the 

legitimate public policy objectives of a 

sovereign furthering the development of 

a cash spot and forward market in 

agricultural commodities. To avoid 

confusion regarding the aggregation 

policy under rule 150.4, in the 

Reproposal, the Commission has revised 

example number 7, and has provided an 

interpretation that a farmer’s synthetic 

position of a long put option may be 

deemed a pass-through swap, for 

purposes of a sovereign who has granted 

a cash-settled call option at no cost to 

such farmer in furtherance of a public 

policy objective to induce such farmer 

to sell production in the cash market. 

The Commission notes the combination 

of a farmer’s forward sale agreement and 

a granted call option is approximately 

equivalent to a purchased put option. A 

farmer anticipating production or 

holding inventory may use such a long 

position in a put option as a bona fide 

hedging position. 

The Reproposal also includes a 

number of conforming amendments and 

corrections of typographical errors. 

Specifically, it conforms example 

number 4 regarding a utility to the 


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494See generally December 2013 Position Limits 

Proposal, 78 FR at 75725. The 28 core referenced 

futures contracts for which initial limit levels were 

proposed are: Chicago Board of Trade (‘‘CBOT’’) 

Corn, Oats, Rough Rice, Soybeans, Soybean Meal, 

Soybean Oil and Wheat; Chicago Mercantile 

Exchange Feeder Cattle, Lean Hog, Live Cattle and 

Class III Milk; Commodity Exchange, Inc., Gold, 

Silver and Copper; ICE Futures U.S. Cocoa, Coffee 

C, FCOJ–A, Cotton No. 2, Sugar No. 11 and Sugar 

No. 16; Kansas City Board of Trade Hard Winter 

Wheat (on September 6, 2013, CBOT and the 

Kansas City Board of Trade (‘‘KCBT’’) requested 

that the Commission permit the transfer to CBOT, 

effective December 9, of all contracts listed on the 

KCBT, and all associated open interest); 

Minneapolis Grain Exchange Hard Red Spring 

Wheat; and New York Mercantile Exchange 

(‘‘NYMEX’’) Palladium, Platinum, Light Sweet 

Crude Oil, NY Harbor ULSD, RBOB Gasoline and 

Henry Hub Natural Gas. 

495 December 2013 Position Limits Proposal, 78 

FR at 75727. Several commenters supported 

establishing the initial levels of spot month 

speculative position limit levels at the levels then 

established by DCMs and listed in Appendix D to 

part 150, December 2013 Position Limits Proposal, 

78 FR at 75739–40 (generally stating that the then 

current levels are high enough and raising them 

could cause problems with contract performance. 

E.g., CL–WGC–59558 at 1–2; CL–Sen. Levin–59637 

at 7; CL–AFBF–59730 at 3; CL–NGFA–59956 at 2; 

CL–NGFA–60312 at 3; CL–NCBA–59624 at 3; CL– 

Bakers–59691 at 1. Several commenters expressed 

the view that DCMs are best able to determine 

appropriate spot month limits and the Commission 

should defer to their expertise. E.g., CL–NCBA– 

59624 at 3; CL–Cactus–59660 at 3; CL–TCFA–59680 

at 3; CL–NGFA–59610 at 2; CL–MGEX–59635 at 2; 

CL–MGEX–59932 at 2; CL–MGEX–60380 at 1; CL– 

ICE–60311 at 1; CL–Thornton–59729 at 1. 

496 December 2013 Position Limits Proposal, 78 

FR at 75727. The CME July 1, 2013 deliverable 

supply estimates are available on the Commission’s 

Web site at http://www.cftc.gov/idc/groups/public/ 

@swaps/documents/file/ 

cmegroupdeliverable070113.pdf; see also December 

2013 Position Limits Proposal, 78 FR at 75727, n. 

406. Several commenters supported using the 

alternative level of spot-month position limits based 

on CME’s deliverable supply estimates as listed in 

Table 9 of the December 2013 Position Limits 

Proposal, generally stating that the alternative 

estimates are more up to date than the deliverable 

supply estimates underlying the spot month 

speculative position limits currently established by 

the DCMs, and therefore more appropriate for use 

in setting federal limits. E.g., CL–FIA–59595 at 3, 

8; CL–EEI–EPSA–59602 at 9; CL–CMC–59634 at 14; 

CL–Olam–59658 at 1, 3; CL–BG Group–59656 at 6; 

CL–COPE–59662 at 21; CL–Calpine–59663 at 3; CL– 

NGSA–59673 at 37; CL–NGSA–59900 at 11; CL– 

Working Group–59693 at 58–59; CL–CME–60406 at 

2–3 and App. A; CL–CME–60307 at 4; CL–CME– 

59718 at 3, 20–23; CL–Sempra–59926 at 3–4; CL– 

BG Group–59937 at 2–3; CL–EPSA–59953 at 2–3; 

CL–ICE–59966 at 5–6; CL–ICE–59962 at 5; CL–US 

Dairy–59597 at 4; CL–Rice Dairy–59601 at 1; CL– 

NMPF–59652 at 4; CL–FCS–59675 at 5. 

497 December 2013 Position Limits Proposal, 78 

FR at 75727. The U.S. Chamber of Commerce’s 

Center for Capital Markets Competitiveness 

commented that the CFTC must update estimates of 

deliverable supply, rather than relying on existing 

exchange-set spot month limit levels. CL–Chamber– 

59684 at 6–7. 

498 December 2013 Position Limits Proposal, 78 

FR at 75728. 

499CL–CME–61007 at 5. See also CL–CME– 

61011; CL–CME–61012; CL–CME–60785 (earlier 

submission of deliverable supply estimates); CL– 

CME–60435 (earlier submission of deliverable 

supply estimates); CL–CME–60406 (earlier 

submission of deliverable supply estimates). The 

Commission did not receive an estimate for Live 

Cattle (LC). 

500CL–ICE–60786. ICE also submitted an estimate 

for Henry Hub natural gas. CL–ICE–60684. 

501CL–MGEX–61038 at Exhibit A; see also CL– 

MGEX–60938 at 2 (earlier submission of deliverable 

supply estimate). 

changes to paragraph (3)(iii)(B) of the 

bona fide hedging position definition, as 

discussed above. The references in the 

examples to a 12-month restriction on 

hedges of agricultural commodities have 

also been removed because the 

Reproposal eliminates those proposed 

restrictions from the reproposed 

enumerated bona fide hedging 

positions, as discussed above. In 

addition, based on discussions with 

cotton merchants, example number 6, 

regarding agent hedging, has been 

amended from a generic example to a 

specific illustration of the hedge of 

cotton equities purchased by a cotton 

merchant from a producer, under the 

USDA loan program. Finally, the 

Reproposal corrects typographical errors 

in example number 12, regarding the 

hedge of copper inventory and the 

cross-hedge of copper wire inventory, to 

correctly reflect the 25,000 pound unit 

of trading in the Copper core referenced 

futures contract, and deletes the 

unnecessary reference to the price 

relationship between the nearby and 

deferred Copper futures contracts. 

B. § 150.2—Position Limits 

1. Setting Levels of Spot Month Limits 

In the December 2013 Position Limits 

Proposal, the Commission proposed to 

establish speculative position limits on 

28 core referenced futures contracts in 

physical commodities.494

As stated in the December 2013 

Position Limits Proposal, the 

Commission proposed to set the initial 

spot month position limit levels for 

referenced contracts at the existing 

DCM-set levels for the core referenced 

futures contracts because the 

Commission believed this approach to 

be consistent with the regulatory 

objectives of the Dodd-Frank Act 

amendments to the CEA and many 

market participants are already used to 

those levels.495 The Commission also 

stated that it was considering setting 

initial spot month limits based on 

estimated deliverable supplies 

submitted by CME Group Inc. (‘‘CME’’) 

in 2013.496 The Commission suggested 

that it might use the exchange’s 

estimated deliverable supplies if it 

could verify that they are reasonable.497

The Commission further stated that it 

was considering another alternative of 

using, in the Commission’s discretion, 

the recommended level, if any, of the 

spot month limit as submitted by each 

DCM listing a core referenced futures 

contract (if lower than 25 percent of 

estimated deliverable supply).498

2. Verification of Estimated Deliverable 

Supply 

The Commission received comment 

letters from CME, Intercontinental 

Exchange (‘‘ICE’’) and Minneapolis 

Grain Exchange, Inc. (‘‘MGEX’’) 

containing estimates of deliverable 

supply. CME submitted updated 

estimates of deliverable supply for 

CBOT Corn (C), Oats (O), Rough Rice 

(RR), Soybeans (S), Soybean Meal (SM), 

Soybean Oil (SO), Wheat (W), and KC 

HRW Wheat (KW); COMEX Gold (GC), 

Silver (SI), Platinum (PL), Palladium 

(PA), and Copper (HG); NYMEX Natural 

Gas (NG), Light Sweet Crude Oil (CL), 

NY Harbor ULSD (HO), and RBOB 

Gasoline (RB).499 ICE submitted 

estimates of deliverable supply for 

Cocoa (CC), Coffee C (KC), Cotton No. 2 

(CT), FCOJ–A (OJ), Sugar No. 11 (SB), 

and Sugar No. 16 (SF).500 MGEX 

submitted an estimate of deliverable 

supply for Hard Red Spring Wheat 

(MWE).501

The Commission is verifying that the 

estimates for C, O, RR, S, SM, SO, W, 

and KW submitted by CME are 

reasonable. The Commission is verifying 

that the estimate for MWE submitted by 

MGEX is reasonable. The Commission is 

verifying that the estimates for CC, KC, 

CT, OJ, SB, and SF submitted by ICE are 

reasonable. The Commission is verifying 

that the estimates for GC, SI, PL, PA, 

and HG submitted by CME are 

reasonable. Finally, the Commission is 

verifying that the estimates for NG, CL, 

HO, and RB submitted by CME are 

reasonable. In verifying that all of these 

estimates of deliverable supply are 

reasonable, Commission staff reviewed 

the exchange submissions and 

conducted its own research. 

Commission staff reviewed the data 

submitted, confirmed that the data 

submitted accurately reflected the 

source data, and considered whether the 

data sources were authoritative. 

Commission staff considered whether 

the assumptions made by the exchanges 

in the submissions were acceptable, or 

whether alternative assumptions would 

lead to similar results. In response to 

Commission staff questions about the 

exchange submissions, the Commission 

received revised estimates from 

exchanges. In some cases, Commission 

staff conducted trade source interviews. 

Commission staff replicated the 

calculations included in the 

submissions. 


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502 17 CFR part 38, Appendix C. 

503 December 2013 Position Limits Proposal, 78 

FR at 75729. The Commission currently sets the 

single-month and all-months-combined limits based 

on total open interest for a particular commodity 

futures contract and options on that futures 

contract, on a futures-equivalent basis. 

504 December 2013 Position Limits Proposal, 78 

FR at 75730. 

505 Id. 

506 December 2013 Position Limits Proposal, 78 

FR at 75733. Thus, the initial levels as proposed in 

the December 2013 Position Limits Proposal 

represented the lower bounds for the initial levels 

that the Commission would establish in final rules. 

507 December 2013 Position Limits Proposal, 78 

FR at 75734. The Commission also stated that it was 

considering using data from swap data repositories, 

as practicable. Id. The Commission has determined 

that it is not yet practicable to use data from swap 

data repositories. 

508 2016 Supplemental Position Limits Proposal, 

81 FR at 38459. 

509E.g., CL–FIA–59595 at 3, 14; CL–EEI–EPSA– 

59602 at 10–11; CL–MFA–60385 at 4–7; CL–MFA– 

59606 at 22–23; CL–ISDA/SIFMA–59611 at 28–29; 

CL–CMC–59634 at 13; CL–Olam–59658 at 3; CL– 

COPE–59662 at 22; CL–Calpine–59663 at 4; CL– 

CCMC–59684 at 4–5; CL–NFP–59690 at 20; CL–Just 

Energy–59692 at 4; CL–Working Group–59693 at 

62. 

510Where relevant and practicable, Commission 

staff consulted and followed the Office of 

Management and Budget Standards and Guidelines 

for Statistical Surveys, September 2006, available at 

https://www.whitehouse.gov/sites/default/files/ 

omb/inforeg/statpolicy/standards_stat_surveys.pdf. 

511There is no part 20 swaps data for Sugar No. 

16 (SF). 

512A reporting entity is a clearing member or a 

swap dealer required to report large trader position 

data for physical commodity swaps, as defined in 

17 CFR 20.1. 

513Because there may be missing data, using open 

contracts for each business day in the time period 

that a reporting entity submits a report may 

overestimate open interest, compared to taking a 

straight average of the open contracts over all 

business days in the time period. However, the 

Commission believes it is reasonable to assume that 

the open position in swaps for a reporting entity 

failing to report for a particular business day is 

more accurately reflected by that reporting entity’s 

average reported open swaps for the month, rather 

than zero. Hence, in choosing this approach, the 

Commission chooses to repropose higher non-spot 

month limit levels. 

514This adjustment may have removed fewer than 

all of the reported positions in swaps that do not 

satisfy the definition of referenced contract as 

adopted, and therefore may have resulted in a 

higher level of open interest (which would result 

in a higher limit level). For instance, swaps 

reported under part 20 include trade options, and 

the Commission is reproposing an amended 

definition of ‘‘referenced contract’’ to expressly 

exclude trade options. See the discussion of the 

defined term ‘‘referenced contract’’ under § 150.1, 

above. Because part 20 does not require trade 

options to be identified, the Commission could not 

exclude records of trade options from open interest 

or position size. 

In verifying the exchange estimates of 

deliverable supply, the Commission is 

not endorsing any particular 

methodology for estimating deliverable 

supply beyond what is already set forth 

in Appendix C to part 38 of the 

Commission’s regulations.502 As 

circumstances change over time, 

exchanges may need to adjust the 

methodology, assumptions and 

allowances that they use to estimate 

deliverable supply to reflect then 

current market conditions and other 

relevant factors. The Commission 

anticipates that it will base initial spotmonth position limits on the current 

verified exchange estimates as and to 

the extent described below, unless an 

exchange provides additional updates 

during the Reproposal comment period 

that the Commission can verify as 

reasonable. 

3. Single-Month and All-MonthsCombined Limits 

Commission Proposal: In the 

December 2013 Position Limits 

Proposal, the Commission proposed to 

set the level of single-month and allmonths-combined limits (collectively, 

non-spot month limits) based on total 

open interest for all referenced contracts 

in a commodity.503 The Commission 

also proposed to estimate average open 

interest based on the largest annual 

average open interest computed for each 

of the past two calendar years, using 

either month-end open contracts or 

open contracts for each business day in 

the time period, as the Commission 

finds in its discretion to be reliable.504

For setting the levels of initial non-spot 

month limits, the Commission proposed 

to use open interest for calendar years 

2011 and 2012 in futures contracts, 

options thereon, and in swaps that are 

significant price discovery contracts that 

are traded on exempt commercial 

markets.505 The Commission explained 

that it had reviewed preliminary data 

submitted to it under part 20, but 

preliminarily decided not to use it for 

purposes of setting the initial levels of 

single-month and all-months-combined 

position limits because the data prior to 

January 2013 was less reliable than data 

submitted later.506 The Commission 

noted that it was considering using part 

20 data, should it determine such data 

to be reliable, in order to establish 

higher initial levels in a final rule.507

In the June 2016 Supplemental 

Proposal, the Commission noted that, 

since the December 2013 Position 

Limits Proposal, the Commission 

worked with industry to improve the 

quality of swap position data reported to 

the Commission under part 20.508 The 

Commission also noted that, in light of 

the improved quality of such swap 

position data reporting, the Commission 

intended to rely on part 20 swap 

position data, given adjustments for 

obvious errors (e.g., data reported based 

on a unit of measure, such as an ounce, 

rather than a futures-equivalent number 

of contracts), to establish initial levels of 

federal non-spot month limits on futures 

and swaps in a final rule. 

Comments Received: Commenters 

requested that the Commission delay 

the imposition of hard non-spot month 

limits until it has collected and 

evaluated complete open interest 

data.509

Commission Reproposal: The 

Commission has determined that certain 

part 20 large trader position data, after 

processing and editing by Commission 

staff as described below,510 is reliable. 

The Commission has determined to 

repropose the initial non-spot month 

position limit levels based on the 

combination of such adjusted part 20 

swaps data and data on open interest in 

physical commodity futures and options 

from the relevant exchanges, as 

described below. The Commission is 

using two 12-month periods of data, 

covering a total of 24 months, rather 

than two calendar years of data, as is 

practicable, in reproposing the initial 

non-spot month position limit levels. 

Data Editing 

Commission staff analyzed and 

evaluated the quality of part 20 data for 

the period from July 1, 2014 through 

June 30, 2015 (‘‘Year 1’’), and the period 

from July 1, 2015 through June 30, 2016 

(‘‘Year 2’’).511 The Commission used 

open contracts as reported for each 

business day in the time periods, rather 

than month-end open contracts, 

primarily because it lessens the impact 

of missing data. Averaging generally 

also smooths over errors in reporting 

when there is both under- and overreporting, both of which the 

Commission observed in the part 20 

data. By calculating a daily average for 

each month for each reporting entity,512

one calculates a reporting entity’s open 

contracts on a ‘‘representative day’’ for 

each month. The Commission then 

summed the open contracts for each 

reporting entity on this representative 

day, to determine the average open 

interest for a particular month.513

First, for each of Year 1 and Year 2, 

Commission staff identified all reported 

positions in swaps that do not satisfy 

the definition of referenced contract as 

proposed in the December 2013 Position 

Limits Proposal 514 and removed those 

positions from the data set. For 

example, swaps settled using the price 

of the LME Gold PM Fix contract do not 

meet the definition of referenced 

contract for the gold core referenced 

futures contract (GC) but positions 

reported based on these types of swaps 

represented 14% of records submitted 


asabaliauskas on DSK3SPTVN1PROD with PROPOSALS
96756 Federal Register / Vol. 81, No. 251 / Friday, December 30, 2016 / Proposed Rules 

under part 20 by reporting entities for 

gold swaps. The percentage of average 

daily open interest excluded from the 

adjusted part 20 swaps data resulting 

from this deletion are set forth in Table 

1 below. Other adjustments to the data 

are described below. Because not all 

commodities required exclusion of nonreferenced contracts, the Commission 

reports only the 11 commodities that 

required this type of exclusion. 

TABLE III–B–1—PERCENT OF ADJUSTED AVERAGE DAILY OPEN INTEREST EXCLUDED AS NOT MEETING THE DEFINITION

OF REFERENCED CONTRACT

Core referenced futures contract 

Year 1 

percent of 

excluded 

adjusted 

open interest 

(%) 

Year 2 

percent of 

excluded 

adjusted 

open interest 

(%) 

Cotton No. 2 (CT) .................................................................................................................................................... 0.22 0.00 

Sugar No. 11 (SB) ................................................................................................................................................... 0.05 0.00 

Gold (GC) ................................................................................................................................................................ 42.59 0.00 

Silver (SI) ................................................................................................................................................................. 48.10 0.00 

Platinum (PL) ........................................................................................................................................................... 9.12 5.36 

Palladium (PA) ......................................................................................................................................................... 56.87 6.87 

Copper (HG) ............................................................................................................................................................ 37.58 0.25 

Natural Gas (NG) ..................................................................................................................................................... 12.49 12.52 

Light Sweet Crude (CL) ........................................................................................................................................... 3.60 0.83 

New York Harbor ULSD (HO) ................................................................................................................................. 0.96 1.74 

RBOB Gasoline (RB) ............................................................................................................................................... 1.34 1.30 

Second, Commission staff checked 

and edited the remaining data to 

mitigate certain types of errors. 

Commission staff identified three 

general types of reporting errors and 

made edits to adjust the data for: 

(i) Positions that were clearly reported 

in units of a commodity when they 

should have been reported in the 

number of gross futures-equivalent 

contracts. For example, a position in 

gold (GC) with a futures contract unit of 

trading of 100 ounces might be reported 

as 480,000 contracts, when other 

available information, reasonable 

assumptions, consultation with 

reporting entities and/or Commission 

expertise indicate that the position 

should have been reported as 4,800 

contracts (that is, 480,000 ounces 

divided by 100 ounces per contract). 

Commission staff corrected such 

reported swaps position data and 

included the corrected data in the data 

set. 

(ii) Positions that are not obviously 

reported in units of a commodity but 

appear to be off by one or more decimal 

places (e.g., a position is overstated, but 

not by a multiple of the contract’s unit 

of trading). For example, a position in 

COMEX gold is reported as 100,000 and 

the notional value might be reported as 

$13,000,000, when the price of gold is 

$1300 and the COMEX gold contract is 

for 100 ounces, indicating that the 

position should have been reported as 

100 futures-equivalent contracts. Staff 

corrected such reported swaps position 

data and included the corrected data in 

the data set. 

(iii) Positions reported multiple times 

per day or otherwise extremely different 

from surrounding days’ reported open 

interest. In some cases, reporting 

entities submitted the same report using 

different reporting identifiers, for the 

same day. In other cases, a position 

would inexplicably spike for one day, to 

a multiple of other days’ reported open 

interest. When Commission staff 

checked with the reporting entity, the 

reporting entity confirmed that the 

reports were, indeed, erroneous. 

Commission staff did not include such 

incorrectly reported duplicative swaps 

position data in its analysis. In other 

cases, positions that were clearly 

reported incorrectly, but for which 

Commission staff could discern neither 

a reason nor a reasonable adjustment, 

were not included. For example, 

Commission staff deleted all swap 

position data reports submitted by one 

swap dealer from its analysis because 

the reports were inexplicably 

anomalous in light of other available 

information, reasonable assumptions 

and Commission expertise. As another 

example, one reporting entity reported 

extremely large values for only certain 

types of positions. After speaking with 

the reporting entity, Commission staff 

determined that there was no systematic 

adjustment to be made, but that the 

actual positions were, in fact, small. 

Hence, Commission staff did not 

include such reported swaps position 

data in its analysis. 

The number of principal records 

edited, resulting from the edits relating 

to the three types of edits to erroneous 

position reports noted above, is set forth 

in Table 2 below. A principal record is 

a report of a swaps open position where 

the reporting entity is a principal to the 

swap, as opposed to a counterparty 

record. 

TABLE III–B–2—PERCENTAGE OF PRINCIPAL RECORDS ADJUSTED BY EDIT TYPE AND UNDERLYING COMMODITY, 

REFERENCED CONTRACTS ONLY

Edit type 

Number of 

records 

adjusted 

year 1 

(%) 

Number of 

records 

adjusted 

year 2 

(%) 

Corn (C) ....................................................................................................................................... (i) .................... 0.00 0.0001 

(iii) .................. 0.00 0.66 

Oats (O) ....................................................................................................................................... (iii) .................. 0.00 0.20 

Rough Rice (RR) ......................................................................................................................... (iii) .................. 0.38 0.00 


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Federal Register / Vol. 81, No. 251 / Friday, December 30, 2016 / Proposed Rules 96757 

TABLE III–B–2—PERCENTAGE OF PRINCIPAL RECORDS ADJUSTED BY EDIT TYPE AND UNDERLYING COMMODITY, 

REFERENCED CONTRACTS ONLY—Continued 

Edit type 

Number of 

records 

adjusted 

year 1 

(%) 

Number of 

records 

adjusted 

year 2 

(%) 

Soybeans (S) ............................................................................................................................... (i) .................... 0.00 0.03 

(iii) .................. 2.38 1.46 

Soybean Meal (SM) ..................................................................................................................... (iii) .................. 0.00 0.41 

Soybean Oil (SO) ........................................................................................................................ (iii) .................. 9.15 4.93 

Wheat (W) ................................................................................................................................... (i) .................... 0.00 0.01 

(iii) .................. 1.77 0.71 

Wheat (MWE) .............................................................................................................................. (iii) .................. 0.043 0.002 

Wheat (KW) ................................................................................................................................. (iii) .................. 1.34 0.68 

Cocoa (CC) .................................................................................................................................. (i) .................... 0.001 0.0005 

(iii) .................. 1.79 0.25 

Coffee C (KC) .............................................................................................................................. (i) .................... 0.00 0.01 

(iii) .................. 5.33 0.60 

Cotton No. 2 (CT) ........................................................................................................................ (iii) .................. 16.76 5.59 

FCOJ–A (OJ) ............................................................................................................................... (iii) .................. 13.30 17.43 

Sugar No. 11 (SB) ....................................................................................................................... (i) .................... 0.00 0.0009 

(iii) .................. 1.21 0.54 

Live Cattle (LC) ........................................................................................................................... (i) .................... 0.002 0.00 

(iii) .................. 45.65 15.50 

Gold (GC) .................................................................................................................................... (i) .................... 1.99 0.02 

(ii) ................... 0.32 0.00 

(iii) .................. 91.45 89.04 

Silver (SI) ..................................................................................................................................... (i) .................... 3.01 0.19 

(iii) .................. 93.08 89.52 

Platinum (PL) ............................................................................................................................... (i) .................... 2.75 0.01 

(ii) ................... 0.33 0.01 

(iii) .................. 23.51 21.11 

Palladium (PA) ............................................................................................................................. (i) .................... 0.62 0.00 

(ii) ................... 0.30 0.00 

(iii) .................. 32.97 22.29 

Copper (HG) ................................................................................................................................ (i) .................... 4.94 0.48 

(iii) .................. 20.80 16.82 

Natural Gas (NG) ........................................................................................................................ (i) .................... 0.01 1.03 

(iii) .................. 7.68 3.80 

Light Sweet Crude (CL) ............................................................................................................... (i) .................... 0.001 0.003 

(iii) .................. 9.53 8.43 

New York Harbor ULSD (HO) ..................................................................................................... (i) .................... 0.01 0.0006 

(iii) .................. 29.58 4.33 

RBOB Gasoline (RB) ................................................................................................................... (i) .................... 0.22 0.60 

(iii) .................. 30.46 24.62 

Some records also appeared to 

contain errors attributable to other 

factors that Commission staff could 

detect and for which Commission staff 

can correct. For example, there were 

instances where the reporting entity 

misreported the ownership of the 

position, i.e., principal vs. counterparty. 

Commission staff corrected the 

misreported ownership data and 

included the corrected data in the data 

set. Such corrections are important to 

ensure that data is not double counted. 

In Year 1, eight reporting entities 

required an adjustment to the reported 

position ownership information. In Year 

2, five reporting entities required an 

adjustment to the reported position 

ownership information. 

Third, in the part 20 large trader swap 

data, staff checked and adjusted the 

average daily open interest for positions 

resulting from inter-affiliate transactions 

and duplicative reporting of positions 

due to transactions between reporting 

entities. For an example of duplicative 

reporting by reporting entities (which is 

reporting in terms of futures-equivalent 

contracts), assume Swap Dealer A and 

Swap Dealer B have an open swap 

equivalent to 50 futures contracts, Swap 

Dealer A also has a swap equivalent to 

25 futures contracts with End User X, 

and Swap Dealer B has a swap 

equivalent to 200 futures contracts with 

End User Y. The total open swaps in 

this scenario is equivalent to 275 futures 

contracts. However, Swap Dealer A will 

report a gross position of 75 contracts 

and Swap Dealer B will report a gross 

position of 250 contracts. Simply 

summing these two gross positions 

would overestimate the open swaps as 

325 contracts—50 contracts more than 

there actually should be. For this 

reason, Commission staff used the 

counterparty accounts of each reporting 

entity to flag counterparty accounts of 

other reporting entities. Commission 

staff then used the daily average of the 

gross positions for these accounts to 

reduce the amount of average daily open 

swaps. Similarly, Commission staff 

flagged the counterparty accounts for 

entities that are affiliates of each 

reporting entity in order to adjust the 

amount of average daily open swaps. 

These adjustments to the Year 1 data are 

reflected in Table 3 below, and the 

corresponding adjustments to the Year 2 

data are reflected in Table 4 below. 


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96758 Federal Register / Vol. 81, No. 251 / Friday, December 30, 2016 / Proposed Rules 

TABLE III–B–3—AVERAGE DAILY OPEN INTEREST IN YEAR 1 ADJUSTED FOR DUPLICATE AND AFFILIATE REPORTING BY

UNDERLYING COMMODITY

Paired swaps for 

Average 

adjusted daily 

open interest 

Average adjusted 

daily open 

interest reporting 

entity duplication 

removed 

Average adjusted 

daily open 

interest reporting 

entity duplication 

& affiliates 

removed 

Corn (C) ............................................................................................................... 655,492 522,566 359,715 

Oats (O) ............................................................................................................... 684 667 646 

Rough Rice (RR) ................................................................................................. 916 640 362 

Soybeans (S) ....................................................................................................... 157,017 139,608 109,858 

Soybean Meal (SM) ............................................................................................. 125,444 99,795 71,887 

Soybean Oil (SO) ................................................................................................ 74,831 64,854 55,265 

Wheat (W) ............................................................................................................ 272,839 229,453 162,999 

Wheat (MGE) ....................................................................................................... 3,430 3,021 1,944 

Wheat (KW) ......................................................................................................... 14,918 14,213 9,436 

Cocoa (CC) .......................................................................................................... 15,207 13,792 11,257 

Coffee C (KC) ...................................................................................................... 31,540 28,539 24,164 

Cotton No. 2 (CT) ................................................................................................ 51,442 42,806 35,102 

FCOG–A (OJ) ...................................................................................................... 160 142 121 

Sugar No. 11 (SB) ............................................................................................... 279,355 256,887 211,994 

Live Cattle (LC) .................................................................................................... 46,361 36,999 23,626 

Gold (GC) ............................................................................................................ 79,778 64,363 47,727 

Silver (SI) ............................................................................................................. 19,373 14,678 9,867 

Platinum (PL) ....................................................................................................... 25,145 24,530 21,566 

Palladium (PA) ..................................................................................................... 2,044 1,939 1,929 

Copper (HG) ........................................................................................................ 31,143 28,718 22,859 

Natural Gas (NG) ................................................................................................. 4,100,419 3,603,368 2,866,128 

Light Sweet Crude (CL) ....................................................................................... 2,039,963 1,875,660 1,587,450 

NY Harbor ULSD (HO) ........................................................................................ 178,978 161,617 138,360 

RBOB Gasoline (RB) ........................................................................................... 103,586 100,021 81,822 

TABLE III–B–4—AVERAGE DAILY OPEN INTEREST IN YEAR 2 ADJUSTED FOR DUPLICATE AND AFFILIATE REPORTING BY

UNDERLYING COMMODITY

Paired swaps for 

Average 

adjusted daily 

open interest 

Average adjusted 

daily open 

interest reporting 

entity duplication 

removed 

Average adjusted 

daily open 

interest reporting 

entity duplication 

& affiliates 

removed 

Corn (C) ............................................................................................................... 1,265,639 960,088 641,014 

Oats (O) ............................................................................................................... 1,029 858 480 

Rough Rice (RR) ................................................................................................. 396 250 4 

Soybeans (S) ....................................................................................................... 453,419 351,279 235,679 

Soybean Meal (SM) ............................................................................................. 282,123 209,023 134,399 

Soybean Oil (SO) ................................................................................................ 282,207 198,744 125,106 

Wheat (W) ............................................................................................................ 437,711 334,136 222,420 

Wheat (MWE) ...................................................................................................... 15,167 9,511 3,079 

Wheat (KW) ......................................................................................................... 65,533 47,722 29,563 

Cocoa (CC) .......................................................................................................... 141,526 100,564 56,853 

Coffee C (KC) ...................................................................................................... 97,128 74,739 51,846 

Cotton No. 2 (CT) ................................................................................................ 137,295 99,496 60,477 

FCOJ–A (OJ) ....................................................................................................... 1,137 640 5 

Sugar No. 11 (SB) ............................................................................................... 717,967 558,423 382,816 

Live Cattle (LC) .................................................................................................... 102,131 77,783 52,330 

Gold (GC) ............................................................................................................ 62,804 50,054 36,029 

Silver (SI) ............................................................................................................. 9,306 6,207 3,510 

Platinum (PL) ....................................................................................................... 2,575 2,507 2,285 

Palladium (PA) ..................................................................................................... 889 857 823 

Copper (HG) ........................................................................................................ 82,479 65,187 47,365 

Natural Gas (NG) ................................................................................................. 4,239,581 3,828,739 3,331,141 

Light Sweet Crude (CL) ....................................................................................... 2,318,074 2,050,270 1,744,137 

NY Harbor ULSD (HO) ........................................................................................ 170,316 117,004 65,721 

RBOB Gasoline (RB) ........................................................................................... 102,094 66,560 30,477 

Staff made numerous significant 

adjustments to the part 20 data for 

natural gas, due to numerous reports in 

units rather than the number of gross 

futures-equivalent contracts and the 

large number of reports of swaps that 

did not meet the definition of referenced 

contract. 


asabaliauskas on DSK3SPTVN1PROD with PROPOSALS
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515See, e.g., CFTC Staff Advisory No. 15–66, 

available at http://www.cftc.gov/idc/groups/public/ 

@lrlettergeneral/documents/letter/15-66.pdf 

(reminding swap dealers and major swap 

participants of their swap data reporting 

obligations); Remarks of Chairman Timothy Massad 

before the ABA Derivatives and Futures Law 

Committee, 2016 Winter Meeting, Jan. 22, 2016, 

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

SpeechesTestimony/opamassad-37 (improving data 

reporting). 

516 December 2013 Position Limits Proposal, 78 

FR at 75734. 

517The CFTC announced its first case enforcing 

the Reporting Rules in September 2015. See Order: 

Australia and New Zealand Banking Group Ltd. 

(‘‘ANZ’’), available at http://www.cftc.gov/idc/ 

groups/public/@lrenforcementactions/documents/ 

legalpleading/enfaustraliaorder091715.pdf (the 

Order finds that during the period from at least 

March 1, 2013 through November 30, 2014, ANZ 

filed large trader reports that routinely contained 

errors). 

518 December 2013 Position Limits Proposal, 78 

FR at 75727. One commenter urged the Commission 

to retain the legacy speculative limits for 

enumerated agricultural products. The 

‘‘enumerated’’ agricultural products refer to the list 

of commodities contained in the definition of 

‘‘commodity’’ in CEA section 1a; 7 U.S.C. 1a. This 

list of agricultural contracts includes nine currently 

traded contracts: Corn (and Mini-Corn), Oats, 

Soybeans (and Mini-Soybeans), Wheat (and Miniwheat), Soybean Oil, Soybean Meal, Hard Red 

Spring Wheat, Hard Winter Wheat, and Cotton No. 

2. See 17 CFR 150.2. The position limits on these 

agricultural contracts are referred to as ‘‘legacy’’ 

limits because these contracts on agricultural 

commodities have been subject to federal positions 

limits for decades. This commenter stated, ‘‘There 

is no appreciable support within our industry or, 

as far as we know, from the relevant exchanges to 

move beyond current levels . . . . Changing current 

limits, as proposed in the rule, will have a negative 

impact on futures-cash market convergence and 

will compromise contract performance.’’ CL–AFBF– 

59730 at 3. Contra CL–ISDA/SIFMA–59611 at 32 

(setting initial spot-month limits at the existing 

exchange-set levels would be arbitrary because the 

exchange-set levels have not been calibrated to 

apply as ‘‘a ceiling on the spot-month positions that 

a trader can hold across all exchanges for futures, 

options and swaps’’); CL–ICE–59966 at 6 (‘‘the 

Proposed Rule . . . effectively halves the present 

position limit in the spot month by aggregating 

across trading venues and uncleared OTC swaps’’). 

See also CL–ISDA/SIFMA–59611 at 3 (the spot 

month limit methodology is ‘‘both arbitrary and 

unjustified’’). 519 December 2013 Position Limits Proposal, 78 

FR at 75727. The Commission also stated that if the 

Commission could not verify an exchange’s 

estimate of deliverable supply for any commodity 

as reasonable, the Commission might adopt the 

existing DCM-set level or a higher level based on 

the Commission’s own estimate, but not greater 

than would result from the exchange’s estimated 

deliverable supply for a commodity. 

One commenter was unconvinced that estimated 

deliverable supply is ‘‘the appropriate metric for 

determining spot month position limits’’ and 

opined that the ‘‘real test’’ should be whether limits 

‘‘allow convergence of cash and futures so that 

futures markets can still perform their price 

discovery and risk management functions.’’ CL– 

NGFA–60941 at 2. Another commenter stated, 

‘‘While 25% may be a reasonable threshold, it is 

based on historical practice rather than 

contemporary analysis, and it should only be used 

as a guideline, rather than formally adopted as a 

hard rule. Deliverable supply is subject to 

numerous environmental and economic factors, and 

is inherently not susceptible to formulaic 

calculation on a yearly basis.’’ CL–MGEX–60301 at 

1. Another commenter expressed the view that the 

25 percent formula is not ‘‘appropriately calibrated 

to achieve the statutory objective’’ set forth in 

section 4a(a)(3)(B)(i) of the CEA, 7 U.S.C. 

6a(a)(3)(B)(i). CL–CME–60926 at 3. Another 

commenter opined that because the Commission 

‘‘has not established a relationship between 

‘estimated deliverable supply’ and spot-month 

potential for manipulation or excessive 

speculation,’’ the 25 percent formula is arbitrary. 

CL–ISDA/SIFMA–59611 at 31. 

Several commenters opined that 25 percent of 

deliverable supply is too high. E.g., CL–AFR–59685 

at 2; CL-Tri-State Coalition for Responsible 

Investment-59682 at 1; CL–CMOC–59720 at 3; CL– 

WEED–59628 (‘‘Only a lower limit would ensure 

market stability and prevent market 

manipulation.’’); CL–Public Citizen-60313 at 1 

(‘‘There is no good reason for a single firm to take 

25% of a market.’’); CL–IECA–59964 at 3 (25 

percent of deliverable supply ‘‘is a lot of market 

power in the hands of speculators’’). One 

commenter stated that ‘‘position limits should be 

set low enough to restore a commercial hedger 

majority in open interest in each core referenced 

contract,’’ CL–IATP–60323 at 5 (suggesting in a 

later submission that position limits at 5–10 percent 

of estimated deliverable supply in each covered 

contract applied on an aggregated basis might 

‘‘enable commercial hedgers to regain for all 

covered contracts their pre-2000 average share of 70 

percent of agricultural contracts’’). CL–IATP–60394 

at 2. One commenter supported expanding position 

limits ‘‘to ensure rough or approximate convergence 

of futures and underlying cash at expiration.’’ CL– 

Thornton–59702 at 1. 

Several commenters supported setting limits 

based on updated estimates of deliverable supply 

which reflect current market conditions. E.g., CL– 

ICE–59966 at 5; CL–FIA–59595 at 8; CL–EEI–EPSA– 

59602 at 9; CL–MFA–59606 at 5; CL–CMC–59634 

at 14; CL-Olam-59658 at 3; CL–CCMC–59684 at 6– 

7. 

520 December 2013 Position Limits Proposal, 78 

FR at 75728. 

521CEA section 5(d)(1)(B), 7 U.S.C. 7(d)(1)(B). 

522 December 2013 Position Limits Proposal, 78 

FR at 75729. 

523CEA section 15(a)(2)(B), 7 U.S.C. 19(a)(2)(B). 

The Commission continues to be 

concerned about the quality of data 

submitted in large trader reports 

pursuant to part 20 of the Commission’s 

regulations. Commissioners and staff 

have expressed concerns about data 

reporting publicly on a variety of 

occasions.515 Nevertheless, the 

Commission anticipates that over time 

part 20 submissions will become more 

reliable and intensive efforts by 

Commission staff to process and edit 

raw data will become less necessary. As 

stated in the December 2013 Position 

Limits Proposal, for setting subsequent 

levels of non-spot month limits, the 

Commission proposes to estimate 

average open interest in referenced 

contracts using data reported pursuant 

to parts 16, 20, and/or 45.516 It is 

crucial, therefore, that market 

participants make sure they submit 

accurate data to the Commission, and 

resubmit data discovered to be 

erroneous, because subsequent limit 

levels will be based on that data. 

Reporting is at the heart of the 

Commission’s market and financial 

surveillance programs, which are 

critical to the Commission’s mission to 

protect market participants and promote 

market integrity. Failure to meet 

reporting obligations to the Commission 

by submitting reports and data that 

contain errors and omissions in 

violation of the part 20 regulations may 

subject reporting entities to enforcement 

actions and remedial sanctions.517

4. Setting Levels of Spot-Month Limits 

In the December 2013 Position Limits 

Proposal, the Commission proposed to 

set the initial spot month speculative 

position limit levels for referenced 

contracts at the existing DCM-set levels 

for the core referenced futures 

contracts.518 As an alternative, the 

Commission stated that it was 

considering using 25 percent of an 

exchange’s estimate of deliverable 

supply if the Commission verified the 

estimate as reasonable.519 As a further 

alternative, the Commission stated that 

it was considering setting initial spot 

month position limit levels at a 

recommended level, if any, submitted 

by a DCM (if lower than 25 percent of 

estimated deliverable supply).520

In determining the levels at which to 

repropose the initial speculative 

position limits, the Commission 

considered, without limitation, the 

recommendations of the exchanges as 

well as data to which the exchanges do 

not have access. In considering these 

and other factors, the Commission 

became very concerned about the effect 

of alternative limit levels on traders in 

the cash-settled referenced contracts. A 

DCM has reasonable discretion in 

establishing the manner in which it 

complies with core principle 5 

regarding position limits.521 As the 

Commission observed in the December 

2013 Position Limits Proposal, ‘‘there 

may be a range of spot month limits, 

including limits set below 25 percent of 

deliverable supply, which may serve as 

practicable to maximize . . . [the] 

policy objectives [set forth in section 

4a(a)(3)(B) of the CEA].’’ 522 The 

Commission must also consider the 

competitiveness of futures markets.523

Thus, the Commission accepts the 

recommendations of the exchanges and 

has determined to repropose federal 

limits below 25 percent of deliverable 

supply, where setting a limit level at 

less than 25 percent of deliverable 

supply does not appear to restrict 

unduly positions in the cash-settled 

referenced contracts. The exchanges 

retain the ability to adopt lower 

exchange-set limit levels than the initial 


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524CL–CME–61007 at 5. 

525The Commission noted in the December 2013 

Position Limits Proposal ‘‘that DCMs historically 

have set or maintained exchange spot month limits 

at levels below 25 percent of deliverable supply.’’ 

December 2013 Position Limits Proposal, 78 FR at 

75729. 

526See CL–CME–61007 (specifying lower 

exchange-set limit levels for W and RR in certain 

circumstances). 

527 December 2013 Position Limits Proposal, 78 

FR at 75727. 

528 December 2013 Position Limits Proposal, 78 

FR at 75839 (Appendix D to Part 150—Initial 

Position Limit Levels). 

529Rounded up to the next 100 contracts. 

530The W core referenced futures contract refers 

to soft red winter wheat, the KW core reference 

futures contract refers to hard red winter wheat, and 

the MWE core reference futures contract refers to 

hard red spring wheat; i.e., the contracts are for 

different products. 531CL–MGEX–61038 at 2; see also CL–MGEX– 

60938 at 2 (earlier submission of deliverable supply 

estimate). 532The difference is due to rounding. The MGEX 

estimate of 4,005 contract equivalents for MWE 

deliverable would have supported a spot-month 

limit level of 1,100 contracts (rounded up to the 

next 100 contracts). The Commission noted in the 

December 2013 Position Limits Proposal ‘‘that 

DCMs historically have set or maintained exchange 

spot month limits at levels below 25 percent of 

deliverable supply.’’ December 2013 Position Limits 

Proposal, 78 FR at 75729. 

533Most commenters who supported establishing 

the same level of speculative limits for each of the 

three wheat core referenced futures contracts 

focused on parity in the non-spot months. However, 

some commenters did support wheat party in the 

spot month. See, e.g., CL–CMC–59634 at 15; CL– 

NCFC–59942 at 6. 

534The difference between an estimate of 4,000 

contracts, which would result in a limit level of 

1,000, and 4,005 contracts, which results in a limit 

level of 1,100 contracts, is small enough that the 

Commission’s prior statements regarding the 25% 

formula are instructive. As stated in the December 

2013 Position Limits Proposal, the 25 percent 

formula ‘‘is consistent with the longstanding 

acceptable practices for DCM core principle 5 

which provides that, for physical-delivery 

contracts, the spot-month limit should not exceed 

25 percent of the estimated deliverable supply.’’ 

December 2013 Position Limits Proposal, 78 FR at 

75729. The Commission continues to believe, based 

on its experience and expertise, that the 25 percent 

formula is an ‘‘effective prophylactic tool to reduce 

the threat of corners and squeezes, and promote 

convergence without compromising market 

liquidity.’’ December 2013 Position Limits Proposal, 

78 FR at 75729. 

speculative position limit levels that the 

Commission reproposes today. 

a. CME and MGEX Agricultural 

Contracts 

As explained above, the Commission 

has verified that the estimates of 

deliverable supply for each of the CBOT 

Corn (C), Oats (O), Rough Rice (RR), 

Soybeans (S), Soybean Meal (SM), 

Soybean Oil (SO), Wheat (W) core 

referenced futures contract, the Hard 

Red Winter Wheat (KW) core referenced 

futures contract submitted by CME, and 

the Hard Red Spring Wheat (MWE) core 

referenced futures contract submitted by 

MGEX are reasonable. 

Nevertheless, the Commission has 

determined to repropose the initial 

speculative spot month position limit 

levels for C, O, RR, S, SM, SO, W and 

KW at the recommended levels 

submitted by CME,524 all of which are 

lower than 25 percent of estimated 

deliverable supply.525 As is evident 

from the table set forth below, this also 

means that the Commission is 

reproposing the initial speculative 

position limit levels for these eight 

contracts as proposed in the December 

2013 Position Limits Proposal. These 

initial levels track the existing DCM-set 

levels for the core referenced futures 

contracts; 526 therefore, as noted in the 

December 2013 Position Limits 

Proposal, many market participants are 

already used to these levels.527 The 

Commission continues to believe this 

approach is consistent with the 

regulatory objectives of the Dodd-Frank 

Act amendments to the CEA. 

TABLE III–B–5—CME AGRICULTURAL CONTRACTS—SPOT MONTH LIMIT LEVELS

Contract 

Previously 

proposed 

limit level 528

25% of estimated 

deliverable 

supply 529

Reproposed 

speculative 

limit level 

C .......................................................................................................................... 600 900 600 

O .......................................................................................................................... 600 900 600 

RR ........................................................................................................................ 600 2,300 600 

S ........................................................................................................................... 600 1,200 600 

SM ........................................................................................................................ 720 2,000 720 

SO ........................................................................................................................ 540 3,400 540 

W 530 .................................................................................................................... 600 1,000 600 

KW ....................................................................................................................... 600 3,000 600 

The Commission has also determined 

to repropose the initial speculative spot 

month position limit level for MWE at 

1,000 contracts, which is the level 

requested by MGEX 531 and just slightly 

lower than 25 percent of estimated 

deliverable supply.532 This is an 

increase from the previously proposed 

level of 600 contracts and is greater than 

the reproposed speculative spot month 

position limit levels for W and KW.533

Upon deliberation, the Commission 

accepts the recommendation of 

MGEX.534

TABLE III–B–6—CME AND MGEX AGRICULTURAL CONTRACTS—SPOT MONTH

Core referenced futures contract Basis of spot-month level Limit level 

Unique persons over spot 

month limit Reportable 

persons spot 

Cash settled month only 

contracts 

Physical delivery contracts 

Corn (C) ............................................ CME recommendation ..................... † 600 0 36 1,050 

25% DS ............................................ 900 0 20 

Oats (O) ............................................ CME recommendation ..................... † 600 0 0 33 

25% DS ............................................ 900 0 0 

Soybeans (S) .................................... CME recommendation ..................... † 600 0 22 929 

25% DS ............................................ 1,200 0 14 

Soybean Meal (SM) .......................... CME recommendation ..................... † 720 0 14 381 

25% DS ............................................ 2,000 0 * 


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535Four or fewer traders. 

536Contra CL–ISDA/SIFMA–59611 at 55 

(proposed spot month limits ‘‘are almost certainly 

far smaller than necessary to prevent corners or 

squeezes’’). 

537 December 2013 Position Limits Proposal, 78 

FR at 75729. 

538One commenter supported considering 

‘‘tropicals (sugar/coffee/cocoa) . . . separately from 

those agricultural crops produced in the US 

domestic market.’’ CL–Thornton–59702 at 1; see 

also CL–Armajaro–59729 at 1. 

539CL–IFUS–60807. 

540 December 2013 Position Limits Proposal, 78 

FR at 75729. The Commission also noted ‘‘that 

DCMs historically have set or maintained exchange 

spot month limits at levels below 25 percent of 

deliverable supply.’’ December 2013 Position Limits 

Proposal, 78 FR at 75729. 

541 December 2013 Position Limits Proposal, 78 

FR at 75729. 

TABLE III–B–6—CME AND MGEX AGRICULTURAL CONTRACTS—SPOT MONTH—Continued 

Core referenced futures contract Basis of spot-month level Limit level 

Unique persons over spot 

month limit Reportable 

persons spot 

Cash settled month only 

contracts 

Physical delivery contracts 

Soybean Oil (SO) .............................. CME recommendation ..................... † 540 0 21 397 

25% DS ............................................ 3,400 0 0 

Wheat (W) ......................................... CME recommendation ..................... † 600 0 11 444 

25% DS ............................................ 1,000 0 6 

Wheat (MWE) ................................... Parity w/CME recommendation ....... † 600 0 * 102 

25% DS ............................................ †† 1,000 0 * 

Wheat (KW) ...................................... CME recommendation ..................... † 600 0 4 250 

25% DS (MW) .................................. 1,000 0 * 

25% DS (KW) ................................... 3,000 0 * 

Rough Rice (RR) .............................. CME recommendation ..................... † 600 0 0 91 

25% DS ............................................ 2,300 0 0 

Reproposed speculative position limit levels are shown in bold. 

‘‘25% DS’’ means 25 percent of the deliverable supply as estimated by the exchange listing the core referenced futures contract. 

† Denotes existing limit level. 

†† Limit level requested by MGEX. 

* Denotes fewer than 4 persons. 

The Commission’s impact analysis 

reveals no traders in cash settled 

contracts in any of C, O, S, SM, SO, W, 

MWE, KW, or RR, and no traders in 

physical delivery contracts for O and 

RR, above the initial speculative limit 

levels for those contracts. The 

Commission found varying numbers of 

traders in the C, S, SM, SO, W, MWE, 

KW physical delivery contracts over the 

initial levels, but the numbers were very 

small for MWE and KW.535 Because the 

levels that the Commission reproposes 

today for C, O, S, SM, SO, W, KW, and 

RR maintain the status quo for those 

contracts, the Commission assumes that 

some or possibly all of such traders over 

the initial levels are hedgers. Hedgers 

may have to file for an applicable 

exemption, but hedgers with bona fide 

hedging positions should not have to 

reduce their positions as a result of 

speculative position limits per se. Thus, 

the number of traders in the C, S, SM, 

SO, W and KW physical delivery 

contracts who would need to reduce 

speculative positions below the initial 

limit levels should be lower than the 

numbers indicated by the impact 

analysis. The Commission believes that 

setting initial speculative levels at 25 

percent of deliverable supply would, 

based upon logic and the Commission’s 

impact analysis, affect fewer traders in 

the C, S, SM, SO, W and KW physical 

delivery contracts. Consistent with its 

statement in the December 2013 

Position Limits Proposal, the 

Commission believes that accepting the 

recommendation of the DCM to set these 

lower levels of initial spot month limits 

will serve the objectives of preventing 

excessive speculation, manipulation, 

squeezes and corners,536 while ensuring 

sufficient market liquidity for bona fide 

hedgers in the view of the listing DCM 

and ensuring that the price discovery 

function of the market is not 

disrupted.537

b. Softs 

As explained above, the Commission 

has verified that the estimates of 

deliverable supply for each of the IFUS 

Cocoa (CC), Coffee ‘‘C’’ (KC), Cotton No. 

2 (CT), FCOJ–A (OJ), Sugar No. 11 (SB), 

and Sugar No. 16 (SF) core referenced 

futures contracts submitted by ICE are 

reasonable. 

The Commission has determined to 

repropose the initial speculative spot 

month position limit levels for the CC, 

KC, CT, OJ, SB, and SF 538 core 

referenced futures contracts at 25 

percent of estimated deliverable supply, 

based on the estimates of deliverable 

supply submitted by ICE.539 As is 

evident from the table set forth below, 

this also means that the Commission is 

reproposing initial speculative position 

limit levels that are significantly higher 

than the levels for these six contracts as 

previously proposed. As stated in the 

December 2013 Position Limits 

Proposal, the 25 percent formula ‘‘is 

consistent with the longstanding 

acceptable practices for DCM core 

principle 5 which provides that, for 

physical-delivery contracts, the spotmonth limit should not exceed 25 

percent of the estimated deliverable 

supply.’’ 540 The Commission continues 

to believe, based on its experience and 

expertise, that the 25 percent formula is 

an ‘‘effective prophylactic tool to reduce 

the threat of corners and squeezes, and 

promote convergence without 

compromising market liquidity.’’ 541

TABLE III–B–7—IFUS SOFT AGRICULTURAL CONTRACTS—SPOT MONTH LIMIT LEVELS

Contract 

Previously 

proposed 

limit level 542

25% of estimated 

deliverable 

supply 543

Reproposed 

speculative 

limit level 

CC ........................................................................................................................ 1,000 5,500 5,500 


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96762 Federal Register / Vol. 81, No. 251 / Friday, December 30, 2016 / Proposed Rules 

542 December 2013 Position Limits Proposal, 78 

FR at 75839–40 (Appendix D to Part 150—Initial 

Position Limit Levels). 

543Rounded up to the next 100 contracts. 

544CL–CME–61007 at 5. 

545The Commission noted in the December 2013 

Position Limits Proposal ‘‘that DCMs historically 

have set or maintained exchange spot month limits 

at levels below 25 percent of deliverable supply.’’ 

December 2013 Position Limits Proposal, 78 FR at 

75729. 

546One commenter cautioned against raising limit 

levels for GC to 25 percent of deliverable supply, 

and expressed concern that higher federal limits 

would incentivize exchanges to raise their own 

limits. CL–WGC–59558 at 2–4. 

TABLE III–B–7—IFUS SOFT AGRICULTURAL CONTRACTS—SPOT MONTH LIMIT LEVELS—Continued 

Contract 

Previously 

proposed 

limit level 542

25% of estimated 

deliverable 

supply 543

Reproposed 

speculative 

limit level 

KC ........................................................................................................................ 500 2,400 2,400 

CT ........................................................................................................................ 300 1,600 1,600 

OJ ........................................................................................................................ 300 2,800 2,800 

SB ........................................................................................................................ 5,000 23,300 23,300 

SF ........................................................................................................................ 1,000 7,000 7,000 

The Commission did not receive any 

estimate of deliverable supply for the 

CME Live Cattle (LC) core referenced 

futures contract from CME, nor did CME 

recommend any change in the limit 

level for LC. In the absence of any such 

update, the Commission is reproposing 

the initial speculative position limit 

level of 450 contracts. Of 616 reportable 

persons, the Commission’s impact 

analysis did not reveal any unique 

person trading cash settled or physical 

delivery spot month contracts who 

would have held positions above this 

level for LC. 

With respect to the IFUS CC, KC, CT, 

OJ, SB, and SF core referenced futures 

contracts, the Commission’s impact 

analysis did not reveal any unique 

person trading cash settled spot month 

contracts who would have held 

positions above the initial levels that the 

Commission adopts today; as illustrated 

below, lower levels would mostly have 

affected small numbers of traders in 

physical delivery contracts. 

TABLE III–B–8—IFUS SOFT AGRICULTURAL CONTRACTS—SPOT MONTH

Core referenced futures contract Basis of spot-month level Limit level 

Unique persons over spot 

month limit Reportable 

persons spot 

Cash settled month only 

contracts 

Physical delivery contracts 

Cocoa (CC) ....................................... 15% DS ............................................ 3,300 0 0 164 

25% DS ............................................ †† 5,500 0 0 

Coffee ‘‘C’’ (KC) ................................ 15% DS ............................................ 1,440 0 * 336 

25% DS ............................................ †† 2,400 0 * 

Cotton No. 2 (CT) ............................. 15% DS ............................................ 960 0 * 122 

25% DS ............................................ †† 1,600 0 0 

FCOJ–A (OJ) .................................... 15% DS ............................................ 1,680 0 0 38 

25% DS ............................................ †† 2,800 0 0 

Sugar No. 11 (SB) ............................ 15% DS ............................................ 13,980 * 10 443 

25% DS ............................................ †† 23,300 0 * 

Sugar No. 16 (SF) ............................ 15% DS ............................................ 4,200 0 0 12 

†† 25% DS ....................................... †† 7,000 0 0 

Reproposed speculative position limit levels are shown in bold. 

‘‘15% DS’’ means 15 percent of the deliverable supply as estimated by the exchange listing the core referenced futures contract and is included to provide information regarding the distribution of reportable traders. 

‘‘25% DS’’ means 25 percent of the deliverable supply as estimated by the exchange listing the core referenced futures contract. 

†† Limit level requested by ICE. 

* Denotes fewer than 4 persons. 

c. Metals 

As explained above, the Commission 

has verified that the estimates of 

deliverable supply for each of the 

COMEX Gold (GC), COMEX Silver (SI), 

NYMEX Platinum (PL), NYMEX 

Palladium (PA), and COMEX Copper 

(HG) core referenced futures contracts 

submitted by CME are reasonable. 

Nevertheless, the Commission has 

determined to repropose the initial 

speculative spot month position limit 

levels for GC, SI, and HG at the 

recommended levels submitted by 

CME,544 all of which are lower than 25 

percent of estimated deliverable 

supply.545 In the case of GC and SI, this 

is a doubling of the current exchange-set 

limit levels.546 In the case of HG, the 

initial level is the same as the existing 

DCM-set level for the core referenced 

futures contract and lower than the level 

previously proposed. 

TABLE III–B–9—CME METALS CONTRACTS—SPOT MONTH LIMIT LEVELS

Contract 

Previously 

proposed 

limit level 547

25% of estimated 

deliverable 

supply 548

Reproposed 

speculative 

limit level 

GC ........................................................................................................................ 3,000 11,200 6,000 


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547 December 2013 Position Limits Proposal, 78 

FR at 75840 (Appendix D to Part 150—Initial 

Position Limit Levels). 

548Rounded up to the next 100 contracts. 

549Fewer than four unique persons. 

550Contra CL–ISDA/SIFMA–59611 at 55 

(proposed spot month limits ‘‘are almost certainly 

far smaller than necessary to prevent corners or 

squeezes’’). 

551 In this regard, the Commission notes that CME 

did not have access to the Commission’s impact 

analysis when CME recommended levels for its 

physical-delivery core referenced futures contracts. 

TABLE III–B–9—CME METALS CONTRACTS—SPOT MONTH LIMIT LEVELS—Continued 

Contract 

Previously 

proposed 

limit level 547

25% of estimated 

deliverable 

supply 548

Reproposed 

speculative 

limit level 

SI .......................................................................................................................... 1,500 5,600 3,000 

PL ......................................................................................................................... 500 900 100 

PA ........................................................................................................................ 650 900 ¥500 

HG ........................................................................................................................ 1,200 1,100 1,000 

The Commission has also determined 

to repropose the initial speculative spot 

month position limit level for PL at 100 

contracts and PA at 500 contracts, 

which are the levels recommended by 

CME. In the case of PL and PA, the 

reproposed level is the same as the 

existing DCM-set level for the core 

referenced futures contract, and a 

decrease from the previously proposed 

levels of 500 and 650 contracts, 

respectively. 

The Commission found varying 

numbers of traders in the GC, SI, PL, 

PA, and HG physical delivery contracts 

over the initial levels, but the numbers 

were very small except for PA.549

Because the levels that the Commission 

reproposes today for PL, PA, and HG 

maintain the status quo for those 

contracts, the Commission assumes that 

some or possibly all of such traders over 

the reproposed levels are hedgers. The 

Commission reiterates the discussion 

above regarding agricultural contracts: 

hedgers may have to file for an 

applicable exemption, but hedgers with 

bona fide hedging positions should not 

have to reduce their positions as a result 

of speculative position limits per se. 

Thus, the number of traders in the 

metals physical delivery contracts who 

would need to reduce speculative 

positions below the reproposed limit 

levels should be lower than the numbers 

indicated by the impact analysis. And, 

while setting initial speculative levels at 

25 percent of deliverable supply would, 

based upon logic and the Commission’s 

impact analysis, affect fewer traders in 

the metals physical delivery contracts, 

consistent with its statement in the 

December 2013 Position Limits 

Proposal, the Commission believes that 

setting these lower levels of initial spot 

month limits will serve the objectives of 

preventing excessive speculation, 

manipulation, squeezes and corners,550

while ensuring sufficient market 

liquidity for bona fide hedgers in the 

view of the listing DCM and ensuring 

that the price discovery function of the 

market is not disrupted. 

TABLE III–B–10—CME METAL CONTRACTS—SPOT MONTH

Core referenced futures contract Basis of spot-month level Limit level 

Unique persons over spot 

month limit Reportable 

persons spot 

Cash settled month only 

contracts 

Physical delivery contracts 

Gold (GC) .......................................... CME recommendation ..................... 6,000 * * 518 

25% DS ............................................ 11,200 0 0 

Silver (SI) .......................................... CME recommendation ..................... 3,000 0 0 311 

25% DS ............................................ 5,600 0 0 

Platinum (PL) .................................... CME recommendation ..................... † 500 13 * 235 

25% DS ............................................ 900 10 * 

50% DS ............................................ 1,800 * 0 

Palladium (PA) .................................. CME recommendation ..................... † 100 6 14 164 

25% DS ............................................ 900 0 0 

Copper (HG) ..................................... CME recommendation ..................... † 1,000 0 * 493 

25% DS ............................................ 1,100 0 * 

Reproposed speculative position limit levels are shown in bold. 

‘‘25% DS’’ means 25 percent of the deliverable supply as estimated by the exchange listing the core referenced futures contract. 

‘‘50% DS’’ means 50 percent of the deliverable supply as estimated by the exchange listing the core referenced futures contract and is included to provide information regarding the distribution of reportable traders. 

† Denotes existing exchange-set limit level. 

* Denotes fewer than 4 persons. 

The Commission’s impact analysis 

reveals no unique persons in the SI and 

HG cash settled referenced contracts, 

and very few unique persons in the cash 

settled GC referenced contract, whose 

positions would have exceeded the 

initial limit levels for those contracts. 

Based on the Commission’s impact 

analysis, setting the initial federal spot 

month limit levels for PL and PA at the 

lower levels recommended by CME 

would impact a few traders in PL and 

PA cash settled contracts. 

The Commission has carefully 

considered the numbers of unique 

persons that would be impacted by each 

of the cash-settled and physical-delivery 

spot month limits in the PL and PA 

referenced contracts. The Commission 

notes those limits would appear to 

impact more traders in the physicaldelivery PA contract than in the cashsettled PA contract, while fewer traders 

would be impacted in the physicaldelivery PL contract than in the cashsettled PL contract (in any event, few 

traders would appear to be affected).551


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552CL–CME–61007 at 5. One commenter opined 

that 25 percent of deliverable supply would result 

in a limit level that is too high for natural gas, and 

suggest 5 percent as an alternative that ‘‘would 

provide ample liquidity and significantly reduce 

the potential for excessive speculation.’’ CL– 

Industrial Energy Consumers of America–59964 at 

3. Another commenter supported increasing ‘‘the 

spot-month position limit levels for Henry Hub 

Natural Gas referenced contracts to be consistent 

with CME Group’s or ICE’s estimates of deliverable 

supply and more generally the significant new 

sources of natural gas.’’ CL–NGSA–59674 at 3. 

553 December 2013 Position Limits Proposal, 78 

FR at 75729. 

554 December 2013 Position Limits Proposal, 78 

FR at 75729. 

555 December 2013 Position Limits Proposal, 78 

FR at 75840 (App. D to part 150—Initial Position 

Limit Levels). 

556Rounded up to the next 100 contracts. 

557One commenter expressed concern about 

setting the spot month limit for natural gas swaps 

at the same level as for the physically settled 

futures contract, because some referenced contracts 

cease to be economically equivalent ‘‘during the 

limited window at expiry.’’ CL–BG Group–59937 at 

3. 

558This exemption for up to 10,000 contracts 

would be five times the spot month limit of 2,000 

contracts, consistent with the December 2013 

Position Limits Proposal. See December 2013 

Position Limits Proposal, 78 FR at 75736–8. Under 

vacated § 151.4, the Commission would have 

applied a spot-month position limit for cash-settled 

contracts in natural gas at a level of five times the 

level of the limit for the physical delivery core 

referenced futures contract. See Position Limits for 

Futures and Swaps, 76 FR 71626, 71687 (Nov. 18, 

2011). 559Some commenters supported retaining a 

conditional spot month limit in natural gas. E.g., 

CL–ICE–60929 at 12 (‘‘Any changes to the current 

terms of the Conditional Limit would disrupt 

present market practice for no apparent reason. 

Furthermore, changing the limits for cash-settled 

contracts would be a significant departure from 

current rules, which have wide support from the 

broader market as evidenced by multiple public 

comments supporting no or higher cash-settled 

limits.’’). Contra CL-Sen. Levin–59637 at 7 (‘‘The 

proposed higher limit for cash settled contracts is 

ill-advised. It would not only raise the affected 

position limits to levels where they would be 

effectively meaningless, it would also introduce 

market distortions favoring certain contracts and 

certain exchanges over others, and potentially 

disrupt important markets, including the U.S. 

natural gas market that is key to U.S. 

manufacturing.’’); CL-Public Citizen–59648 at 5 

(‘‘Congress, in allowing an exemption for bona fide 

hedgers but not pure speculators, could not 

possibly have intended for the Commission to 

implement position limits that allow market 

speculators to hold 125 percent of the estimated 

deliverable supply. Once again, while this 

exception for cash-settled contracts would avoid 

market manipulations such as corners and squeezes 

(since cash-settled contracts give no direct control 

over a commodity), it does not address the problem 

of undue speculative influence on futures prices.’’); 

CL-Better Markets-60401 at 17 (‘‘There is no 

justification for treating cash and physically-settled 

contracts differently in any month, and settlement 

characteristics should not be a determinant of the 

ability to exceed the limits in any month.’’). One 

commenter urged the Commission ‘‘to eliminate the 

requirement that traders hold no physical-delivery 

position in order to qualify for the conditional spotmonth limit exemption’’ in order to maintain 

liquidity in the NYMEX natural gas futures 

contract. CL–BG Group–59656 at 6–7. See also CL– 

NGSA–59674 at 38–39 (supporting the higher 

conditional spot month limit in natural gas without 

restricting positions in the underlying physical 

delivery contract); CL–EEI–EPSA–59602 at 10 (the 

Commission should permit ‘‘market participants to 

rely on higher speculative limits for cash-settled 

contracts while still holding a position in the 

physical-delivery contract’’); CL–APGA–59722 at 8 

(the Commission should condition the spot month 

limit exemption for cash settled natural gas 

contracts by precluding a trader from holding more 

than one quarter of the deliverable supply in 

physical inventory). Cf. CL–CME–59971 at 3 

(eliminate the five times natural gas limit because 

it ‘‘encourages participants to depart from, or 

refrain from establishing positions in, the primary 

physical delivery contract market and instead opt 

for the cash-settled derivative contract market, 

especially during the last three trading days when 

the five times limit applies. By encouraging 

departure from the primary contract market, the five 

The Commission also observed the 

distribution of those cash-settled traders 

over time; as reflected in the open 

interest table discussed below regarding 

setting non-spot month limits, it can be 

readily observed that open interest in 

each of the cash-settled PL and PA 

referenced contracts was markedly 

lower in the second 12-month period 

(year 2) than in the prior 12-month 

period (year 1). Accordingly, the 

Commission accepts the CME 

recommended levels in PL and PA 

referenced contracts. 

d. Energy 

As explained above, the Commission 

has verified that the estimates of 

deliverable supply for each of the 

NYMEX Natural Gas (NG), Light Sweet 

Crude (CL), NY Harbor ULSD (HO), and 

RBOB Gasoline (RB) core referenced 

futures contracts submitted by CME are 

reasonable. 

The Commission has determined to 

repropose the initial speculative spot 

month position limit levels for the NG, 

CL, HO, and RB core referenced futures 

contracts at 25 percent of estimated 

deliverable supply which, in the case of 

CL, HO, and RB is higher than the levels 

recommended by CME.552 As is evident 

from the table set forth below, this also 

means that the Commission is 

reproposing speculative position limit 

levels that are significantly higher than 

the levels for these four contracts as 

previously proposed. As stated in the 

December 2013 Position Limits 

Proposal, the 25 percent formula ‘‘is 

consistent with the longstanding 

acceptable practices for DCM core 

principle 5 which provides that, for 

physical-delivery contracts, the spotmonth limit should not exceed 25 

percent of the estimated deliverable 

supply.’’ 553 The Commission continues 

to believe, based on its experience and 

expertise, that the 25 percent formula is 

an ‘‘effective prophylactic tool to reduce 

the threat of corners and squeezes, and 

promote convergence without 

compromising market liquidity.’’ 554

TABLE III–B–11—CME ENERGY CONTRACTS—SPOT MONTH LIMIT LEVELS

Contract 

Previously 

proposed 

limit level 555

25% of estimated 

deliverable 

supply 556

Reproposed 

speculative 

limit level 

NG ........................................................................................................................ 1,000 2,000 2,000 

CL ........................................................................................................................ 3,000 10,400 10,400 

HO ........................................................................................................................ 1,000 2,900 2,900 

RB ........................................................................................................................ 1,000 6,800 6,800 

The levels that CME recommended for 

NG, CL, HO, and RB are twice the 

existing exchange-set spot month limit 

levels. Nevertheless, the Commission is 

reproposing speculative spot month 

limit levels at 25 percent of deliverable 

supply for CL, HO, and RB because the 

Commission believes that higher levels 

will lessen the impact on a number of 

traders in both cash settled and physical 

delivery contracts. For NG, the 

Commission is reproposing the physical 

delivery limit at 25% of deliverable 

supply, as recommended by CME; 557

the Commission is also reproposing a 

conditional spot month limit exemption 

of 10,000 for cash-settled contracts in 

natural gas only.558 This exemption 

would to some degree maintain the 

status quo in natural gas because each 

of the NYMEX and ICE cash-settled 

natural gas contracts, which settle to the 

final settlement price of the physical 

delivery contract, include a conditional 

spot month limit exemption of 5,000 

contracts (for a total of 10,000 

contracts).559 However, neither the 


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times limit encourages a process of de-liquefying 

the benchmark physically delivered futures market 

and directly affects the determination of the final 

settlement price for the NYMEX NG contract- the 

very same price that a position representing five 

times the physical limit will settle against.’’). 

560As noted in the December 2013 Position 

Limits Proposal, the Commission has used the 10, 

2.5 percent formula in administering the level of the 

legacy all-months position limits since 1999. 

December 2013 Position Limits Proposal, 78 FR at 

75729–30. 

Several commenters did not support establishing 

non-spot month limits. See, e.g., CL–ISDA/SIFMA– 

59611 at 27 (‘‘There is no justification whatsoever 

for non-spot-month limits.’’); CL–EEI–EPSA–59602 

at 10 (‘‘limits outside the spot month are not 

necessary’’); CL–AMG–59709 at 10 (the 

Commission should ‘‘decline to adopt non-spotmonth position limits’’); CL–CME–59718 at 39 (the 

Proposal’s non-spot-month position limit formula 

should be withdrawn’’); CL–CAM–60097 at 2 

(‘‘Non-spot month limits are neither necessary nor 

appropriate.’’); CL–BG Group–60383 at 2 (‘‘Any 

final rule should be limited to a federally mandated 

spot-month limit (not any/all month limits).’’). 

Some of these same commenters supported position 

accountability in the non-spot months rather than 

limits. See, e.g., CL–EEI–EPSA–59602 at 10, CL– 

FIA–59595 at 3, CL–MFA–60385 at 5, CL–ISDA/ 

SIFMA–59611 at 29, CL–Calpine–59663 at 3–4, CL– 

Working Group-60396 at 10, CL–EDF–60398 at 4, 

CL–ICE–59966 at 8, CL–BG Group-60383 at 2, CL– 

CMC–59634 at 11. Some commenters also urged the 

Commission to wait until it has reliable data before 

establishing non-spot month limits. See, e.g., CL– 

EEI–EPSA–59602 at 11; CL–FIA–59595 at 3, 14; CL– 

MFA–60385 at 5; CL–ISDA/SIFMA–59611 at 29; 

CL–Olam–59658 at 1, 3. See also discussion of part 

20 data adjustments under § 150.2, below. Contra 

CL–O SEC–59972 (‘‘corners and other supply 

fluctuations can occur during non-spot months’’). 

A commenter who did not support adopting nonspot month limits suggested a fall-back position of 

adopting ‘‘any months limits’’ but not ‘‘all months 

limits,’’ and suggested an alternative 10, 5 percent 

formula in specified circumstances. CL-Working 

Group–59693 at 62. See also CL–CME–59718 at 44 

(supporting a 10, 5 percent formula). One 

commenter supported abolishing single month 

limits ‘‘in favor of an ‘‘all months’’ or gross position 

that would effectively allow the player to adapt 

their position to the realities of an agricultural crop 

that doesn’t flow in equal monthly chunks.’’ CLThornton–59702 at 1. Another commenter stated 

that ‘‘[p]osition limits should be a function of the 

liquidity of the market,’’ CL–MFA–59606 at 21, and 

asserted that applying the 10, 2.5 percent formula 

will result in ‘‘a self-reinforcing cycle of lower open 

interest and lower position limits in successive 

years.’’ CL–MFA–59696 at 22. Another commenter 

supported ‘‘tying the overall non-spot month 

position limits to an acceptable aggregate (marketwide) level of speculation, and tying individual 

trader limits to that aggregate level.’’ CL-Public 

Citizen–59648 at 4. Another commenter expressed 

the belief that the 10, 2.5 percent formula would 

result in non-spot month limits that ‘‘are much too 

high to adequately regulate excessive speculation 

that might lead to price fluctuations.’’ CL–Tri-State– 

59682 at 1. To ‘‘address the cumulative, disruptive 

effect of traders who hold large, but not dominant 

positions,’’ one commenter suggested basing nonspot month position limits on ‘‘an acceptable total 

level of speculation that approximates the historic 

ratio of hedging to investor/speculative trading.’’ 

CL–A4A–59714 at 4. See CL-Better Markets–60401 

at 4 (‘‘Historically, speculators in commodity 

futures have constituted between 15%–30% of 

market activity, and within this range speculators 

productively facilitated effective hedging without 

meaningfully disrupting or independently shaping 

the market’s behavior.’’). 

561 December 2013 Position Limits Proposal, 78 

FR at 75730. 

562One commenter expressed concern ‘‘that 

proposed all-months-combined speculative position 

limits based on open interest levels is not 

necessarily the appropriate methodology and could 

lead to contract performance problems.’’ This 

commenter urged ‘‘that all-months-combined limits 

be structured to ‘telescope’ smoothly down to 

legacy spot-month limits in order to ensure 

continued convergence.’’ CL–NGFA–60312 at 4. 

563One commenter supported a higher limit for 

KW than proposed to promote growth and to enable 

liquidity for Kansas City hedgers who often use the 

Chicago market. CL-Citadel-59717 at 8. Another 

Continued 

NYMEX and ICE penultimate contracts, 

which settle to the daily settlement 

price on the next to last trading day of 

the physical delivery contract, nor OTC 

swaps, are currently subject to any spot 

month position limit. In addition, the 

Commission’s impact analysis suggests 

that a conditional spot month limit 

exemption greater than 25% of 

deliverable supply for cash settled 

contracts in natural gas would 

potentially benefit many traders. 

TABLE III–B–12—ENERGY CONTRACTS—SPOT MONTH

Core referenced futures contract Basis of spot-month level Limit level 

Unique persons over spot 

month limit Reportable 

persons spot 

Cash settled month only 

contracts 

Physical delivery contracts 

Natural Gas (NG) .............................................. CME recommendation ...................................... 2,000 131 16 1,400 

50% DS ............................................................. 4,000 77 * 

Conditional Exemption ...................................... 10,000 20 0 

Light Sweet Crude (CL) ..................................... CME recommendation ...................................... †† 6,000 19 8 1,733 

25% DS ............................................................. 10,400 16 * 

50% DS ............................................................. 20,800 * 0 

NY Harbor ULSD (HO) ...................................... CME recommendation ...................................... 2,000 24 11 470 

25% DS ............................................................. 2,900 15 5 

50% DS ............................................................. 5,800 5 0 

RBOB Gasoline (RB) ......................................... CME recommendation ...................................... 2,000 23 14 463 

25% DS ............................................................. 6,800 * 0 

50% DS ............................................................. 13,600 0 0 

Reproposed speculative position limit levels are shown in bold. 

‘‘25% DS’’ means 25 percent of the deliverable supply as estimated by the exchange listing the core referenced futures contract. 

‘‘50% DS’’ means 50 percent of the deliverable supply as estimated by the exchange listing the core referenced futures contract and is included to provide information regarding the distribution of reportable traders. 

†† CME recommended a step-down spot month limit of 6,000/5,000/4,000 contracts in the last three days of trading. 

* Denotes fewer than 4 persons. 

5. Setting Levels of Single-Month and 

All-Months-Combined Limits 

The Commission has determined to 

use the futures position limits formula, 

10 percent of the open interest for the 

first 25,000 contracts and 2.5 percent of 

the open interest thereafter, to repropose 

the non-spot month speculative position 

limits for referenced contracts, subject 

to the details and qualifications set forth 

in this Notice.560 The Commission 

continues to believe that ‘‘the non-spot 

month position limits would restrict the 

market power of a speculator that could 

otherwise be used to cause unwarranted 

price movements.’’ 561

a. CME and MGEX Agricultural 

Contracts 

The Commission is reproposing the 

non-spot month speculative position 

limit levels for the Corn (C), Oats (O), 

Rough Rice (RR), Soybeans (S), Soybean 

Meal (SM), Soybean Oil (SO), and 

Wheat (W) core referenced futures 

contracts based on the 10, 2.5 percent 

open interest formula.562 Based on the 

Commission’s experience since 2011 

with non-spot month speculative 

position limit levels for the Hard Red 

Winter Wheat (KW) and Hard Red 

Spring Wheat (MWE) core referenced 

futures contracts, the Commission is 

reproposing the limit levels for those 

two commodities at the current level of 

12,000 contracts rather than reducing 

them to the lower levels that would 

result from applying the 10, 2.5 percent 

formula.563


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commenter supported setting ‘‘a non-spot month 

and combined position limit of no less than 12,000 

for all three wheat contracts.’’ CL–MGEX–60301 at 

1. Contra CL–O SEC–59972 at 7–8 (commending 

‘‘the somewhat more restrictive limitations . . . on 

wheat trading’’). 

564The W core referenced futures contract refers 

to soft red winter wheat, the KW core reference 

futures contract refers to hard red winter wheat, and 

the MWE core reference futures contract refers to 

hard red spring wheat; i.e., the contracts are for 

different products. 

565Several commenters supported adopting 

equivalent non-spot month position limits for the 

three existing wheat referenced contracts traders. 

See, e.g., CL–FIA–59595 at 4, 15; CL–CMC–60391 

at 8; CL–CMC–60950 at 11; CL–CME–59718 at 44; 

CL–AFBF–59730 at 4; CL–MGEX–59932 at 2; CL– 

MGEX–60301 at 1; CL–MGEX–59610 at 2–3; CL– 

MGEX–60936 at 2–3; CL–NCFC–59942 at 6; CL– 

NGFA–59956 at 3. 

566Revision of Speculative Position Limits, 57 FR 

12770, 12766 (Apr. 13, 1992). See also Revision of 

Speculative Position Limits and Associated Rules, 

63 FR 38525, 38527 (July 17, 1998). Cf. December 

2013 Position Limits Proposal, 78 FR at 75729 

(there may be range of spot month limits that 

maximize policy objectives). 

567One commenter expressed concern that too 

high non-spot month limit levels could lead to a 

repeat of convergence problems experienced by 

certain contracts and that ‘‘the imposition of all 

months combined limits in continuously produced 

non-storable commodities such as livestock . . . 

will reduce the liquidity needed by hedgers in 

deferred months who often manage their risk using 

strips comprised of multiple contract months.’’ CL– 

AFBF–59730 at 3–4. One commenter requested that 

the Commission withdraw its proposal regarding 

non-spot month limits, citing, among other things, 

the Commission’s previous approval of exchange 

rules lifting all-months-combined limits for live 

cattle contracts ‘‘to ensure necessary deferred 

month liquidity.’’ CL–CME–59718 at 4. Another 

commenter expressed concern that non-spot month 

limits would have a negative impact on live cattle 

market liquidity. CL–CMC–59634 at 12–13. See also 

CL–CME–59718 at 41. 

TABLE III–B–13—CME AND MGEX AGRICULTURAL CONTRACTS—NON-SPOT MONTH LIMIT LEVELS

Contract Current 

limit level 

Previously 

proposed 

limit level 

Reproposed 

speculative 

limit level 

C .................................................................................................................................................. 33,000 53,500 62,400 

O .................................................................................................................................................. 2,000 1,600 5,000 

RR ................................................................................................................................................ 1,800 2,200 5,000 

S ................................................................................................................................................... 15,000 26,900 31,900 

SM ................................................................................................................................................ 6,500 9,000 16,900 

SO ................................................................................................................................................ 8,000 11,900 16,700 

W 564 ............................................................................................................................................ 12,000 16,200 32,800 

KW ............................................................................................................................................... 12,000 6,500 12,000 

MWE ............................................................................................................................................ 12,000 3,300 12,000 

Maintaining the status quo for the 

non-spot month limit levels for the KW 

and MWE core referenced futures 

contracts means there will be partial 

wheat parity.565 The Commission has 

determined not to raise the reproposed 

limit levels for KW and MWE to the 

limit level for W, as 32,800 contracts 

appears to be extraordinarily large in 

comparison to open interest in the KW 

and MWE markets, and the limit levels 

for KW and MWE are already larger than 

a limit level based on the 10, 2.5 percent 

formula. Even when relying on a single 

criterion, such as percentage of open 

interest, the Commission has 

historically recognized that there can 

‘‘result . . . a range of acceptable 

position limit levels.’’ 566

TABLE III–B–14—CME AND MGEX AGRICULTURAL CONTRACTS—NON-SPOT MONTHS

Core-referenced futures 

contract 

Open interest 

Initial 

limit level 

Unique persons above 

limit level 

Reportable 

persons in 

market— 

all months Year Futures Swaps Total All months Single month 

Corn (C) ............................ 1 1,829,359 359,715 2,189,074 62,400 * * 2,606 

2 1,779,977 641,014 2,420,991 

Oats (O) ............................ 1 10,097 646 10,743 5,000 0 0 173 

2 11,223 480 11,703 

Rough Rice (RR) ............... 1 10,585 362 10,948 5,000 0 0 281 

2 12,769 4 12,773 

Soybeans (S) .................... 1 973,037 109,858 1,082,895 31,900 6 4 2,503 

2 962,636 235,679 1,198,315 

Soybean Meal (SM) .......... 1 422,611 71,887 494,498 16,900 5 4 978 

2 463,549 134,399 597,948 

Soybean Oil (SO) .............. 1 421,114 55,265 476,379 16,700 5 4 1,034 

2 464,373 125,106 589,478 

Wheat (W) ......................... 1 1,072,107 162,999 1,235,105 32,800 * * 1,867 

2 1,010,342 222,420 1,232,762 

Wheat (MWE) .................... 1 67,653 1,944 69,596 † 5,000 10 7 342 

2 66,608 3,079 69,687 12,000 0 0 

Wheat (KW) ....................... 1 169,059 9,436 178,495 † 8,100 9 8 718 

2 216,236 29,563 245,799 12,000 * * 

Year 1 = July 1, 2014 to June 30, 2015 

Year 2 = July 1, 2015 to June 30, 2016 

Reproposed speculative position limit levels are shown in bold. † Application of the 10, 2.5 percent formula would result in a level lower than the level adopted by the Commission in 2011. 

* Denotes fewer than 4 persons. 

b. Softs 

The Commission is reproposing nonspot month speculative position limit 

levels for the CC, KC, CT, OJ, SB, SF and 

LC567 core referenced futures contracts 

based on the 10, 2.5 percent open 

interest formula. 


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568 December 2013 Position Limits Proposal, 78 

FR at 75839–40 (App. D to part 150—Initial 

Position Limit Levels). 

569One commenter was concerned that applying 

the 10, 2.5 percent formula to open interest for gold 

would result in a lower non-spot month limit level 

than the spot month limit level, and urged the 

Commission to ‘‘apply a consistent methodology to 

both spot and non-spot months.’’ CL–WGC–59558 

at 5. 

TABLE III–B–15—SOFTS AND OTHER AGRICULTURAL CONTRACTS—NON-SPOT MONTH LIMIT LEVELS

Contract 

Previously 

proposed 

limit level 568

Reproposed 

speculative 

limit level 

CC ............................................................................................................................................................................ 7,100 10,200 

KC ............................................................................................................................................................................ 7,100 8,800 

CT ............................................................................................................................................................................ 8,800 9,400 

OJ ............................................................................................................................................................................ 2,900 5,000 

SB ............................................................................................................................................................................ 23,500 38,400 

SF ............................................................................................................................................................................ 1,200 7,000 

LC ............................................................................................................................................................................ 12,900 12,200 

Set forth below is a summary of the 

impact analysis for softs and live cattle. 

TABLE III–B–16—SOFTS AND OTHER AGRICULTURAL CONTRACTS—NON-SPOT MONTHS

Core-referenced futures 

contract 

Open interest 

Initial 

limit level 

Unique persons above 

limit level 

Reportable 

persons in 

market— 

all months Year Futures Swaps Total All months Single month 

Cocoa (CC) ....................... 1 240,984 11,257 252,240 10,200 12 7 682 

2 273,134 56,853 329,987 

Coffee C (KC) ................... 1 211,051 24,164 235,215 8,800 6 * 1,175 

2 223,885 51,846 275,731 

Cotton No. 2 (CT) ............. 1 238,580 35,102 273,682 9,400 13 8 1,000 

2 239,321 60,477 299,798 

FCOJ–A (OJ) .................... 1 16,883 121 17,004 5,000 

............................................ * * 242 

2 16,336 5 16,341 

Sugar No. 11 (SB) ............ 1 1,016,271 211,994 1,228,265 38,400 14 9 874 

2 1,077,452 382,816 1,460,268 

Sugar No. 16 (SF) ............. 1 8,385 0 8,385 7,000 * 0 22 

2 9,608 0 9,608 

Live Cattle (LC) ................. 1 387,896 23,626 411,522 12,200 9 * 1,436 

2 350,147 52,330 402,478 

Year 1 = July 1, 2014 to June 30, 2015. Year 2 = July 1, 2015 to June 30, 2016. Reproposed speculative position limit levels are shown in bold. * Denotes fewer than 4 persons. 

c. Metals 

The Commission is reproposing nonspot month speculative position limit 

levels for the GC, SI, PL, PA, and HG 

core referenced futures contracts based 

on the 10, 2.5 percent open interest 

formula.569


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570One commenter expressed concern that 

imposing non-spot position limits on copper would 

negatively affect liquidity as evidenced by the 

number of unique persons affected. CL–CMC–59634 

at 13, n. 26. Another commenter cited the number 

of unique traders with all-months overages as 

shown in the open interest data for the GC, SI and 

PL contracts in the December 2013 Position Limits 

Proposal as an indication that ‘‘the impact of the 

Commission’s non-spot-month position limits is 

random and arbitrarily inflexible with no 

relationship to preventing excessive speculation or 

manipulation.’’ CL–CME–59718 at 41. 

571One commenter suggested deriving non-spot 

month limit levels for the CL, HO, and RB 

referenced contracts from the usage ratios for U.S. 

crude oil and oil products rather than open interest 

and expressed concern that ‘‘unnecessarily low 

limits will hamper legitimate hedging activity.’’ CL– 

Citadel–59717 at 7–8. Another commenter 

suggested setting limit levels based on customary 

position size. CL–APGA–59722 at 6. This 

commenter also supported setting the single month 

limit at two-thirds of the all months combined limit 

in order to relieve market congestion as traders exit 

or roll out of the next to expire month into the spot 

month. CL–APGA–59722 at 7. 

TABLE III–B–17—CME METALS CONTRACTS—NON-SPOT MONTH LIMIT LEVELS

Contract 

Previously 

proposed 

limit level 

Reproposed 

speculative 

limit level 

GC ............................................................................................................................................................................ 21,500 19,500 

SI .............................................................................................................................................................................. 6,400 7,600 

PL ............................................................................................................................................................................. 5000 5,000 

PA ............................................................................................................................................................................ 5000 5,000 

HG ............................................................................................................................................................................ 5,600 7,800 

Set forth below is a summary of the 

impact analysis for metals.570

TABLE III–B–18—CME METALS CONTRACTS—NON-SPOT MONTHS

Core-referenced futures contract 

Open interest 

Initial limit 

level 

Unique persons above limit 

level 

Reportable 

persons in 

market—all 

months Year Futures Swaps Total All months Single month 

Gold (GC) ..... 1 618,738 47,727 666,465 19,500 19 17 1,557 

2 667,495 36,029 703,525 

Silver (SI) ..... 1 218,028 9,867 227,895 7,600 15 18 1,023 

2 203,645 3,510 207,155 

Platinum (PL) 1 70,151 21,566 91,717 5,000 26 26 842 

2 70,713 2,285 72,997 

Palladium 

(PA) .......... 1 37,488 1,929 39,417 5,000 * * 580 

2 28,276 823 29,099 

Copper (HG) 1 170,784 22,859 193,643 7,800 19 12 1,457 

2 186,525 47,365 233,890 

Year 1 = July 1, 2014 to June 30, 2015 

Year 2 = July 1, 2015 to June 30, 2016 

Reproposed speculative position limit levels are shown in bold. 

* Denotes fewer than 4 persons. 

d. Energy 

The Commission is reproposing nonspot month speculative position limit 

levels for the NG, CL, HO, and RB core 

referenced futures contracts based on 

the 10, 2.5 percent open interest 

formula.571


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572 December 2013 Position Limits Proposal, 78 

FR at 75728. 

573CL–Public Citizen–59648 at 5; CL–AFR–59711 

at 2; CL–IECA–59713 at 3; CL–Better Markets– 

60325 at 2–3; CL–Better Markets–60401 at 19–20; 

CL–CMOC–59720 at 3; CL–Cota–59706 at 2; CL– 

RF–60372 at 3. 

574 December 2013 Position Limits Proposal, 78 

FR at 75728. 

TABLE III–B–19—CME ENERGY CONTRACTS—NON-SPOT MONTH LIMIT LEVELS

Contract 

Previously 

proposed 

limit level 

Reproposed 

speculative 

limit level 

NG ............................................................................................................................................................................ 149,600 200,900 

CL ............................................................................................................................................................................ 109,200 148,800 

HO ............................................................................................................................................................................ 16,100 21,300 

RB ............................................................................................................................................................................ 11,800 15,300 

Set forth below is a summary of the 

impact analysis for energy contracts. 

TABLE III–B–20—CME ENERGY CONTRACTS—NON-SPOT MONTHS

Core-referenced futures contract 

Open interest 

Initial limit 

level 

Unique persons above limit 

level 

Reportable 

persons in 

market—all 

months Year Futures Swaps Total All months Single month 

Natural Gas 

(NG) .......... 1 4,919,841 2,866,128 7,785,969 200,900 * 0 1,846 

2 4,628,471 3,331,141 7,959,612 

Light Sweet 

Crude (CL) 1 4,071,681 1,587,450 5,659,130 148,800 0 0 2,673 

2 4,130,131 1,744,137 5,874,268 

NY Harbor 

ULSD (HO) 1 638,040 138,360 776,400 21,300 6 * 760 

2 587,796 65,721 653,518 

RBOB Gasoline (RB) ... 1 448,598 81,822 530,420 15,300 8 7 837 

2 505,849 30,477 536,327 

Year 1 = July 1, 2014 to June 30, 2015. 

Year 2 = July 1, 2015 to June 30, 2016. 

Reproposed speculative position limit levels are shown in bold. 

* Denotes fewer than 4 persons. 

6. Subsequent Levels of Limits 

The Commission notes that many of 

the comments referenced above, 

regarding setting initial position limits, 

are also discussed below, regarding resetting levels of limits. 

a. General Procedure for Re-Setting 

Levels of Limits 

Commission Proposal: The 

Commission proposed in § 150.2(e)(2) 

that it would fix subsequent levels of 

speculative position limits no less 

frequently than every two calendar 

years, in accordance with the 

procedures in § 150.2(e)(3) for spotmonth limits and § 150.2(e)(3) for nonspot-month limits, discussed below.572

The Commission proposed it would 

publish such subsequent levels on its 

Web site. 

Comments Received: Regarding 

§ 150.2(e)(2), commenters requested the 

Commission review the level of limits 

more frequently than every two years to 

address changes that may occur within 

the commodities markets.573

Commission Reproposal: The 

Commission has determined to 

repropose this provision as previously 

proposed in the December 2013 Position 

Limits Proposal, and reiterates that it 

will fix subsequent levels no less 

frequently than every two calendar 

years. The Commission is not proposing 

to establish a procedural requirement to 

reset limit levels more frequently than 

every two years, because as the 

frequency of reset increases, the burdens 

on market participants to update 

compliance systems and strategies, and 

on exchanges to submit deliverable 

supply estimates and reset exchange 

limit levels, also increase. The 

Commission believes that a two year 

timetable should reduce burdens on 

market participants while still 

maintaining limits based on recent 

market data. Should higher limit levels 

be desired, exchanges or market 

participants may petition the 

Commission to change limit levels 

within the two year period. 

b. Re-setting Levels of Spot-Month 

Limits 

Commission Proposal: The 

Commission proposed in § 150.2(e)(3) to 

reset each spot month limit at a level no 

greater than one-quarter of the estimated 

spot-month deliverable supply, based 

on the estimate of deliverable supply 

provided by the exchange listing the 

core referenced futures contract. The 

Commission proposed that it could, in 

its discretion, rely on its own estimate 

of deliverable supply. The Commission 

further proposed that, alternatively, it 

could set spot-month limits based on 

the recommended level of the exchange 

listing the core referenced futures 

contract, if lower than 25 percent of 

estimated deliverable supply.574

Comments Received: Commenters 

generally recommended the 

Commission enhance predictability and 

reduce uncertainty for market 

participants, by either restricting how 

much adjustment would be made to the 

position limit level, or having the 

discretion to not alter position limit 


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575CL–FIA–60303 at 8, Agricultural Advisory 

Committee Meeting Transcript at 126–134 (Dec. 9, 

2014). 

576E.g., CL–WGC–59558 at 5; CL–MFA–60385 at 

4–6; CL–ISDA/SIFMA–59611 at 3, 31, 55–56, and 

63–64; CL–MGEX–59610 at 2; CL–NGFA–59681 at 

4–5. 

577See, e.g., CL–WGC–59558 at 5; CL–Public 

Citizen–60313 at 1; CL–Tri-State–59682 at 1–2; CL– 

AFR–59711 at 2; CL–WEED–59628 at 1; CL– 

Industrial Energy Consumers of America–59671 at 

3; CL–CMOC–59720 at 3; CL–IATP–60394 at 2; CL– 

NGFA–59681 at 4–5. 

578CL–ISDA/SIFMA–59611 at 55; CL–Armajaro– 

59729 at 1; CL–CAM–60097 at 3–4. 

579CL–WGC–59558 at 5. 

580E.g., CL–IATP–60323 at 5; CL–IATP–60394 at 

2; CL–RF–60372 at 3. 

581CL–FIA–59595 at 3, 9–10; CL–NGSA–59941 at 

15. 

582CL–MFA–59606 at 18; CL–MFA–60385 at 6. 

583CL–MSCGI–59708 at 2, 11. 

584CL–CAM–60097 at 3–4. 

585CL–IATP–60323 at 6. 

586CL–IATP–60323 at 7. 

levels, for example, if there have not 

been problems with convergence.575

Commenters were divided regarding 

the proposed methodology for 

computing spot month position limit 

levels (which is calculated by 

determining a figure that is no more 

than 25 percent of estimated deliverable 

supply).576 Several commenters stated 

that the proposed formula for setting 

spot month limits based on 25 percent 

of deliverable supply results in spot 

month position limits that would be too 

high and may result in contract 

performance issues.577 Other 

commenters thought the formula results 

in spot-month position limits that 

would be too low and hinder market 

liquidity.578 Yet another requested that 

the Commission do further research to 

determine whether deliverable supply 

or open interest was a better means of 

setting spot month position limits, and 

apply the same metric (deliverable 

supply or open interest) to spot month 

limits and to non-spot month limits.579

Several commenters recommended that 

the Commission consider an alternative 

means of limiting excessive speculation, 

that is, by setting position limits at a 

level low enough to restore a hedger 

majority in open interest in each core 

referenced futures contract.580

In estimating deliverable supply, 

some commenters recommended that 

the Commission include supply that is 

subject to long-term supply contracts, 

arguing that such supply can be readily 

made available for futures delivery.581

One commenter recommended that the 

Commission permit the inclusion in the 

deliverable supply calculation of 

supplies that can be readily transported 

to the futures delivery location.582

Another commenter recommended that 

the deliverable supply estimate should 

include related commodities that a DCM 

allows to be used to liquidate a futures 

position through an EFP transaction.583

One commenter recommended that the 

deliverable supply estimate for natural 

gas should include supplies that are 

available at other major locations in 

addition to the specific futures delivery 

location of Erath, Louisiana, because 

commercials at these locations use the 

futures contract for hedging and price 

basing and basing spot month limits on 

a more limited delivery area would be 

too restrictive.584 In estimating 

deliverable supply, one commenter 

recommended that the Commission not 

include supplies that do not meet 

delivery specifications.585 The same 

commenter said that DCMs should 

provide documentation if including 

long term supply agreements in 

deliverable supply estimates to enable 

the Commission to verify the 

information. The commenter expressed 

concern about financial holding 

companies’ ability to own, warehouse 

and trade physical commodities and 

urged the Commission to assess how 

such firms might affect deliverable 

supply.586

Commission Reproposal: The 

Commission is reproposing to reset each 

spot-month limit, in its discretion, 

either: Based on 25 percent of 

deliverable supply as estimated by an 

exchange listing the core referenced 

futures contract; to the existing spotmonth position limit level (that is, not 

changing such level); or to the 

recommended level of the exchange 

listing the core referenced futures 

contract, but not greater than 25 percent 

of estimated deliverable supply. In the 

alternative, if the Commission elects to 

rely on its own estimate of deliverable 

supply, it will first publish that estimate 

for comment in the Federal Register. 

Thus, the Commission accepts the 

commenter’s recommendation that the 

Commission have discretion to retain 

current spot-month position limit levels. 

In this regard, the Commission provides, 

in reproposed § 150.2(e)(3)(ii)(B), that an 

exchange need not submit an estimate of 

deliverable supply, if the exchange 

provides notice to the Commission, not 

less than two calendar months before 

the due date for its submission of an 

estimate, that it is recommending the 

Commission not change the spot-month 

limit, and the Commission accepts such 

recommendation. 

The Commission notes that it has long 

used deliverable supply as the basis for 

spot month position limits due to 

concerns regarding corners, squeezes, 

and other settlement-period 

manipulative activity. By restricting 

derivative positions to a proportion of 

the deliverable supply of the 

commodity, spot month position limits 

reduce the possibility that a market 

participant can use derivatives, 

including referenced contracts, to affect 

the price of the cash commodity (and 

vice versa). Limiting a speculative 

position based on a percentage of 

deliverable supply also restricts a 

speculative trader’s ability to establish a 

leveraged position in cash-settled 

derivative contracts, diminishing that 

trader’s incentive to manipulate the 

cash settlement price. Commenters did 

not provide evidence that would suggest 

that the open interest formula would 

respond more effectively to these 

concerns, and the Commission does not 

believe that using open interest would 

be preferable for calculating spot-month 

position limit levels. 

In addition, setting the limit levels at 

no greater than 25 percent of deliverable 

supply has historically been effective on 

both the federal and exchange level to 

combat corners and squeezes. In the 

preamble to the final rules for vacated 

Part 151, the Commission noted that the 

25 percent of deliverable supply 

formula appears to ‘‘work effectively as 

a prophylactic tool to reduce the threat 

of corners and squeezes and promote 

convergence without compromising 

market liquidity.’’ Commenters did not 

provide evidence to support claims that 

this historical formula is no longer 

effective. 

In response to concerns that 25 

percent of deliverable supply may result 

in a limit level that is too high, the 

Commission notes that exchanges can 

and often do—and are permitted under 

reproposed § 150.5(a) to—set limits at a 

level lower than 25 percent of estimated 

deliverable supply, which allows the 

exchanges to alter exchange-set limits 

easily based on changing market 

conditions. 

In response to commenters’ 

suggestion to restore a hedger majority, 

the Commission notes such an 

alternative may fail the requirements of 

CEA section 4a(a)(3)(B)(iv) to ensure 

sufficient liquidity for bona fide 

hedgers. Hedgers may not be transacting 

on opposite sides of the market 

simultaneously and, thus, need 

speculators to provide liquidity. Simply 

changing the proportion of hedgers in 

the market does not mean that the 

markets would operate more efficiently 

for bona fide hedgers. In addition, in 

order to adopt the commenter’s 

suggestion, the Commission would need 

to reintroduce the withdrawn ’03 series 

forms which required traders to identify 

which positions were speculative and 

which were hedging, since any entity, 


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587 December 2013 Position Limits Proposal, 78 

FR at 75729. 

588CL–FIA–60303 at 8. This commenter did not 

recommend any specific percentage limitation. 

589E.g., CL–Public Citizen–59648 at 5 (annually); 

CL–AFR–II at 2 (greater frequency); CL–Better 

Markets–60325 at 2–3 (‘‘[b]iennial updates . . . are 

completely inadequate’’); CL–Better Markets–59716 

at 34 (biennial updates values ‘‘the input of swap 

dealers and their trade groups over that of 

commercial hedgers’’); CL–CMOC–59720 at 3 

(annual consultation with hedgers and end users); 

CL–RF–60372 at 3 (‘‘review position limits every 

six months’’). 

590CL–MFA–59606 at 21. 

591E.g., CL–Tri-State–59682 at 1–2; CL–A4A– 

59714 at 3; CL–Better Markets–59716 at 24; CL– 

APGA–59722 at 3, 6; CL–AFBF–59730 at 3; CL– 

NGFA–59681 at 5. 

592E.g., CL–U.S. Dairy–59597 at 4, 6; CL–Hood– 

59582; CL–McCully–59592 at 1; CL–Rice Dairy– 

59601 at 1; CL–Agri-Mark–59609 at 1–2; CL– 

Jacoby–59622 at 1; CL–Pedestal–59630 at 2; CL– 

Darigold–59651 at 1–2; CL–Traditum–59655 at 1; 

CL–Leprino–59707 at 2; CL–IDFA–59771 at 1–2; 

CL–Fonterra–59608 at 1–2; CL–NCFC–59613 at 6; 

CL–NMPF–59936 at 2; CL–DFA–59621 at 7–8; CL– 

Glanbia Foods–60316 at 1; CL–Leprino Foods– 

59707 at 2; CL–NMPF–59936 at 2. 

593Some commenters urged the Commission to 

establish an individual month position limit in 

Class III Milk equal to the spot month limit but no 

less than 3,000 contracts net, and an all-monthslimit as a multiple of four times the spot month 

limit, to foster needed liquidity in the non-spot 

months. See, e.g., CL–NCFC–59942 at 6. Another 

commenter urged an all-months-limit in Class III 

Milk of ten times the spot month limit for a similar 

reason. CL–U.S. Dairy–59597 at 4. These comments 

are now moot. 

594E.g., CL–IATP–60323 at 5; CL–IATP–60394 at 

2; CL–RF–60372 at 3; CL–A4A–59686 at 4; CL– 

Better Markets–59716 at 5; CL–Better Markets– 

60325 at 2. 

595CL–USCF–59644 at 3–4. 

even a commercial end-user, can 

establish speculative positions. 

In response to commenters’ 

suggestions regarding methods for 

estimating deliverable supply, the 

Commission notes that deliverable 

supply estimates are calculated and 

submitted by DCMs. Guidance for 

calculating deliverable supply can be 

found in Appendix C to part 38. 

Amendments to part 38 are beyond the 

scope of this rulemaking. However, such 

guidance already provides that 

deliverable supply calculations are 

estimates based on what ‘‘reasonably 

can be expected to be readily available’’ 

(including estimates of long-term supply 

that can be shown to be regularly made 

available for futures delivery). 

c. Re-Setting Levels of Non-Spot-Month 

Limits 

Commission Proposal—General 

Procedure: For setting subsequent levels 

of non-spot month limits no less 

frequently than every two calendar 

years, the Commission proposed in 

§ 150.3(e)(4) to use the open interest 

formula: 10 percent of the first 25,000 

contracts and 2.5 percent of the open 

interest thereafter (10, 2.5 percent 

formula).587

Comments Received and Commission 

Response: ‘‘In order to enhance the 

predictability and reduce uncertainty in 

business planning,’’ one commenter 

recommended that the Commission 

‘‘adjust limits gradually and by no more 

than a minimum percentage in one 

biennial cycle.’’ 588 The Commission 

declines this suggestion because, as 

explained below, the Commission is 

reproposing a minimum non-spot 

month limit level of 5,000 contracts; 

market participants would be certain 

that in no circumstance would the limit 

level fall below that figure. Also, 

because exchanges can set limits at 

levels below the federal limit level, a 

change in the federal limit may not have 

an effect on exchange limit levels. 

Several commenters recommended 

that the Commission review the levels 

of position limits more frequently than 

once every two years to address changes 

that may occur within the commodities 

markets.589 In response these concerns, 

the Commission notes that exchanges 

may set limits at a level lower than the 

federal limits in order to more readily 

adapt to changing market conditions. 

Should higher limit levels be desired, 

exchanges may petition the Commission 

or the Commission may determine to 

change limit levels within the two year 

period. Thus, the flexibility to change 

limit levels more frequently than every 

two years is already permitted by the 

reproposed rules and the Commission is 

not changing the timeline. 

One commenter recommended that 

the Commission ‘‘adopt final rules that 

give the Commission the flexibility to 

increase position limits immediately or 

with little delay so that the market can 

accurately respond to external forces 

without violating position limits’’ or, in 

the alternative, ‘‘include peak open 

interest levels beyond the most recent 

two years when it determines the level 

of open interest on which to base 

position limits.590 In response, the 

Commission notes that using peak open 

interest figures, as opposed to an 

average, as reproposed, may not 

necessarily represent an accurate 

portrait of current market conditions. 

Using the most recent two years of data 

is designed to ensure that the non-spotmonth limit levels are set relative to the 

current size of the market. 

Several commenters expressed the 

view that the proposed limits based on 

the open interest formula would result 

in limit levels that are too high and 

would not accomplish the goal of 

reducing excessive speculation.591 In 

response, the Commission believes the 

open interest formula provides a level 

that is low enough to reduce the 

potential for excessive speculation and 

market manipulation without unduly 

impairing liquidity for bona fide 

hedgers. Under the rules reproposed 

today, both the Commission and the 

exchanges would have flexibility to 

impose non-spot month limit levels at 

the greater of the open interest formula, 

the spot month limit level, or 5,000 

contracts. 

Several commenters expressed the 

view that the proposed limits based on 

the open interest formula would result 

in limit levels for dairy contracts that 

are too low and would restrict hedging 

use by limiting liquidity.592 The 

Commission responds that it is deferring 

the imposition of position limits on the 

Class III Milk contract, as discussed 

below.593 The Commission also 

observes that reproposed § 150.9 

permits market participants to apply 

directly to the exchanges to obtain an 

exemption to exceed speculative 

position limits. 

Several commenters recommended 

that the Commission consider an 

alternative means of limiting 

speculative traders, by setting position 

limits at a level low enough to restore 

a hedger majority in open interest in 

each core referenced futures contract.594

As discussed above, the Commission is 

concerned that ‘‘restoring’’ a hedger 

majority may not ensure sufficient 

liquidity for bona fide hedgers. Hedgers 

may not be transacting on opposite sides 

of the market simultaneously and, thus, 

need speculators to provide liquidity. 

Simply changing the proportion of 

hedgers in the market does not mean 

that the markets would operate more 

efficiently for bona fide hedgers. In 

addition, in order to implement this 

suggestion, the Commission would need 

to reintroduce the long defunct ’03 

series forms which required traders to 

identify which positions were 

speculative and which were hedging, 

because any entity, even a commercial 

end-user, can establish speculative 

positions. 

One commenter noted that the open 

interest formula permits a speculator to 

hold a larger percentage of open interest 

in a smaller commodity market and thus 

the formula’s entire rationale seems 

‘‘arbitrary . . . and . . . capricious.’’ 595

The Commission acknowledges that, 

because of the way the 10, 2.5 percent 

formula works, a speculator in a market 

with open interest of fewer than 25,000 

contracts may have a larger share of the 

open interest than a speculator in a 

market with an open interest of greater 


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596CL–Working Group–59693 at 62. 

597CL–Citadel–59717 at 7–8. 

598CL–APGA–59722 at 6. 

599 December 2013 Position Limits Proposal, 78 

FR at 75734. 

600 Id. 

601CL–MFA–59606 at 21. 

602E.g., CL–DBCS–59569 at 6; CL–FIA–59595 at 

14; CL–EEI–60386 at 11; CL–MFA–59606 at 5, 20, 

22–23; CL–ISDA/SIFMA–59611 at 29, including 

footnote 108; CL–CMC–59634 at 13; CL–Olam– 

59658 at 3; CL–COPE–59662 at 22; CL–Calpine– 

59663 at 4; CL–Chamber–59684 at 5; CL–NFP– 

59690 at 20; CL–Just Energy–59692 at 4; CL– 

Working Group–59693 at 62; CL–Working Group– 

60396 at 8–10; CL–Citadel–59717 at 4–5. 

603CL–ICE–59966 at 6; CL–U.S. Dairy–59597 at 4. 

than 25,000 contracts. The Commission 

responds that it is by design that the 10, 

2.5 percent open interest formula 

provides that a speculator may hold a 

larger percentage of total open interest 

in a smaller market, potentially 

providing liquidity for bona fide 

hedgers in such a smaller market. As 

open interest increases, the 2.5% 

marginal increase results in limit levels 

that become a progressively smaller 

percentage of total open interest, 

essentially placing a greater emphasis 

on deterring market manipulation and 

protecting the price discovery process in 

a larger market. 

Another commenter suggested that 

the Commission use a 10, 5 percent 

open interest formula rather than a 10, 

2.5 percent formula as proposed, 

arguing that the 10, 5 percent formula 

has worked well for certain agricultural 

futures markets and should be applied 

more broadly. Alternatively, this 

commenter said that Commission 

should use the 10, 5 percent formula for 

at least spread positions.596 The 

Commission notes the 10, 2.5 percent 

formula has produced limit levels that 

should sufficiently maximize the CEA 

section 4a(a)(3)(B) criteria, and the 

Commission does not believe increasing 

the marginal percentage is necessary. A 

larger limit such as would be produced 

from a 10, 5 percent formula may not 

adequately prevent excessive 

speculation. In the preamble to the 

proposed rules, the Commission noted 

that the 10, 2.5 percent formula was first 

proposed in 1992, and the commenter 

has not provided sufficient justification 

for moving away from this established 

standard. 

One commenter recommended that 

the Commission consider commodityrelated ratios in establishing limits, such 

as the ratio between crude oil and its 

products, diesel (30 percent) and 

gasoline (50 percent), rather than on 

separate open interest formulas applied 

to each.597 In response, the Commission 

notes setting limit levels based on the 

open interest of a related commodity 

may result in limit levels that are too 

large to be effective in the smaller 

commodity markets. For example, based 

on the levels proposed in this release in 

Appendix D, implementing a limit for 

NYMEX RBOB Gasoline equal to 50 

percent of the crude oil limit, as 

suggested by the commenter, would 

result in a limit almost 10 times the size 

otherwise indicated by the open interest 

formula, and would equal almost 28 

percent of total average open interest in 

the RBOB referenced contract. Further, 

hedgers with positions in multiple 

contracts could establish positions in 

various ratios without violating a 

position limit, provided they comply 

with the bona fide hedging position 

definition and any applicable 

requirements. The Commission also 

notes that the process in reproposed 

§ 150.10 exempting certain spread 

positions may allow speculators some 

flexibility in inter- and intra-commodity 

spreads for the purpose of providing 

liquidity to bona fide hedgers. 

One commenter suggested the 

Commission consider setting position 

limits on ‘‘customary position size’’ 

which had been used for setting nonspot month limits by the Commission in 

the past and which the commenter 

argues is a more effective means of 

curtailing large speculative positions.598

In response, the Commission believes 

the 10, 2.5 percent formula has been 

effective in preventing excessive 

speculation without unduly limiting 

liquidity for bona fide hedgers. The 

Commission notes when the ‘‘customary 

position size’’ methodology was used to 

set non-spot-month limit levels, such 

levels were below the levels established 

using 10, 2.5 percent formula. 

Commission Reproposal Regarding 

General Procedure for Re-Setting Levels 

of Non-Spot Month Limits: The 

Commission has determined to 

repropose the 10, 2.5 percent formula, 

generally as proposed in the December 

2013 Position Limits Proposal, for the 

reasons discussed above. However, the 

Commission has determined, in 

response to requests by commenters 

requesting wheat parity, as discussed 

above, to provide that it may determine 

not to change the level of a non-spot 

month limit. This would permit, for 

example, the Commission to continue to 

retain a level of 12,000 contracts for the 

non-spot month limits in the KW and 

MWE contracts, even if average open 

interest did not exceed 405,000 

contracts (which is the level that, when 

applying the 10, 2.5 percent formula, 

would result in a limit of 12,000 

contracts). 

Commission Proposal for Time 

Periods, Data Sources, Publication and 

Minimum Levels for Re-Setting Levels of 

Non-Spot Month Limits: Under 

proposed in § 150.2(e)(4)(i) and (ii), the 

Commission would estimate average 

open interest in referenced contracts 

using data reported for each of the last 

two calendar years pursuant to parts 16, 

20, and/or 45.599 The Commission also 

proposed under § 150.2(e)(4)(iii) to 

publish on the Commission’s Web page 

estimates of average open interest in 

referenced contracts on a monthly basis 

to make it easier for market participants 

to estimate changes in levels of position 

limits.600 Finally, the Commission 

proposed under § 150.2(e)(4)(iv) to 

establish minimum non-spot month 

levels of 1,000 contracts for agricultural 

commodity contracts and 5,000 

contracts for exempt commodity 

contracts. 

Comments Received and Commission 

Response: Regarding the time period for 

average open interest, as noted above, 

one commenter recommended that the 

Commission, as an alternative, ‘‘include 

peak open interest levels beyond the 

most recent two years when it 

determines the level of open interest on 

which to base position limits.’’ 601 In 

response, the Commission notes that 

using peak open interest figures, as 

opposed to an average, as reproposed, 

may not necessarily represent an 

accurate portrait of current market 

conditions. 

Regarding data sources for average 

open interest, several commenters noted 

that the open interest data used by the 

Commission in determining the nonspot month limits was not complete 

since it did not include all OTC swaps 

data and that the Commission should 

correct this deficiency before it sets the 

limits using the open interest 

formula.602 In response, the 

Commission notes it used futuresequivalent open interest for swaps 

reported under part 20, in determining 

the initial non-spot month limits, as 

discussed above, and believes this data 

also is acceptable for re-setting limit 

levels, as reproposed. 

The Commission received no 

comments regarding publication of 

average open interest. 

Regarding minimum levels for nonspot month limits, some commenters 

urged the Commission to afford itself 

the flexibility to set non-spot month 

limits at least as high as the spot-month 

position limit, rather than base the nonspot month limit strictly on the open 

interest formula in cases where the 

latter would result in a relatively small 

limit that would hinder liquidity.603

The Commission accepts these 


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604Each of these contracts is cash settled to a U.S. 

Department of Agriculture price series; Feeder 

Cattle and Lean Hogs settle to a CME-calculated 

index of daily USDA livestock prices, while Class 

III Milk settles to the monthly USDA Class III Milk 

price. 

605CL–Rice Dairy–59960 at 1; CL–US Dairy– 

59597 at 3–4; CL–NMPF–59652 at 4; CL–DFA– 

59948 at 4–5. 

606CL–NMPF–59652 at 5; CL–DFA–59948 at 8. 

607CL–NGSA–59674 at 44; CL–ICE–59669 at 5–6. 

608See, e.g., CL–US Dairy–59597 at 3–4. 

609CL–DFA–59948 at 6. 

610CL–Rice Dairy–59601 at 1; CL–US Dairy– 

59597 at 3; CL–NMPF–59652 at 4; CL–DFA–59948 

at 4–5. 

611For example, the Commission stated that 

concerns regarding corners and squeezes are most 

acute in the markets for physical-delivery contracts 

in the spot month. December 2013 Position Limits 

Proposal, 78 FR at 75737. 

612See, e.g., December 2013 Position Limits 

Proposal 78 FR at 75688, including n. 82. 

613 7 U.S.C. 6a(c)(1). Section 737 of the DoddFrank Act did not substantively change CEA section 

4a(c)(1) (renumbering existing provision by 

inserting ‘‘(1)’’ after ‘‘(c)’’). 

614 7 U.S.C. 6a(a)(1). Section 737 of the DoddFrank Act did not change the Commission’s 

authority to exempt spreads under CEA section 

4a(a)(1). 

615 7 U.S.C. 6a(a)(7). Section 737 of the DoddFrank Act added CEA section 4a(a)(7). The 

Commission interprets CEA section 4a(a)(7) to 

provide the Commission with plenary authority to 

grant exemptive relief from position limits, 

consistent with the purposes of the CEA. 

Specifically, under Section 4a(a)(7), the 

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

exempt, conditionally or unconditionally, any 

person, or class of persons, any swap or class of 

swaps, any contract of sale of a commodity for 

future delivery or class of such contracts, any 

option or class of options, or any transaction or 

class of transactions from any requirement it may 

establish . . . with respect to position limits.’’ 

616For completeness, the Commission notes it 

previously provided an exemption in § 150.3(a)(2) 

for spreads of futures positions which offset option 

positions. However, the Commission removed and 

reserved that provision once it was rendered 

obsolete by the Commission determination to 

impose speculative limits on a trader’s net position 

in futures and options combined, rather than 

separately. 58 FR 17973 at 17979 (April 7, 1993). 

617 17 CFR 150.3(a)(1). The term bona fide 

hedging position is currently defined at 17 CFR 

1.3(z) (2010). As discussed above, the Commission 

is reproposing a new definition of bona fide 

hedging position in § 150.1. 

618The Commission clarifies that a spread 

position in this context means a short position in 

a single month of a futures contract and a long 

position in another contract month of that same 

futures contract, outside of the spot month, in the 

same crop year. The short and/or long positions 

may also be in options on that same futures 

contract, on a futures equivalent basis. Such spread 

positions, when combined with any other net 

positions in the single month, must not exceed the 

all-months limit set forth in current § 150.2, and 

must be in the same crop year. 17 CFR 150.3(a)(3). 

619 ‘‘Eligible entity’’ is defined in current 17 CFR 

150.1(d). 

620 ‘‘Independent account controller’’ is defined 

in current 17 CFR 150.1(e). 

621 17 CFR 150.3(a)(4). See also discussion of the 

IAC exemption in the 2016 Final Aggregation Rule. 

commenters’ recommendation. Upon 

consideration of proposing minimum 

initial non-spot month limits, as 

discussed above, the Commission is 

removing the distinction between 

agricultural and exempt commodities. 

This change would establish a 

minimum non-spot month limit level of 

5,000 contracts in either agricultural or 

exempt commodities. 

Commission Reproposal: The 

Commission has determined to 

repropose these provisions generally as 

proposed in the December 2013 Position 

Limits Proposal, but with the changes 

described above to provide flexibility 

for a higher minimum level of non-spot 

month limits. 

7. Deferral of Limits on Cash-Settled 

Core Referenced Futures Contracts 

Commission Proposal: 

The Commission proposed, but is not 

reproposing, positon limits on three 

cash-settled core referenced futures 

contracts: CME Class III Milk; CME 

Feeder Cattle; and CME Lean Hogs.604

Comments Received: Commenters 

raised concerns with these cash-settled 

contracts and how they fit within the 

federal position limits regime. While 

many of these concerns were raised in 

the context of the dairy industry, they 

apply to all three cash-settled core 

referenced futures contracts. Concerns 

raised include: (1) How to apply spot 

month limits in a contract that is cashsettled; 605 (2) the ‘‘five-day rule’’ for 

bona fide hedging; 606 and (3) the length 

of the spot month period.607

Commenters contended that the 

Commission’s rationale in the December 

2013 Position Limits Proposal focused 

on concerns with physical-delivery 

contracts, which the commenters 

believe do not apply to cash-settled core 

referenced futures contracts because 

there is no physical delivery process 

and because the contracts settle to 

government-regulated price series 

(through the USDA).608 Commenters 

were concerned that the Commission’s 

‘‘one-size-fits-all’’ approach 

discriminates against participants in 

dairy and livestock because the spotmonth limit is effectively smaller 

compared to the separate spot-month 

limits for physical-delivery and cashsettled contracts in other 

commodities.609 Several commenters 

suggested limit levels that do not follow 

the proposed formulae for determining 

limit levels for both spot and non-spotmonth limits due to the unique aspects 

of cash-settled core referenced futures 

contracts, including the relatively large 

cash market and trading strategies not 

found in other core referenced futures 

markets.610

Commission Determination: The 

Commission, as part of the phased 

approach to implementing position 

limits on all physical commodity 

derivative contracts, is deferring action 

so that it may, at a later date: (1) Clarify 

the application of limits to cash-settled 

core referenced futures contracts; and 

(2) consider further which method to 

use to determine a level for a spotmonth limit for a cash-settled core 

referenced futures contract. The 

Commission notes that the December 

2013 Position Limits Proposal discussed 

spot-month limits primarily in the 

context of protecting the price discovery 

process by preventing corners and 

squeezes.611 There was limited 

discussion of cash-settled core 

referenced futures contracts.612 The 

Commission did not propose alternate 

means of calculating limit levels for 

cash-settled core referenced futures 

contracts in the December 2013 Position 

Limits Proposal. 

C. § 150.3—Exemptions 

1. Current § 150.3 

Statutory authority: CEA section 

4a(c)(1) exempts positions that are 

shown to be bona fide hedging 

positions, as defined by the 

Commission, from any Commission rule 

establishing speculative position limits 

under CEA section 4a(a).613 In addition, 

CEA section 4a(a)(1) authorizes the 

Commission to exempt transactions 

normally know to the trade as 

‘‘spreads.’’ 614 Further, CEA section 

4a(a)(7) authorizes the Commission to 

exempt any person, contract, or 

transaction from any position limit 

requirement the Commission 

establishes.615

Current exemptions: The three 

existing exemptions in current 

§ 150.3(a), promulgated prior to the 

enactment of the Dodd-Frank Act, are 

part of the Commission’s regulatory 

framework for speculative position 

limits.616 First, current § 150.3(a)(1) 

exempts positions shown to be bona 

fide hedging positions from federal 

position limits.617 Second, current 

§ 150.3(a)(3) exempts spread positions 

between single months of a futures 

contract (and/or, on a futures-equivalent 

basis, options) outside of the spot 

month, provided a trader’s spread 

position in any single month does not 

exceed the all-months limit.618 Third, 

under current § 150.3(a)(4), positions 

carried for an eligible entity 619 in the 

separate account of an independent 

account controller (‘‘IAC’’) 620 that 

manages customer positions need not be 

aggregated with the other positions 

owned or controlled by that eligible 

entity (the ‘‘IAC exemption’’).621


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622See November 2013 Aggregation Proposal. See 

also 2016 Final Aggregation Rule. 

623Under the 2016 Supplemental Position Limits 

Proposal, DCMs and SEFs that are trading facilities 

would have authority to grant spread exemptions to 

both exchange and federal position limits. See infra 

discussion of §§ 150.5 and 150.10. 

624The Commission received many comments on 

the changes to the bona fide hedging definition in 

§ 150.1 and the processes for exchange recognition 

of exemptions in §§ 150.9–11. See discussion of the 

bona fide hedging definition, above, and of the 

processes in §§ 150.9–11, below. 

625 Id. 

626 December 2013 Position Limits Proposal, 78 

FR at 75736. 

627CL–CME–59718 at 71. 

2. Proposed § 150.3 

In the December 2013 Position Limits 

Proposal, the Commission proposed a 

number of organizational and 

substantive amendments to § 150.3, 

generally resulting in an increase in the 

number of exemptions to speculative 

position limits. First, the Commission 

proposed to amend the three 

exemptions from federal speculative 

limits contained in current § 150.3. 

These previously proposed amendments 

would update cross references, relocate 

the IAC exemption and consolidate it 

with the Commission’s separate 

proposal to amend the aggregation 

requirements of § 150.4,622 and delete 

the calendar month spread provision 

which is unnecessary under changes to 

§ 150.2 that would set the level of each 

single month position limit to that of the 

all-months position limit. Second, the 

Commission proposed to add 

exemptions from the federal speculative 

position limits for financial distress 

situations, certain spot-month positions 

in cash-settled referenced contracts, and 

grandfathered pre-Dodd-Frank and 

transition period swaps. Third, the 

Commission proposed to revise 

recordkeeping and reporting 

requirements for traders claiming any 

exemption from the federal speculative 

position limits. 

a. Proposed Amendments to Existing 

Exemptions 

Proposed Rule: In the December 2013 

Position Limits Proposal, the 

Commission proposed to update crossreferences within § 150.3 to reflect other 

changes in part 150. Specifically, the 

Commission proposed: To update 

references to the bona fide hedging 

definition to § 150.1 from § 1.3(z); to 

require that those filing for exemptive 

relief must meet the reporting 

requirements in part 19; and to add a 

cross-reference to aggregation provisions 

in proposed § 150.4. 

The Commission also proposed to 

move the existing IAC exemption to 

§ 150.4, thereby deleting the current 

exemption in § 150.3(a)(4). The 

Commission also proposed to delete the 

spread exemption in current § 150.3, 

because it noted that the proposed nonspot month limits rendered such an 

exemption unnecessary.623

In the 2016 Supplemental Position 

Limits Proposal, the Commission 

proposed to conform § 150.3(a) to 

accommodate processes proposed in 

other sections of part 150. Specifically, 

the Commission proposed under 

§ 150.3(a)(1)(i) exemptions for those 

bona fide hedging positions that have 

been recognized by a DCM or SEF in 

accordance with proposed §§ 150.9 and 

150.11. The Commission also proposed 

under § 150.3(a)(1)(iv) exemptions for 

those spread positions that have been 

recognized by a DCM or SEF in 

accordance with proposed § 150.10. 

Recognition of other positions exempted 

under proposed § 150.3(e) was renumbered as subsection (v) from 

subsection (iv) of § 150.3(a)(1) of the 

2013 Position Limits Proposal. 

Comments Received: The Commission 

received no comments on the proposed 

conforming changes to § 150.3.624 The 

Commission addresses comments on the 

IAC exemption in its final rule 

amending the aggregation policy under 

§ 150.4, published separately. 

Commission Reproposal: The 

Commission is reproposing these 

amendments as previously proposed in 

the December 2013 Position Limits 

Proposal. 

b. Positions Which May Exceed 

Limits—§ 150.3(a) 

Proposed Rule: In the December 2013 

Position Limits Proposal, the 

Commission listed positions which may 

exceed limits in proposed § 150.3(a). 

Such positions included: (i) Bona fide 

hedging positions as defined in § 150.1; 

(ii) financial distress positions 

exempted under § 150.3(b); (iii) 

conditional spot month limit positions 

exempted under § 150.3(c); and (iv) 

other positions exempted under 

§ 150.3(e). Proposed § 150.3(a) also 

provided that all such positions may 

exceed limits only if recordkeeping 

requirements in § 150.3(g) are met and 

any applicable reporting requirements 

in part 19 are met. 

In the 2016 Supplemental Position 

Limits Proposal, the Commission 

proposed to revise § 150.3(a) to include, 

in addition to bona fide hedging 

positions as defined in § 150.1, 

positions that are recognized by a DCM 

or SEF in accordance with § 150.9 or 

§ 150.11 as well as spread positions 

recognized by a DCM or SEF in 

accordance with § 150.10. 

Comments Received: The Commission 

received many comments on the 

definition of bona fide hedging in 

§ 150.1, as well as on the processes 

proposed in §§ 150.9–11.625 The 

Commission addresses those comments 

in the discussion of the definition of 

bona fide hedging position in § 150.1, 

above, and in the discussion of the 

processes proposed in §§ 150.9–11, 

below. The Commission did not receive 

comments specific to the conforming 

revisions to § 150.3(a). 

Commission Reproposal: The 

Commission is reproposing § 150.3(a) as 

previously proposed in the December 

2013 Position Limits Proposal, with 

conforming changes consistent with the 

reproposed definition of a bona fide 

hedging position in § 150.1, which 

includes positions that are recognized 

by a DCM or SEF in accordance with 

reproposed § 150.9 or § 150.11, or by the 

Commission, and conforming changes 

consistent with the process for spread 

positions recognized by a DCM or SEF 

in accordance with reproposed § 150.10, 

or by the Commission. 

c. Proposed Additional Exemptions 

From Position Limits 

i. Financial Distress Exemption— 

§ 150.3(b) 

Proposed Rule: The Commission 

proposed to add in § 150.3(b) an 

exemption from position limits for 

market participants in financial distress 

circumstances, upon the Commission’s 

approval of a specific request.626 For 

example, the Commission recognized 

that, in periods of financial distress, it 

may be beneficial for a financially 

sound market participant to take on the 

positions (and corresponding risk) of a 

less stable market participant. The 

Commission explained that it has 

historically provided an exemption from 

position limits in these types of 

situations in order to avoid sudden 

liquidations that could potentially 

reduce liquidity, disrupt price 

discovery, and/or increase systemic risk. 

The Commission therefore proposed to 

codify this historical practice. 

Comments Received: One commenter 

requested the non-exclusive 

circumstances for the financial distress 

exemption be clarified by adding ‘‘bud 

not limited to’’ after the word ‘‘include’’ 

to permit other situations not listed.627

Commission Reproposal: In response 

to the commenter, the Commission 

clarifies that the circumstances under 

which a financial distress exemption 

may be claimed include, but are not 

limited to, the specific scenarios in the 

definition. However, the Commission 

believes that the proposed definition 


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628 December 2013 Position Limits Proposal, 78 

FR at 75738. 

629CL–AMG–59709 at 2, 18–19. 

630 December 2013 Position Limits Proposal, 78 

FR at 75740. 

631CL–FIA–59595 at 5, 34–35; CL–AMG–59709 at 

2, 12–15; CL–CME–59718 at 67–69. 

632CL–Sen. Levin–59637 at 8; CL–Better 

Markets–60325 at 2. 

633 December 2013 Position Limits Proposal, 78 

FR at 75738–9. 

634 17 CFR 140.99 defines three types of staff 

letters—exemptive letters, no-action letters, and 

interpretative letters—that differ in scope and 

effect. An interpretative letter is written advice or 

guidance by the staff of a division of the 

Commission or its Office of the General Counsel. It 

binds only the staff of the division that issued it (or 

the Office of the General Counsel, as the case may 

Continued 

sufficiently articulates that the list of 

potential circumstances for claiming the 

financial distress exemption is nonexclusive, and, therefore, is reproposing 

the definition as previously proposed. 

ii. Pre-Enactment and Transition Period 

Swaps Exemption—§ 150.3(d) 

Proposed Rule: In the December 2013 

Position Limits Proposal, the 

Commission proposed to provide an 

exemption from federal position limits 

for (1) pre-enactment swaps, defined as 

swaps entered into prior to July 21, 2010 

(the date of the enactment of the DoddFrank Act of 2010), so long as the terms 

of which have not expired as of that 

date, and (2) transition period swaps, 

defined as swaps entered into during 

the period commencing July 22, 2010 

and ending 60 days after the publication 

of the final position limit rules in the 

Federal Register, the terms of which 

have not expired as of that date. The 

Commission also proposed to allow 

both pre-enactment and transition 

period swaps to be netted with 

commodity derivative contracts 

acquired more than 60 days after 

publication of the final rules in the 

Federal Register for purposes of 

complying with non-spot-month 

position limits.628

Comments Received: One commenter 

suggested that ‘‘grandfathering’’ relief 

should be extended to pre-existing 

positions, and should also permit the 

pre-existing positions to be increased 

after the effective date of the limit. The 

commenter also suggested that the 

Commission should permit the risk 

associated with a pre-existing position 

to be offset through roll of a position 

from a prompt month into a deferred 

contract month.629

Commission Reproposal: The 

Commission declines to accept the 

commenter’s recommendation regarding 

increasing positions, because allowing 

pre-existing positions to be increased 

after the effective date of the limits 

effectively would create a loophole for 

exceeding position limits. Further, the 

Commission declines the commenter’s 

recommendation to permit a roll of a 

pre-existing position, because that 

would permit a market participant to 

extend indefinitely the holding of a 

speculative economic exposure in 

commodity derivative contracts exempt 

from position limits, frustrating the 

intent of speculative position limits. 

The Commission notes, however, that 

reproposed § 150.3(d), like the previous 

proposal, allows for netting of pre- and 

post-effective date positions, allowing a 

market participant to offset the risk of 

the position provided the offsetting 

position is not held into a spot month. 

The Commission is reproposing 

§ 150.3(d) as proposed in the December 

2013 Position Limits Proposal. 

iii. Previously Granted Exemptions— 

§ 150.3(f) 

Proposed Rule: The Commission 

proposed in the December 2013 Position 

Limits Proposal that exemptions 

previously granted by the Commission 

under § 1.47 for swap risk management 

would not apply to new swap positions 

entered into after the effective date of 

the final rule. The Commission noted 

that the proposed rules revoke the 

previously granted exemptions for risk 

management positions for such new 

swaps. Therefore, risk management 

positions that offset such new swaps 

would be subject to federal position 

limits, unless another exemption 

applied. The Commission explained 

that these risk management positions 

are inconsistent with the revised 

definition of bona fide hedging 

contained in the December 2013 

Position Limits Proposal and the 

purposes of the Dodd-Frank Act 

amendments to the CEA.630

Comments Received: A number of 

commenters urged the Commission not 

to deny risk-management exemptions 

for financial intermediaries who utilize 

referenced contracts to offset the risks 

arising from the provision of diversified 

commodity-based returns to the 

intermediaries’ clients.631

In contrast, other commenters noted 

that the proposed rules ‘‘properly 

refrain’’ from providing a general 

exemption to financial firms seeking to 

hedge their financial risks from the sale 

of commodity-related instruments such 

as index swaps, ETFs, and ETNs 

because such instruments are 

‘‘inherently speculative’’ and may 

overwhelm the price discovery function 

of the derivative market.632

Commission Reproposal: As 

discussed above in the clarifications to 

the bona fide hedging position 

definition, the Commission now 

proposes to expand the relief in 

§ 150.3(f) by: (1) Clarifying that such 

previously granted exemptions may 

apply to pre-existing financial 

instruments that are within the scope of 

existing § 1.47 exemptions, rather than 

only to pre-existing swaps; and (2) 

recognizing exchange-granted nonenumerated exemptions in non-legacy 

commodity derivatives outside of the 

spot month (consistent with the 

Commission’s recognition of risk 

management exemptions outside of the 

spot month), and provided such 

exemptions are granted prior to the 

compliance date of the final rule, and 

apply only to pre-existing financial 

instruments as of the effective date of 

the final rule. These two changes are 

intended to reduce the potential for 

market disruption by forced 

liquidations, since a market 

intermediary would continue to be able 

to offset risks of pre-effective-date 

financial instruments, pursuant to 

previously-granted federal or exchange 

risk management exemptions. 

iv. Non-Enumerated Hedging 

Positions—§ 150.3(e) 

Proposed Rule: In the December 2013 

Position Limits Proposal, the 

Commission noted that it previously 

permitted a person to file an application 

seeking approval for a non-enumerated 

position to be recognized as a bona fide 

hedging position under § 1.47. The 

Commission proposed to delete § 1.47 

for several reasons described in the 

December 2013 Position Limits 

Proposal.633

Proposed § 150.3 provided that a 

person that engages in risk-reducing 

practices commonly used in the market, 

that the person believes may not be 

included in the list of enumerated bona 

fide hedging positions, may apply to the 

Commission for an exemption from 

position limits. As previously proposed, 

market participants would be guided in 

§ 150.3(e) first to consult proposed 

Appendix C to part 150 to see whether 

their practices fell within a nonexhaustive list of examples of bona fide 

hedging positions as defined under 

proposed § 150.1. 

A person engaged in risk-reducing 

practices that are not enumerated in the 

revised definition of bona fide hedging 

position in previously proposed § 150.1 

may use two different avenues to apply 

to the Commission for relief from 

federal position limits: The person may 

request an interpretative letter from 

Commission staff pursuant to 

§ 140.99 634 concerning the applicability 


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be), and third-parties may rely upon it as the 

interpretation of that staff. See description of CFTC 

Staff Letters, available at http://www.cftc.gov/ 

lawregulation/cftcstaffletters/index.htm. 

635See supra discussion of CEA section 4a(a)(7). 

636See infra discussion of these alternative 

processes in § 150.9, § 150.10, and § 150.11. 

637CL–CMC–59718 at 15. 

638CL–Citadel–59717 at 8–9. 

639CFTC Reauthorization Act of 2008 (‘‘Farm 

Bill’’, incorporated as Title XIII of the Food, 

Conservation and Energy Act of 2008, Public Law 

110–246, 112 Stat. 1624 (June 18, 2008)) expanded 

the Commission’s authority with respect to ECMs 

by creating a new regulatory category: ECMs on 

which significant price discovery contracts 

(‘‘SPDCs’’) were traded. The Farm Bill authorized 

the Commission to designate an ECM contract as a 

SPDC if the Commission determined, under criteria 

established in the Act, that the contract performed 

a significant price discovery function. When the 

Commission made such a determination, the ECM 

on which the SPDC was traded would be required 

to assume, with respect to that contract, all the 

responsibilities and obligations of a registered 

entity under the Commission’s regulations and the 

Act. This process was invalidated and deleted by 

changes to the Act made under the Dodd-Frank Act 

of 2010. 

640On March 16, 2009, the Commission adopted 

final rules implementing the provisions of the Farm 

Bill. 74 FR 12179 (March 23, 2009). These 

regulations became effective on April 22, 2009. 

Among other things, the rules established 

procedures by which the Commission would make 

and announce its determination as to whether a 

particular contract served a significant price 

discovery function. On July 24, 2009, the 

Commission issued an order finding that ICE’s 

Henry Financial LD1 Fixed Price contract (‘‘NG LD1 

contract’’) performed a significant price discovery 

function and, thus, that ICE was a registered entity 

with respect to the NG LD1 contract, subject to all 

provisions of the Act applicable to registered 

entities, including compliance with certain core 

principles. 74 FR 37988 (July 30, 2009). 

As required after the designation of the NG LD1 

contract as a SPDC, ICE submitted a demonstration 

of their compliance with the required core 

principles. One of the core principles with which 

ICE was required to comply under the Farm Bill 

ECM SPDC rules concerned position limits and 

position accountability rules for the contract(s) 

designated as SPDC(s). See Section 13201(C)(ii)(IV) 

of the Farm Bill (implemented in Section 2(h)(7) of 

the Act). 

641See 17 CFR part 36, App. B, Core Principle 

IV(c)(3) (2010). 74 FR 12177 (April 22, 2009). 

642 ICE also imposed related aggregation, bona 

fide hedging, and other exemption rules for the ICE 

NG LD1 contract. 

643New York Mercantile Exchange, Inc. 

Submission #09.103 (June 2, 2009): Notification of 

Amendments to NYMEX Rules 9A.27 and 9A.27A 

to Establish Hard Expiration Position Limits for 

Certain Natural Gas Financially Settled Contracts. 

Previously, NYMEX did not have spot-month limits 

on its HH contract and related cash-settled 

contracts. 

of the bona fide hedging position 

exemption, or the person may seek 

exemptive relief from the Commission 

under CEA section 4a(a)(7).635

In the 2016 Supplemental Position 

Limits Proposal, the Commission 

proposed §§ 150.9, 150.10, and 150.11 

which provided alternative processes 

that would permit eligible DCMs and 

SEFs to provide relief for nonenumerated bona fide hedging 

positions, certain spread positions, and 

anticipatory bona fide hedging 

positions, respectively.636 However, the 

Commission did not propose to alter or 

delete § 150.3 because the Commission 

determined to provide multiple avenues 

for persons seeking exemptive relief. 

Comments Received: One commenter 

requested that the Commission provide 

a spread exemption from federal 

position limits for certain soft 

commodities, reasoning that there was a 

‘‘lack of fungibility of certain soft 

commodities . . . [because] inventories 

of various categories vary widely in 

terms of marketability over time.’’ The 

commenter also stated that such a 

spread exemption would allow for 

effective competition for the ownership 

of certified inventories that in turn 

helps to maintain a close relationship 

between the cash and futures 

markets.637 Another commenter 

recommended the Commission 

recognize calendar spread netting, and 

not place any limits on the same, 

because speculators provide liquidity in 

deferred months to hedgers and offset, 

in part, that exposure with shorter dated 

contracts.638

Commission Reproposal: Both of 

these comments were submitted in 

response to the December 2013 Position 

Limits Proposal, well in advance of the 

2016 Supplemental Position Limits 

Proposal. Spread exemptions such as 

those described by the commenters are 

addressed in § 150.10, discussed below. 

The Commission is reproposing 

§ 150.3(e) as previously proposed in the 

December 2013 Position Limits 

Proposal. 

d. Proposed Conditional Spot Month 

Limit Exemption—§ 150.3(c) 

Conditional spot month limit 

exemptions to exchange-set spot-month 

position limits for natural gas contracts 

were adopted in 2009, after the ICE 

submitted such an exemption as part of 

its certification of compliance with core 

principles required of exempt 

commercial markets (‘‘ECMs’’) on which 

significant price discovery contracts 

(‘‘SPDCs’’) were traded.639

As ICE developed its rules in order to 

comply with the ECM SPDC 

requirements,640 ICE expressed 

concerns regarding the impact of 

position limits on the open interest in 

its LD1 contract. ICE demonstrated that 

as the open interest declines in the 

physical-delivery New York Mercantile 

Exchange Inc. (‘‘NYMEX’’) Henry Hub 

Natural Gas Futures (‘‘NYMEX NG’’) 

contract approaching expiration, open 

interest increases rapidly in the cashsettled ICE NG LD1 contract, and 

suggested that the ICE NG LD1 contract 

served an important function for 

hedgers and speculators who wished to 

recreate or hedge the NYMEX NG 

contract price without being required to 

make or take delivery. ICE stated that it 

believed there are ‘‘significant and 

material distinctions between the design 

and use of’’ the NYMEX NG contract 

and the ICE NG LD1 contract, and those 

distinctions were most pronounced at 

expiration. Further, ICE stated that, due 

to the size of some positions in the cashsettled ICE NG LD1 contract, the impact 

to the market of an equivalent limit 

could impair the ability for market 

participants to adjust their positions in 

an orderly fashion to come into 

compliance. For these reasons, ICE 

requested that the Commission consider 

an alternative to the Commission’s 

acceptable practice that spot month 

position limits for the NG LD1 contract 

should be equivalent to the spot month 

position limits in the NYMEX NG 

contract.641

After discussion with both the 

Commission’s Division of Market 

Oversight and NYMEX, ICE submitted 

and certified rule amendments 

implementing position limits and 

position accountability rules for the ICE 

NG LD1 contract. Specifically, ICE 

imposed a spot-month position limit 

and non-spot-month position 

accountability levels equal to those of 

the economically equivalent NYMEX 

NG contract. ICE also adopted a rule for 

a larger conditional position limit for 

traders who: (1) Agreed not to maintain 

a position in the NYMEX NG futures 

contract during the last three trading 

days, and (2) agreed to show ICE their 

complete book of Henry Hub related 

positions.642

In June 2009, the Commission also 

received self-certified rule amendments 

from CME Group, Inc. (‘‘CME’’) 

regarding position limits and position 

accountability levels for the cash-settled 

NYMEX Henry Hub Financial Last Day 

Futures (HH) contract and related cashsettled contracts.643 The rules, as 

amended, established spot month 

position limits for the NYMEX HH 

contract as well as certain related cashsettled contracts so as to be consistent 

with the requirements for the SPDC 

contract on ICE. In the rule certification 

documents, CME stated that it was 

amending its position limits rules for 

the HH contract in anticipation of ICE’s 

new rules. In February 2010, the 

conditional spot month limit 

exemptions on NYMEX and ICE went 

into effect. 

Proposed Rules: In the December 2013 

Position Limits Proposal, the 


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644See December 2013 Position Limits Proposal, 

78 FR at 75736–38. 

645 Id. at 75737. 

646 Id. at 75770. 

647 Id. at 75770, n. 782. 

648E.g., CL–FIA–59595 at 3 and 11; CL–EEI– 

EPSA–59602 at 9–10; CL–MFA–59606 at 5 and 19– 

20; CL–AIMA–59618 at 2; CL–ISDA/SIFMA–59611 

at 31; CL–BG Group–59656 at 7; CL–BG Group– 

59937 at 5–6; CL–COPE–59662 at 23; CL–NGSA– 

59673 at 38–39; CL–NGSA–59941 at 3–4; CL– 

IECAssn–59957 at 9. 

649CL–WGC–59558 at 4. 

650E.g., CL–Sen. Levin–59637 at 7; CL–AFR– 

59711 at 2; CL–A4A–59714 at 3; CL–Working 

Group–59693 at 59–60; CL–IECA–59713 at 3–4; CL– 

Better Markets–60401 at 17–18; CL–CME–59971 at 

3; CL–CME–60307 at 4–5; CL–CME–60406 at 2; CL– 

CMOC–59720 at 3–6; CL–APGA–59722 at 8; CL– 

OSEC–59972 at 7; CL–RF–60372 at 3; CL–IATP– 

59701 at 5; CL–IATP–59704 at 6; CL–IATP–60394 

at 2; CL–NGFA–59681 at 6. 

651E.g., CL–FIA–59595 at 20; CL–COPE–59662 at 

23; CL–EEI–EPSA–60926 at 7, CL–EEI–Sup–60386 

at 3–4; CL–Working Group–59693 at 59–60. 

652CL–SEMP–59926 at 4–6; CL–SEMP–60384 at 

5–6. 

653E.g., CL–IECAssn–59713 at 30–31; CL–ICE– 

59966 at 4–5; CL–ICE–59962 at 4–7. 

654CL–EEI–EPSA–59602 at 10; CL–ICE–59669 at 

7. 

655CL–COPE–59662 at 24. 

656CL–CME–60926 at 4. 

657CL–ICE–61009 at 1. 

658 Id. 

659CL–CME–61008 at 2. 

660 Id. at 3. 

661CL–ICE–61009 at 2. 

Commission proposed a conditional 

spot month limit exemption for all 

commodities subject to federal limits 

under proposed § 150.2. That proposed 

rule was identical to the rule proposed 

in the Part 151 Proposal, with the 

exception that the December 2013 

Position Limits Proposal did not include 

any restriction on trading in the cash 

market.644 In proposing the conditional 

spot month limit exemption in proposed 

§ 150.3(c), the Commission stated its 

preliminary belief that the current 

exemption in natural gas markets has 

served ‘‘to further the purposes 

Congress articulated for position limits’’ 

and that the exemption ‘‘would not 

encourage price discovery to migrate to 

the cash-settled contracts in a way that 

would make the physical-delivery 

contract more susceptible to sudden 

price movements near expiration.’’ 645 In 

addition, the Commission noted that it 

has observed repeatedly that open 

interest levels in physical-delivery 

contracts ‘‘naturally decline leading up 

to and during the spot month, as the 

contract approaches expiration’’ because 

‘‘both hedgers and speculators exit the 

physical-delivery contract in order to, 

for example, roll their positions to the 

next contract month or avoid delivery 

obligations.’’ 646 The Commission also 

stated its preliminary belief that ‘‘it is 

unlikely that the factors keeping traders 

in the spot month physical-delivery 

contract will change due solely to the 

introduction of a higher cash-settled 

limit,’’ as traders participating in the 

physical-delivery contract in the spot 

month are ‘‘understood to have a 

commercial reason or need to stay in the 

spot month.’’ 647

Comments Received: The Commission 

received many comments regarding the 

conditional spot month limit 

exemption. These comments revealed 

little to no consensus among market 

participants, exchanges, and industry 

groups regarding spot-month position 

limits in cash-settled contracts. 

Several commenters supported the 

higher spot-month limit (or no limit at 

all) for cash-settled contracts, but 

opposed the restriction on holding a 

position in the physical-delivery 

referenced contract to obtain the higher 

limit for various reasons, including: The 

view that there is no discernible reason 

for the restriction in the first place; the 

belief that it provides a negative impact 

on liquidity in the physical delivery 

contract; and the view that it prevents 

commercials from taking advantage of 

the higher limit given their need to have 

some exposure in a physical delivery 

referenced contract during the spot 

month.648

One commenter said that the 

conditional spot month position limit 

exemption for gold is not supported by 

sufficient research, could decouple the 

cash-settled contract from the physicaldelivery contract, and could lead to 

lower liquidity in the physical-delivery 

contract and higher price volatility.649

Several commenters opposed a spotmonth position limit for cash-settled 

contracts that is higher than the limit for 

physical-delivery contracts for various 

reasons including: The higher limit does 

not address the problem of excessive 

speculation; the higher limit would 

reduce liquidity in the physical-delivery 

contract; and the conditional limit is not 

restrictive enough and should include a 

restriction on holdings of the physical 

commodity as had been proposed in 

vacated part 151.650

Several commenters expressed the 

view that a market participant holding 

a trade option position, which 

presumably would be considered a 

physical delivery referenced contract, 

should not be precluded from using the 

conditional spot-month limit exemption 

because trade options are functionally 

equivalent to a forward contract and the 

conditional exemption does not restrict 

holding forwards.651

One commenter supported the 

conditional spot month limit exemption 

provided that the Commission modifies 

its proposal to allow independentlyoperated subsidiaries to hold positions 

in physical-delivery contracts if the 

subsidiary engages in separate and 

independent trading activities, shares 

no employees, and is not jointly 

directed in its trading activity with 

other subsidiaries by the parent 

company.652

Some commenters supported the 

continuation of the practice of DCMs 

separately establishing and maintaining 

their own conditional spot month limits 

and not aggregating cash-settled limits 

across exchanges and the OTC market, 

arguing that the resultant aggregated 

limit will be unnecessarily restrictive 

and result in lower liquidity and 

increased volatility.653

Some commenters expressed the view 

that the filing of daily Form 504 reports 

to satisfy the conditional spot month 

limit exemption was burdensome, and 

recommended less frequent reporting 

such as monthly reports 654 or no 

reporting at all.655

Two exchanges which currently 

permit a conditional spot month limit 

exemption, CME and ICE, have each 

submitted several comments regarding 

the exemption, some in direct response 

to the other exchange’s comments. This 

back-and-forth nature of the 

disagreement surrounding the 

conditional spot month limit exemption 

has been significant and, on many 

aspects of the previously proposed 

exemption, the comments have been in 

direct opposition to each other. CME 

submitted a comment letter in response 

to the 2016 Supplemental Position 

Limits Proposal that reiterated its belief 

that the conditional limit would drain 

liquidity from the physical-delivery 

contract; 656 ICE responded that nothing 

in the natural gas market has suggested 

that the physical-delivery contract has 

been harmed.657 ICE noted that CME’s 

current conditional limit benefits CME’s 

own cash-settled natural gas 

contracts; 658 CME responded that it 

opposes any conditional limit 

framework even though such opposition 

could work ‘‘to the detriment of CME 

Group’s commercial interests in certain 

of its cash-settled markets.’’ 659 CME 

stated its belief that the CEA 

necessitates ‘‘one-to-one limit treatment 

and similar exemptions’’ for both 

physical-delivery and cash-settled 

contracts within a particular 

commodity; 660 ICE suggested that 

removing or reducing the conditional 

limit would ‘‘disrupt present market 

practice.’’ 661

ICE also submitted a series of charts, 

using CFTC Commitment of Traders 


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662 Id. at 3–6. 

663CL–CME–61008 at 2–3. CEA section 

4(b)(1)(B)(ii)(1) imposes requirements on a foreign 

board of trade (‘‘FBOT’’) as a condition of providing 

U.S. persons direct access to the electronic trading 

and order-matching systems of the FBOT with 

respect to a contract that settles against any price 

of one or more contracts listed for trading on a 

registered entity. Such FBOT must adopt position 

limits for contract(s) that are ‘‘comparable’’ to the 

position limits adopted by the registered entity for 

the contract(s) against which the FBOT contract 

settles. 7 U.S.C. 6(b)(1)(B)(ii)(1), codified in 17 CFR 

48.8(c)(1)(ii)(A). 

664CL–CME–61008 at 3. 

665CL–ICE–61022 at 2. 

666 Id. 

667 Id. 

668 17 CFR 13.2. 

669See infra discussion of part 19 and Form 504, 

below. 

Report data, illustrating the opposite: 

That spot-month open interest and 

volume in the physical-delivery contract 

(the NYMEX NG) have actually 

increased since the introduction of the 

conditional spot month limit.662

CME stated its opposition to the 

conditional limits ‘‘as a matter of 

statutory law,’’ opining that CEA section 

4(b) does not allow the imposition of the 

conditional limit.663 CME believes that 

the conditional limit contained in the 

December 2013 Position Limits Proposal 

‘‘contravenes Congress’s intent behind 

the statutory ‘comparability’ 

requirement’’ in multiple ways, and that 

neither ICE nor the Commission has 

‘‘addressed these aspects of [CEA 

section 4(b)].’’ 664

ICE replied that the Commission ‘‘has 

no basis to modify the current 

conditional limit level’’ because the 

markets ‘‘have functioned efficiently 

and effectively’’ and the Commission 

should not ‘‘change the status quo.’’ 665

ICE continued that the conditional limit 

of five times the physical-delivery 

contract’s spot-month limit ‘‘appears to 

be arbitrary and likely insufficient’’ and 

opined that the Commission has not 

indicated how it arrived at that figure or 

how such a level ‘‘strikes the right 

balance between supporting liquidity 

and diminishing undue burdens.’’ 666

ICE concluded that the conditional 

exemption ‘‘must be maintained at no 

less than the current levels.’’ 667

Commission Reproposal: After taking 

into consideration all the comments it 

received regarding the conditional spotmonth limit exemption, the Commission 

is reproposing the conditional spotmonth limit exemption in natural gas 

markets only. The Commission believes 

the volume of comments regarding the 

conditional spot-month limit exemption 

indicates the importance of careful and 

thoughtful analysis prior to finalizing 

policy with respect to conditional spotmonth limit exemptions in other cashsettled referenced contracts. In 

particular, the considerations may vary, 

and should be considered in relation to 

the particular commodity at issue. As 

such, the Commission believes it is 

prudent to proceed cautiously in 

expanding the conditional spot-month 

limit exemption beyond the natural gas 

markets where it is currently employed. 

The Commission encourages exchanges 

and/or market participants who believe 

that the Commission should extend the 

conditional spot-month limit exemption 

to additional commodities to petition 

the Commission to issue a rule pursuant 

to § 13.2 of the Commission’s 

regulations.668

With respect to natural gas cashsettled referenced contracts, the 

reproposed rules allow market 

participants to exceed the position limit 

provided that such positions do not 

exceed 10,000 contracts and the person 

holding or controlling such positions 

does not hold or control positions in the 

spot-month natural gas physicaldelivery referenced contract (NYMEX 

NG). Persons relying upon this 

exemption must file Form 504 during 

the spot month.669

The Commission observes that the 

conditional exemption level of 10,000 

contracts is equal to five times the 

federal natural gas spot-month position 

limit level of 2,000 contracts. The 

conditional exemption level is also 

equal to the sum of the current 

conditional exemption levels for each of 

the NYMEX HH contract and the ICE 

NG LD1 contract. The Commission 

believes the level of 10,000 contracts 

provides relief for market participants 

who currently may hold or control 5,000 

contracts in each of these two cashsettled natural gas futures contracts and 

an unlimited number of cash-settled 

swaps, while still furthering the 

purposes of the Dodd-Frank Act’s 

amendments to CEA section 4a. 

The Commission is proposing the 

fixed figure of 10,000 contracts, rather 

than the variable figure of five times the 

spot-month position limit level, in order 

to avoid confusion in the event NYMEX 

were to set its spot-month limit in the 

physical-delivery NYMEX NG contract 

at a level below 2,000 contracts. 

The Commission provides, for 

informational purposes, summary 

statistical information that it considered 

in declining to extend the conditional 

spot-month limit exemption beyond the 

natural gas referenced contract. The four 

tables below present the number of 

unique persons that held positions in 

commodity derivative contracts greater 

than or equal to the specified levels, as 

reported to the Commission under the 

large trader reporting systems for futures 

and swaps, for the period July 1, 2014 

to June 30, 2016. The table also presents 

counts of unique reportable persons, 

whether reportable under part 17 

(futures and future option contracts) or 

under part 20 (swap contracts). The 

method the Commission used to analyze 

this large trader data is discussed above, 

under § 150.2. 

The four tables group commodities 

only for convenience of presentation. In 

each table, the term ‘‘25% DS’’ means 

25 percent of the deliverable supply as 

estimated by the exchange listing the 

core referenced futures contract and 

verified as reasonable by the 

Commission. Similarly, ‘‘15% DS’’ 

means 15 percent of estimated 

deliverable supply. An asterisk (‘‘*’’) 

means that fewer than four unique 

persons were reported. ‘‘CME proposal’’ 

means the level recommended by the 

CME Group for the spot-month limit. 

MGEX submitted a recommended spotmonth limit level that is slightly less 

than 25 percent of estimated deliverable 

supply but did not affect the reported 

number of unique persons; no other 

exchange recommended a spot-month 

level of less than 25 percent of 

estimated deliverable supply. 

For the first group of commodities, 

there was no unique person in the cashsettled referenced contracts whose 

position would have exceeded 25 

percent of the exchange’s estimated 

deliverable supply. Moreover, no 

unique person held a position in the 

cash-settled referenced contracts that 

would have exceeded the reproposed 

spot-month limits discussed under 

§ 150.2, above, that are lower than 25 

percent of the exchange’s estimated 

deliverable supply. 


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670The Commission notes that 60 percent of the 

450 contract spot-month limit is analogous to the 

counts presented for 15 percent of estimated deliverable supply. That is, 60 percent of 25 percent 

equals 15 percent. 

TABLE III–B–21—CME GROUP AND MGEX AGRICULTURAL CONTRACTS

Core-referenced futures 

contract Basis of spot-month level Position limit level 

Number of unique 

persons >= level 

Number of reportable 

persons in market 

Spot month 

cash settled 

Spot month 

physical 

delivery 

Spot month 

only All months 

Corn .................................... CME proposal .................... 600 0 36 1,050 2,606 

(CBOT current limit 600) ..... 25% DS .............................. 900 0 20 ........................ ........................

Oats ..................................... CME proposal .................... 600 0 0 33 173 

(CBOT current limit 600) ..... 25% DS .............................. 900 0 0 ........................ ........................

Soybeans ............................ CME proposal .................... 600 0 22 929 2,503 

(CBOT current limit 600) ..... 25% DS .............................. 1,200 0 14 ........................ ........................

Soybean Meal ..................... CME proposal .................... 720 0 14 381 978 

(CBOT current limit 720) ..... 25% DS .............................. 2,000 0 (*) ........................ ........................

Soybean Oil ........................ CME proposal .................... 540 0 21 397 1,034 

(CBOT current limit 540) ..... 25% DS .............................. 3,400 0 0 ........................ ........................

Wheat (CBOT) .................... CME proposal .................... 600 0 11 444 1,867 

(CBOT current limit 600) ..... 25% DS .............................. 1,000 0 6 ........................ ........................

Wheat (MGEX) .................... Parity w/CME proposal ...... 600 0 (*) 102 342 

(MGEX current limit 600) .... Approx. 25% DS ................ 1,000 0 (*) ........................ ........................

Wheat (KCBT) ..................... CME proposal .................... 600 0 4 250 718 

(KCBT current limit 600) ..... 25% CBOT DS ................... 1,000 0 (*) ........................ ........................

25% DS .............................. 3,000 0 (*) ........................ ........................

Rough Rice ......................... CME proposal .................... 600 0 0 91 281 

(CBOT current limit 600) ..... 25% DS .............................. 2,300 0 0 ........................ ........................

For the second group of commodities, 

there was no unique person in the cashsettled referenced contracts whose 

position would have exceeded 25 

percent of the exchange’s estimated 

deliverable supply or, in the case of Live 

Cattle, the current exchange limit level 

of 450 contracts. Moreover, other than 

in the Sugar No. 11 contract, no unique 

person held a position in the cashsettled referenced contracts that would 

have exceeded 15 percent of the 

exchange’s estimated deliverable 

supply. For informational purposes, the 

table also shows for Live Cattle that no 

unique person held a position in the 

cash-settled referenced contracts that 

would have exceeded 60 percent of the 

exchange’s current spot-month limit of 

450 contracts.670

TABLE III–B–22—OTHER AGRICULTURAL CONTRACTS AND ICE FUTURES U.S. SOFTS

Core-referenced futures 

contract Basis of spot-month level Position limit level 

Number of unique 

persons >= level 

Number of unique 

persons in market 

Spot month 

cash settled 

Spot month 

physical 

delivery 

Spot month 

only All months 

Cotton No. 2 ........................ 15% DS .............................. 960 0 (*) 122 1,000 

(ICE current limit 300) ......... 25% DS .............................. 1,600 0 0 ........................ ........................

Cocoa .................................. 15% DS .............................. 3,300 0 0 164 682 

(ICE current limit 1,000) ...... 25% DS .............................. 5,500 0 0 ........................ ........................

Coffee .................................. 15% DS .............................. 1,440 0 (*) 336 1,175 

(ICE current limit 500) ......... 25% DS .............................. 2,400 0 (*) ........................ ........................

Orange Juice ....................... 15% DS .............................. 1,680 0 0 38 242 

(ICE current limit 300) ......... 25% DS .............................. 2,800 0 0 ........................ ........................

Live Cattle ........................... 60% Current Limit .............. 225 0 33 616 1,436 

(CME current limit 450) ....... Current limit * ...................... 450 0 0 ........................ ........................

Sugar No. 11 ....................... 15% DS .............................. 13,980 (*) 10 443 874 

(ICE current limit 5,000) ...... 25% DS .............................. 23,300 0 (*) ........................ ........................

Sugar No. 16 ....................... 15% DS .............................. 4,200 0 0 12 22 

(ICE current limit 1,000) ...... 25% DS .............................. 7,000 0 0 ........................ ........................

For the third group of energy 

commodities, there were a number of 

unique persons in the cash-settled 

referenced contracts whose position 

would have exceeded 25 percent of the 

exchange’s estimated deliverable 

supply. For energy commodities other 

than natural gas, there were fewer than 

20 unique persons that had cash-settled 

positions in excess of the reproposed 

spot-month limit levels, each based on 

25 percent of deliverable supply, as 

discussed above under § 150.2. 

However, for natural gas referenced 

contracts, 131 unique persons had cashsettled positions in excess of the 

reproposed spot-month limit level of 

2,000 contracts. As can be observed in 

the table below, only 20 unique persons 

had cash-settled referenced contract 

positions that would have exceeded the 


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671As can be observed in the open interest table 

discussed under § 150.2, above, the Commission 

notes that open interest in cash-settled platinum 

contracts was markedly lower in the second 12- 

month review period (year 2), than in the first 12- 

month review period (year 1). 

reproposed natural gas conditional spotmonth limit level of 10,000 contracts. 

Thus, a conditional spot-month limit 

exemption in natural gas referenced 

contracts potentially would provide 

relief to a substantial number of market 

participants, each of whom did not have 

a position that was extraordinarily large 

in relation to other traders’ positions in 

cash-settled referenced contracts. 

TABLE III–B–23—ENERGY CONTRACTS

Core-referenced futures 

contract Basis of spot-month level Position limit level 

Nunber of unique 

persons >= level 

Number of unique 

persons in market 

Spot month 

cash settled 

Spot month 

physical 

delivery 

Spot month 

only All months 

Crude Oil, Light Sweet 

(WTI).

CME proposal * .................. 6,000 19 8 1,773 2,673 

(NYMEX current limit .......... 25% DS .............................. 10,400 16 (*) ........................ ........................

3,000 contracts) .................. 50% DS .............................. 20,800 (*) 0 ........................ ........................

Gasoline Blendstock 

(RBOB).

CME proposal .................... 2,000 23 14 463 837 

(NYMEX current limit .......... 25% DS .............................. 6,800 (*) 0 ........................ ........................

1,000 contracts) .................. 50% DS .............................. 13,600 0 0 ........................ ........................

Natural Gas ......................... 25% DS .............................. 2,000 131 16 1,400 1,846 

(NYMEX current limit .......... 50% DS .............................. 4,000 77 (*) ........................ ........................

1,000 contracts) .................. Current single exchange 

conditional spot-month 

limit exemption.

5,000 65 (*) ........................ ........................

Conditional spot-month limit 

exemption.

10,000 20 0 ........................ ........................

ULSD (HO) .......................... CME proposal .................... 2,000 24 11 470 760 

(NYMEX current limit .......... 25% DS .............................. 2,900 15 5 ........................ ........................

1,000 contracts) .................. 50% DS .............................. 5,800 5 0 ........................ ........................

* For WTI, CME Group recommended a step-down spot-month limit of 6,000/5,000/4,000 contracts in the last three days of trading. 

For the fourth group of metal 

commodities, there were a few unique 

persons in the cash-settled referenced 

contracts whose position would have 

exceeded the reproposed levels of the 

spot-month limits, based on the CME 

Group’s recommended levels, as 

discussed above under § 150.2. 

However, there were fewer than 20 

unique persons that had cash-settled 

positions in excess of the reproposed 

spot-month limit levels for metal 

commodities; this is in marked contrast 

to the 131 unique persons who had 

cash-settled positions in excess of the 

reproposed spot-month limit for natural 

gas contracts. The Commission, in 

consideration of the distribution of 

unique persons holding positions in 

cash-settled metal commodity contracts 

across the 24 calendar months of its 

analysis, particularly in platinum,671 is 

of the view that the spot-month limit 

level, as discussed above under § 150.2, 

and without a conditional spot-month 

limit exemption, is within the range of 

acceptable limit levels that, to the 

maximum extent practicable, may 

achieve the statutory policy objectives 

in CEA section 4a(a)(3)(B). 

TABLE III–B–24—METAL CONTRACTS (COMEX DIVISION OF NYMEX) 

Core-referenced futures 

contract Basis of spot-month level Position limit level 

Number of unique 

persons >= level 

Number of unique 

persons in market 

Spot month 

cash settled 

Spot month 

physical 

delivery 

Spot month 

only All months 

Copper ................................ CME proposal .................... 1,000 0 (*) 493 1,457 

(current limit 1,000) ............. 25% DS .............................. 1,100 0 (*) ........................ ........................

Gold ..................................... CME proposal .................... 6,000 (*) (*) 518 1,557 

(current limit 3,000) ............. 25% DS .............................. 11,200 0 0 ........................ ........................

Palladium ............................ CME proposal .................... 100 6 14 164 580 

(current limit 100) ................ 25% DS .............................. 900 0 0 ........................ ........................

Platinum .............................. CME proposal .................... 500 13 (*) 235 842 

(current limit 500) ................ 25% DS .............................. 900 10 (*) ........................ ........................

50% DS .............................. 1,800 (*) 0 ........................ ........................

Silver ................................... CME proposal .................... 3,000 0 0 311 1,023 

(current limit 1,500) ............. 25% DS .............................. 5,600 0 0 ........................ ........................


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672 December 2013 Position Limits Proposal, 78 

FR at 75741. 

673CL–O SEC–59972 at 5. 

674CEA section 4a, as amended by the DoddFrank Act, provides the Commission with broad 

authority to set position limits, including an 

extension of its position limits authority to swaps 

positions. 7 U.S.C. 6a. See supra discussion of CEA 

section 4a. 

675The position limits on these agricultural 

contracts are referred to as ‘‘legacy’’ limits, and the 

listed commodities are referred to as the 

‘‘enumerated’’ agricultural commodities. This list of 

enumerated agricultural contracts includes Corn 

(and Mini-Corn), Oats, Soybeans (and MiniSoybeans), Wheat (and Mini-wheat), Soybean Oil, 

Soybean Meal, Hard Red Spring Wheat, Hard 

Winter Wheat, and Cotton No. 2. See 17 CFR 150.2. 

676See December 2013 Position Limits Proposal, 

78 FR at 75748. 

677Specifically, the Dodd-Frank Act amended 

DCM core principle 1 to include the condition that 

‘‘[u]nless otherwise determined by the Commission 

by rule or regulation,’’ boards of trade shall have 

reasonable discretion in establishing the manner in 

which they comply with the core principles. See 

CEA section 5(d)(1)(B); 7 U.S.C. 7(d)(1)(B). 

678See December 2013 Position Limits Proposal, 

78 FR at 75748. 

679See CEA section 5(d)(5)(B) (amended 2010), 7 

U.S.C. 7(d)(5)(B). 680See CEA section 5h, 7 U.S.C. 7b–3. 681CEA section 5h(f)(6), 7 U.S.C. 7b–3(f)(6); see 

also December 2013 Position Limits Proposal, 78 FR 

at 75748. 

682 Id. 

683 December 2013 Position Limits Proposal, 78 

FR at 75754. 

684See CEA sections 5(d)(1)(B) and 5h(f)(1)(B); 7 

U.S.C. 7(d)(1)(B) and 7b–3(f)(1)(B). 

685 December 2013 Position Limits Proposal, 78 

FR at 75754. 

e. Proposed Recordkeeping and Special 

Call Requirements—§ 150.3(g) and 

§ 150.3(h) 

Proposed Rules: As proposed in the 

December 2013 Position Limits 

Proposal, § 150.3(g) specifies 

recordkeeping requirements for persons 

who claim any exemption set forth in 

§ 150.3. Persons claiming exemptions 

under previously proposed § 150.3 must 

maintain complete books and records 

concerning all details of their related 

cash, forward, futures, options and swap 

positions and transactions. Furthermore, 

such persons must make such books and 

records available to the Commission 

upon request under previously 

proposed § 150.3(h), which would 

preserve the ‘‘special call’’ rule set forth 

in current § 150.3(b). This ‘‘special call’’ 

rule would have required that any 

person claiming an exemption under 

§ 150.3 must, upon request, provide to 

the Commission such information as 

specified in the call relating to the 

positions owned or controlled by that 

person; trading done pursuant to the 

claimed exemption; the commodity 

derivative contracts or cash market 

positions which support the claim of 

exemption; and the relevant business 

relationships supporting a claim of 

exemption. 

The Commission noted that the 

previously proposed rules concerning 

detailed recordkeeping and special calls 

are designed to help ensure that any 

person who claims any exemption set 

forth in § 150.3 can demonstrate a 

legitimate purpose for doing so.672

Comments Received: The Commission 

did not receive any comments on the 

recordkeeping provisions in § 150.3(g) 

as proposed in the December 2013 

Position Limits Proposal. With respect 

to previously proposed § 150.3(h), one 

commenter opposed the ‘‘special call’’ 

provision because, in the commenter’s 

opinion, it is ‘‘too passive.’’ The 

commenter advocated, instead, a 

revision requiring persons claiming an 

exemption to maintain books and 

records on an ongoing basis and provide 

information to the Commission on a 

periodic and automatic basis, because 

even if the Commission lacked staff and 

resources to review the submitted 

material in real-time, Commission staff 

would have detailed historical data for 

use in compliance audits. This 

commenter stated that since required 

records are likely to be kept in an 

electronic format, the more frequent 

reporting requirement would not be 

considered burdensome.673

Commission Reproposal: The 

Commission believes the previously 

proposed recordkeeping and ‘‘special 

call’’ provisions in § 150.3(g) and 

§ 150.3(h), respectively, are sufficient to 

limit abuse of exemptions without 

causing undue burdens on market 

participants. The Commission is 

reproposing these sections generally as 

proposed in the December 2013 Position 

Limits Proposal. The Commission is 

clarifying, in reproposed § 150.3(g)(2), 

that the bona fides of the pass-through 

swap counterparty may be determined 

at the time of the transaction or, 

alternatively, at such later time that the 

counterparty can show the swap 

position to be a bona fide hedging 

position. As previously proposed, such 

bona fides could only be determined at 

the time of the transaction, as opposed 

to at a later time. 

D. § 150.5—Exchange-Set Speculative 

Position Limits and Parts 37 and 38 

1. Background 

As discussed above, the Commission 

currently sets and enforces position 

limits pursuant to its broad authority 

under CEA section 4a,674 and does so 

only with respect to certain enumerated 

agricultural products.675 As the 

Commission explained above and in the 

December 2013 Position Limits 

Proposal,676 section 735 of the DoddFrank Act amended section 5(d)(1) of 

the CEA to explicitly provide that the 

Commission may mandate the manner 

in which DCMs must comply with the 

core principles.677 However, Congress 

limited the exercise of reasonable 

discretion by DCMs only where the 

Commission has acted by regulation.678

The Dodd-Frank Act also amended 

DCM core principle 5. As amended, 

DCM core principle 5 requires that, for 

any contract that is subject to a position 

limitation established by the 

Commission pursuant to CEA section 

4a(a), the DCM ‘‘shall set the position 

limitation of the board of trade at a level 

not higher than the position limitation 

established by the Commission.’’ 679

Moreover, the Dodd-Frank Act added 

CEA section 5h to provide a regulatory 

framework for Commission oversight of 

SEFs.680 Under SEF core principle 6, 

which parallels DCM core principle 5, 

Congress required that SEFs that are 

trading facilities adopt for each swap, as 

is necessary and appropriate, position 

limits or position accountability.681

Furthermore, Congress required that, for 

any contract that is subject to a Federal 

position limit under CEA section 4a(a), 

the SEF shall set its position limits at a 

level no higher than the position 

limitation established by the 

Commission.682

2. Summary 

As explained in the December 2013 

Position Limits Proposal,683 to 

implement the authority provided by 

section 735 of the Dodd-Frank Act 

amendments to CEA sections 5(d)(1) 

and 5h(f)(1), the Commission evaluated 

its pre-Dodd-Frank Act regulations and 

approach to oversight of DCMs, which 

had consisted largely of published 

guidance and acceptable practices, with 

the aim of updating them to conform to 

the new Dodd-Frank Act regulatory 

framework. Based on that review, and 

pursuant to the authority given to the 

Commission in amended sections 

5(d)(1) and 5h(f)(1) of the CEA, which 

permit the Commission to determine, by 

rule or regulation, the manner in which 

boards of trade and SEFs, respectively, 

must comply with the core 

principles,684 the Commission in its 

December 2013 Position Limit Proposal, 

proposed several updates to § 150.5 to 

promote compliance with DCM core 

principle 5 and SEF core principle 6 

governing position limitations or 

accountability.685

First, the Commission proposed 

amendments to the provisions of § 150.5 

to include SEFs and swaps. Second, the 

Commission proposed to codify rules 

and revise acceptable practices for 


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686 Id. Aggregation exemptions can be used, in 

effect, as a way for a trader to acquire a larger 

speculative position. As noted in the December 

2013 Position Limits Proposal, the Commission 

believes that it is important that the aggregation 

rules set out, to the extent feasible, ‘‘bright line’’ 

standards that are capable of easy application by a 

wide variety of market participants while not being 

susceptible to circumvention. December 2013 

Position Limits Proposal, 78 FR at 75754, n. 660. 

687See December 2013 Position Limits Proposal, 

78 FR at 75753; see also Core Principles and Other 

Requirements for Designated Contract Markets, 75 

FR 80572 (Dec. 22, 2010) (‘‘2010 Part 38 Proposed 

Rule’’). 

688See supra discussion under Part I.B 

(discussing the Commission’s adoption of part 

151,subsequently vacated). 

689 2010 Part 38 Proposed Rule at 80585. 

690Core Principles and Other Requirements for 

Designated Contract Markets, 77 FR 36611, 36639 

(Jun. 19, 2012) (‘‘Final Part 38 Rule’’). The 

Commission mandated in final § 38.301 that, in 

order to comply with DCM core principle 5, a DCM 

must ‘‘meet the requirements of parts 150 and 151 

of this chapter, as applicable.’’ See also 17 CFR 

38.301. 

691Final Part 38 Rule at 36639. 

692 Id. (discussing the Dodd-Frank amendments to 

the DCM core principles); see also CEA sections 

5(d)(1) and 5(d)(5), as amended by the Dodd-Frank 

Act. 

693 December 2013 Position Limits Proposal, 78 

FR at 75753. 

694Core Principles and Other Requirements for 

Swap Execution Facilities, 76 FR 1214 (Jan. 7, 2011) 

(‘‘SEF final rulemaking’’). Current § 37.601 provides 

requirements for SEFs that are trading facilities to 

comply with SEF core principle 6 (Position Limits 

or Accountability), while the guidance to SEF core 

principle 6 (Position Limits or Accountability) in 

Appendix B to part 37, cites to part 151. 

695Core Principles and Other Requirements for 

Swap Execution Facilities, 78 FR 33476 (June 4, 

2013). Current § 37.601 provides requirements for 

SEFs that are trading facilities to comply with SEF 

core principle 6 (Position Limits or Accountability). 

696Appendix B to Part 37—Guidance on, and 

Acceptable Practices in, Compliance with Core 

Principles. 

697 December 2013 Position Limits Proposal, 78 

FR at 75753. 

698Comments on the December 2013 Position 

Limits Proposal are accessible on the Commission’s 

Web site at http://comments.cftc.gov/ 

PublicComments/CommentList.aspx?id=1436. 

699A transcript of the June 19, 2014 Roundtable 

on Position Limits is available on the Commission’s 

Web site at http://www.cftc.gov/idc/groups/public/ 

@swaps/documents/dfsubmission/dfsubmission_

061914-trans.pdf. 

700 Information regarding the December 9, 2014 

and September 22, 2015 meetings of the 

Agricultural Advisory Committee, sponsored by 

Chairman Massad, is accessible on the 

Commission’s Web site at http://www.cftc.gov/ 

About/CFTCCommittees/AgriculturalAdvisory/aac_

meetings. Information regarding February 26, 2015 

and the July 29, 2015 meetings of the Energy & 

Environmental Markets Advisory Committee 

(‘‘EEMAC’’), sponsored by Commission Giancarlo, 

is accessible on the Commission’s Web site at 

http://www.cftc.gov/About/CFTCCommittees/ 

EnergyEnvironmentalMarketsAdvisory/emac_

meetings. 

compliance with DCM core principle 5 

and SEF core principle 6 within 

amended § 150.5(a) for contracts subject 

to the federal position limits set forth in 

§ 150.2. Third, the Commission 

proposed to codify rules and revise 

guidance and acceptable practices for 

compliance with DCM core principle 5 

and SEF core principle 6 within 

amended § 150.5(b) for contracts not 

subject to the federal position limits set 

forth in § 150.2. Fourth, the Commission 

proposed to amend § 150.5 to 

implement uniform requirements for 

DCMs and SEFs that are trading 

facilities relating to hedging exemptions 

across all types of contracts, including 

those that are subject to federal limits. 

Fifth, the Commission proposed to 

require DCMs and SEFs that are trading 

facilities to have aggregation policies 

that mirror the federal aggregation 

provisions.686

In addition to the changes to the 

provisions of § 150.5 proposed in the 

December 2013 Position Limits 

Proposal, the Commission also noted 

that it had, in response to the DoddFrank Act, previously published several 

earlier rulemakings that pertained to 

position limits, including in a notice of 

proposed rulemaking to amend part 38 

to establish regulatory obligations that 

each DCM must meet in order to comply 

with section 5 of the CEA, as amended 

by the Dodd-Frank Act.687 In addition, 

as noted above, the Commission had 

published a proposal to replace part 150 

with a proposed part 151, which was 

later finalized before being vacated.688

In the December 2013 Position Limits 

Proposal, the Commission pointed out 

that as it was originally proposed, 

§ 38.301 would require each DCM to 

comply with the requirements of part 

151 as a condition of its compliance 

with DCM core principle 5.689 When the 

Commission finalized Dodd-Frank 

updates to part 38 in 2012, it adopted 

a revised version of § 38.301 with an 

additional clause that requires DCMs to 

continue to meet the requirements of 

part 150 of the Commission’s 

regulations—the current position limit 

regulations—until such time that 

compliance would be required under 

part 151.690 At that time, the 

Commission explained that this 

clarification would ensure that DCMs 

were in compliance with the 

Commission’s regulations under part 

150 during the interim period until the 

compliance date for the new position 

limits regulations of part 151 would take 

effect.691 The Commission further 

explained that its new regulation, 

§ 38.301, was based on the Dodd-Frank 

amendments to the DCM core principles 

regime, which collectively would 

provide that DCM discretion in setting 

position limits or position 

accountability levels was limited by 

Commission regulations setting position 

limits.692

Similarly, as the Commission noted in 

the December 2013 Position Limits 

Proposal,693 when in 2010 the 

Commission proposed to adopt a 

regulatory scheme applicable to SEFs, it 

proposed to require that SEFs establish 

position limits in accordance with the 

requirements set forth in part 151 of the 

Commission’s regulations under 

proposed § 37.601.694 The Commission 

pointed out that it had revised § 37.601 

in the SEF final rulemaking, to state that 

until such time that compliance was 

required under part 151, a SEF may 

refer to the guidance and/or acceptable 

practices in Appendix B of part 37 to 

demonstrate to the Commission 

compliance with the requirements of 

SEF core principle 6.695

In the December 2013 Position Limits 

Proposal, the Commission noted that in 

light of the District Court vacatur of part 

151, the Commission proposed to 

amend § 37.601 to delete the reference 

to vacated part 151. The amendment 

would have instead required that SEFs 

that are trading facilities meet the 

requirements of part 150, which would 

be comparable to the DCM requirement, 

since, as proposed in the December 

2013 Position Limits Proposal, § 150.5 

would apply to commodity derivative 

contracts, whether listed on a DCM or 

on a SEF that is a trading facility. At the 

same time, the Commission would have 

amended Appendix B to part 37, which 

provides guidance on complying with 

core principles, both initially and on an 

ongoing basis, to maintain SEF 

registration.696 Since the December 2013 

Position Limits Proposal required that 

SEFs that are trading facilities meet the 

requirements of part 150, the proposed 

amendments to the guidance regarding 

SEF core principle 6 reiterated that 

requirement. The Commission noted 

that for SEFs that are not trading 

facilities, to whom core principle 6 

would not be applicable under the 

statutory language, part 150 should have 

been considered as guidance.697

More recently, the Commission issued 

the 2016 Supplemental Position Limits 

Proposal to revise and amend certain 

parts of the December 2013 Position 

Limits Proposal based on comments 

received on the December 2013 Position 

Limits Proposal,698 viewpoints 

expressed during a Roundtable on 

Position Limits,699 several Commission 

advisory committee meetings that each 

provided a focused forum for 

participants to discuss some aspects of 

the December 2013 Position Limits 

Proposal,700 and information obtained 

in the course of ongoing Commission 


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701Added by the Dodd-Frank Act, section 5h(a) 

of the CEA, 7 U.S.C. 7b–3, requires SEFs to register 

with the Commission. See generally ‘‘Core 

Principles and Other Requirements for Swap 

Execution Facilities,’’ 78 FR 33476 (Aug. 5, 2013). 

Information regarding the SEF application process 

is available on the Commission’s Web site at http:// 

www.cftc.gov/IndustryOversight/ 

TradingOrganizations/SEF2/sefhowto. 

702See 2016 Supplemental Position Limits 

Proposal, 81 FR at 38459–62. See also DCM Core 

Principle 5, Position Limitations or Accountability 

(contained in CEA section 5(d)(5), 7 U.S.C. 7(d)(5)) 

and SEF Core Principle 6, Position Limits or 

Accountability (contained in CEA section 5h(f)(6), 

7 U.S.C. 7b–3(f)(6)). 

703See 2016 Supplemental Position Limits 

Proposal, 81 FR at 38467–76 (providing for 

recognition of certain positions in commodity 

derivative contracts as non-enumerated bona fide 

hedges), at 38480–81 (providing for recognition of 

certain positions in commodity derivatives 

contracts as enumerated anticipatory bona fide 

hedges); and at 38476–80 (providing for exemptions 

from federal position limits for certain spread 

positions). 

704See 2016 Supplemental Position Limits 

Proposal, 81 FR at 38482. 

705See 2016 Supplemental Position Limits 

Proposal, 81 FR at 38504–13. The 2016 

Supplemental Position Limits Proposal did not 

address the changes to §§ 37.601 or 38.301 

proposed in the December 2013 Position Limits 

Proposal. 

706The Commission did not receive any 

comments regarding the proposed changes to 

§ 37.601 and § 38.301. 

707See the removal of the provisions regarding 

excluded commodities from § 150.5(b) and their 

placement in a new section (c), which addresses 

only excluded commodities. In addition to the 

reorganization of the excluded commodity 

provisions, changes were made to those provisions 

to track changes made in other sections or 

paragraphs and to address concerns raised by 

commenters and confusion that became apparent in 

the comment letters. 

708See December 2013 Position Limits Proposal, 

78 FR at 75681–5 (the Commission interpret the 

statute to mandate that the Commission impose 

limits on futures, options, and swaps, in 

agricultural and exempt commodities). 

709CEA section 5h(f)(6)(B), 7 U.S.C. 7b–3(f)(6) 

(SEF Core Principle 6B). The Commission codified 

SEF Core Principle 6, added by the Dodd-Frank Act, 

in § 37.600 of its regulations, 17 CFR 37.600. See 

generally Core Principles and Other Requirements 

for Swap Execution Facilities, 78 FR 33476, 33533– 

34 (June 4, 2013). 

710CEA section 5(d)(5), 7 U.S.C. 7(d)(5) (DCM 

Core Principle 5). The Commission codified DCM 

Core Principle 5, as amended by the Dodd-Frank 

Act, in § 38.300 of its regulations, 17 CFR 38.300. 

See Core Principles and Other Requirements for 

Designated Contract Markets, 77 FR 36612, 36639 

(June 19, 2012). 

711Under the December 2013 Position Limits 

Proposal, ‘‘referenced contracts’’ are defined as 

futures, options, economically equivalent swaps, 

and certain foreign board of trade contracts, in 

physical commodities, and are subject to the 

proposed federal position limits. See December 

2013 Position Limits Proposal, 78 FR at 75825. 

712See December 2013 Position Limits Proposal, 

78 FR at 75826 (previously proposed § 150.2). 

713See December 2013 Position Limits Proposal, 

78 FR at 75754–8. 

714CL–CMC–59634 at 14–15, CL–FIA–60392 at 

10. One comment letter stated that SEFs should be 

exempt from the requirement to set positions limits 

because SEFs are in the early stages of development 

and could be harmed by limits that restrict 

liquidity. CL–ISDA/SIFMA–59611 at 35. 

715CL–CMC–59634 at 14–15, CL–FIA–60392 at 

10. 

716Under CEA section 5h(a)(1), no person may 

operate a facility for trading swaps unless the 

Continued 

review of SEF registration 

applications.701

In the 2016 Supplemental Position 

Limits Proposal, the Commission 

proposed to delay for exchanges that 

lack access to sufficient swap position 

information the requirement to establish 

and monitor position limits on swaps at 

this time by: (i) Adding Appendix E to 

part 150 to provide guidance regarding 

§ 150.5; and (ii) revising guidance on 

DCM Core Principle 5 and SEF Core 

Principle 6 that corresponds to that 

proposed guidance regarding § 150.5.702

In addition, the Commission in the 2016 

Supplemental Position Limits Proposal 

proposed new alternative processes for 

DCMs and SEFs to recognize certain 

positions in commodity derivative 

contracts as non-enumerated bona fide 

hedges or enumerated anticipatory bona 

fide hedges, as well as to exempt from 

federal position limits certain spread 

positions, in each case subject to 

Commission review.703 Moreover, the 

Commission proposed that DCMs and 

SEFs could recognize and exempt from 

exchange position limits certain nonenumerated bona fide hedging 

positions, enumerated anticipatory bona 

fide hedges, and certain spread 

positions.704 To effectuate the latter 

proposals, the Commission proposed 

amendments to § 150.3 and new § 150.9, 

150.10, and 150.11, as well as 

corresponding amendments to 

§ 150.5(a)(2) and 150.5(b)(5).705

3. Discussion 

As discussed in greater detail below, 

the Commission has determined to 

repropose § 150.5 largely as proposed in 

the December 2013 Position Limit 

Proposal and as revised in the 2016 

Supplemental Position Limits Proposal. 

In addition, the Commission has 

determined to repropose the previously 

proposed amendments to § 37.601 and 

§ 38.301.706

Some changes were made to § 150.5 in 

response to concerns raised by 

commenters; other changes to the 

reproposed regulation are to conform to 

changes made in other sections. For 

example, in reproposing § 150.5(b)(1) 

and (2), the Commission has determined 

to make certain changes to the 

acceptable practices for establishing the 

levels of individual non-spot or allmonths combined position limits for 

futures and future option contracts that 

are not subject to federal limits. The 

changes to reproposed § 150.5(b)(1) and 

(2) correspond to changes to reproposed 

§ 150.2(e)(4)(iv) discussed above, for 

establishing the levels of individual 

non-spot or all-months combined 

positions limits for futures and future 

option contracts that are subject to 

federal limits. Moreover, several nonsubstantive changes were made in 

response to commenter requests to 

provide greater clarity.707

The essential features of the changes 

to reproposed § 150.5 are discussed 

below. 

a. Treatment of Swaps on SEFs and 

DCMs 

i. December 2013 Position Limits 

Proposal. As explained above, CEA 

section 4a(a)(5), as amended by the 

Dodd-Frank Act, requires federal 

position limits for swaps that are 

‘‘economically equivalent’’ to futures 

and options that are subject to 

mandatory position limits under CEA 

section 4a(a)(2).708 The CEA also 

requires in SEF Core Principle 6 that a 

SEF that is a trading facility: (i) Set its 

exchange-set limit on swaps at a level 

no higher than that of the federal 

position limit; and (ii) monitor positions 

established on or through the SEF for 

compliance with the federal position 

limit and any exchange-set limit.709

Similarly, for all contracts subject to a 

federal position limit, including swaps, 

DCMs, under DCM Core Principle 5, 

must set a position limit no higher than 

the federal limit.710

The December 2013 Position Limits 

Proposal specified that federal position 

limits would apply to referenced 

contracts,711 whether futures or swaps, 

regardless of where the futures or swaps 

positions are established.712 Consistent 

with DCM Core Principle 5 and SEF 

Core Principle 6, the Commission at 

§ 150.5(a)(1) previously proposed that 

for any commodity derivative contract 

that is subject to a speculative position 

limit under § 150.2, a DCM or SEF that 

is a trading facility shall set a 

speculative position limit no higher 

than the level specified in § 150.2.’’ 713

ii. Comments Received to December 

2013 Position Limits Proposal 

Several comment letters on previously 

proposed § 150.5 recommended that the 

Commission not require SEFs to 

establish position limits.714 Two noted 

that because SEF participants may use 

more than one derivatives clearing 

organization (‘‘DCO’’), a SEF may not 

know when a position has been 

offset.715 Further, during the ongoing 

SEF registration process,716 a number of 


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facility is registered as a SEF or DCM. 7 U.S.C. 7b– 

3(a)(1). A SEF must comply with core principles, 

including Core Principle 6 regarding position 

limits, as a condition of registration. CEA section 

5h(f)(1), 7 U.S.C. 7b–3(f)(1). 

717For example, in a submission to the 

Commission under part 40 of the Commission’s 

regulations, BGC Derivative Markets, L.P. states that 

‘‘[t]he information to administer limits or 

accountability levels cannot be readily ascertained. 

Position limits or accountability levels apply 

market-wide to a trader’s overall position in a given 

swap. To monitor this position, a SEF must have 

access to information about a trader’s overall 

position. However, a SEF only has information 

about swap transactions that take place on its own 

Facility and has no way of knowing whether a 

particular trade on its facility adds to or reduces a 

trader’s position. And because swaps may trade on 

a number of facilities or, in many cases, over-thecounter, a SEF does not know the size of the 

trader’s overall swap position and thus cannot 

ascertain whether the trader’s position relative to 

any position limit. Such information would be 

required to be supplied to a SEF from a variety of 

independent sources, including SDRs, DCOs, and 

market participants themselves. Unless coordinated 

by the Commission operating a centralized 

reporting system, such a data collection 

requirement would be duplicative as each separate 

SEF required reporting by each information 

source.’’ BGC Derivative Markets, L.P., Rule 

Submission 2015–09 (Oct. 6, 2015). 

718 2016 Supplemental Position Limits Proposal, 

81 FR at 38460. 

719See 2016 Supplemental Position Limits 

Proposal, 81 FR at 38459–62. 

720 Id. at 38460. The Commission acknowledged 

that one SEF that may have access to sufficient 

swap position information by virtue of systems 

integration with affiliates that are CFTC registrants 

and shared personnel. This SEF requires that all of 

its listed swaps be cleared on an affiliated DCO, 

which reports to an affiliated SDR. 2016 

Supplemental Position Limits Proposal, 81 FR at 

38459; see also 38460, n. 32. 

721 Id. at 38460–61. For instance, heavy trading 

activity might cause an exchange to ask whether a 

market participant is building a large speculative 

position or whether the heavy trading activity is 

merely the result of a market participant making a 

market across several exchanges. 

722 Id. at 38461. See 17 CFR 45.3, 45.4, and 45.10. 

See generally CEA sections 4r (reporting and 

recordkeeping for uncleared swaps) and 21 (swap 

data repositories), 7 U.S.C. 6r and 24a, respectively. 

The Commission also observed that, unlike futures 

contracts, which are proprietary to a particular 

DCM and typically clear at a single DCO affiliated 

with the DCM, swaps in a particular commodity are 

not proprietary to any particular trading facility or 

platform. Market participants may execute swaps 

involving a particular commodity on or subject to 

the rules of multiple exchanges or, in some 

circumstances, OTC. Further, under the 

Commission regulations, data with respect to a 

particular swap transaction may be reported to any 

swap data repository (‘‘SDR’’). 

723 2016 Supplemental Position Limits Proposal, 

81 FR at 38461. The Commission observed, 

moreover, by way of example, that part 20 swaps 

data is a source that identifies a market participant’s 

reported open swap positions from the prior trading 

day. So an exchange with access to part 20 swaps 

date could use it to add to any swap positions 

established on or through that exchange during the 

current trading day to get an indication of a 

potential position limit violation. Nonetheless, that 

market participant may have conducted other swap 

transactions in the same commodity, away from a 

particular exchange, that reduced its swap position. 

Id. 

724 Id. The Commission also noted that an 

exchange could theoretically obtain swap position 

data directly from market participants, for example, 

by requiring a market participant to report its swap 

positions, as a condition of trading on the exchange. 

The Commission observed, however, that it is 

unlikely that a single exchange would unilaterally 

impose a swaps reporting regime on market 

participants. Id. at 38461, n. 36. The Commission 

abandoned the approach of requiring market 

participants to report futures positions directly to 

the Commission many years ago. Id.; see also 

Reporting Requirements for Contract Markets, 

Futures Commission Merchants, Members of 

Exchanges and Large Traders, 46 FR 59960 (Dec. 8, 

1981). Instead, the Commission and DCMs rely on 

a large trader reporting system where futures 

positions are reported by futures commission 

merchants, clearing members and foreign brokers. 

See generally part 19 of the Commission’s 

regulations, 17 CFR part 19. See also, for example, 

the discussion of an exchange’s large trader 

reporting system in the Division of Market 

Oversight Rule Enforcement Review of the Chicago 

Mercantile Exchange and the Chicago Board of 

Trade, July 26, 2013, at 24–7, available at http://

www.cftc.gov/idc/groups/public/@iodcms/ 

documents/file/rercmecbot072613.pdf. 

Further, as noted above, exchanges do not have 

authority to demand swap position data from 

derivative clearing organizations or swap data 

repositories; nor do exchanges have general 

authority to demand market participants’ swap 

position data from clearing members of DCOs or 

swap dealers (as the Commission does under part 

20). 2016 Supplemental Position Limits Proposal, 

81 FR at 38461, n. 36. 

persons applying to become registered 

as SEFs told the Commission that they 

lack access to information that would 

enable them to knowledgeably establish 

position limits or monitor positions.717

As the Commission observed in the 

2016 Supplemental Position Limits 

Proposal, this information gap would 

also be a concern for DCMs in respect 

of swaps.718

iii. 2016 Supplemental Position Limits 

Proposal 

As explained above, in the 2016 

Supplemental Position Limits Proposal, 

the Commission proposed to 

temporarily delay for DCMs and SEFs 

that are trading facilities, which lack 

access to sufficient swap position 

information, the requirement to 

establish and monitor position limits on 

swaps by: (i) Adding Appendix E to part 

150 to provide guidance regarding 

§ 150.5; and (ii) revising guidance on 

DCM Core Principle 5 and SEF Core 

Principle 6 that corresponds to that 

guidance regarding § 150.5.719 At that 

time, the Commission acknowledged 

that, if an exchange does not have 

access to sufficient data regarding 

individual market participants’ open 

swap positions, then it cannot 

effectively monitor swap position limits, 

and expressed its belief that most 

exchanges do not have access to 

sufficient swap position information to 

effectively monitor swap position 

limits.720

In this regard, the Commission 

expressed its belief that an exchange 

would have or could have access to 

sufficient swap position information to 

effectively monitor swap position limits 

if, for example: (1) It had access to daily 

information about its market 

participants’ open swap positions; or (2) 

it knows that its market participants 

regularly engage in large volumes of 

speculative trading activity, including 

through knowledge gained in 

surveillance of heavy trading activity, 

that would cause reasonable 

surveillance personnel at an exchange to 

inquire further about a market 

participant’s intentions 721 or total open 

swap positions.722

The Commission noted that it is 

possible that an exchange could obtain 

an indication of whether a swap 

position established on or through a 

particular exchange is increasing a 

market participant’s swap position 

beyond a federal or exchange-set limit, 

if that exchange has data about some or 

all of a market participant’s open swap 

position from the prior day and 

combines it with the transaction data 

from the current day, to obtain an 

indication of the market participant’s 

current open swap position.723 The 

indication would alert the exchange to 

contact the market participant to inquire 

about that participant’s total open swap 

position. 

The Commission expressed its belief 

that although this indication would not 

include the market participant’s activity 

transacted away from that particular 

exchange, such monitoring would 

comply with CEA section 5h(f)(6)(B)(ii). 

However, the Commission observed that 

exchanges generally do not currently 

have access to a data source that 

identifies a market participant’s 

reported open swap positions from the 

prior trading day. With only the 

transaction data from a particular 

exchange, it would be impracticable, if 

not impossible, for that exchange to 

monitor and enforce position limits for 

swaps.724

The Commission also acknowledged 

in the 2016 Supplemental Position 

Limits Proposal that it has neither 


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725Core principle M for DCOs addresses 

information sharing for risk management purposes, 

but does not address information sharing with 

exchanges for other purposes. CEA section 

5b(c)(2)(M), 7 U.S.C. 7a–1(c)(2)(M), and § 39.22, 17 

CFR 39.22. The Commission has access to DCO 

information relating to trade and clearing details 

under § 39.19, 17 CFR 39.19, as is necessary to 

conduct its oversight of a DCO. However, the 

Commission has not used its general rulemaking 

authority under CEA section 8a(5), 7 U.S.C. 12a(5), 

to require DCOs to provide registered entities access 

to swap information, although the Commission 

could impose such a requirement by rule. CEA 

section 5b(c)(2)(A)(i), 7 U.S.C. 7a–1(c)(2)(A)(i). 

726An SDR has a duty to provide direct electronic 

access to the Commission, or a designee of the 

Commission who may be a registered entity (such 

as an exchange). CEA section 21(c)(4), 7 U.S.C. 

24a(c)(4). See 76 FR 54538 at 54551, n. 141 (Sept. 

1, 2011). However, the Commission has not 

designated any exchange as a designee of the 

Commission for that purpose. Further, the 

Commission has not used its general rulemaking 

authority under CEA section 8a(5), 7 U.S.C. 12a(5), 

to require SDRs to provide registered entities (such 

as exchanges) access to swap information, although 

the Commission could impose such a requirement 

by rule. CEA section 21(a)(3)(A)(ii), 7 U.S.C. 

24a(a)(3)(A)(ii). For purposes of comparison, the 

Securities and Exchange Commission (‘‘SEC’’) 

noted with regard to security-based swaps when it 

finalized its rules implementing its similar 

provision (which it described as a ‘‘statutory 

requirement that security-based SDRs conditionally 

provide data to certain regulators and other 

authorities’’), ‘‘that one or more self-regulatory 

organizations potentially may seek such access 

under this provision.’’ Access to Data Obtained by 

Security-Based Swap Data Repositories, 81 FR 

60585, 50588 (Sept. 2, 2016). The SEC estimated 

that ‘‘up to 30 domestic entities potentially might 

enter into such MOUs or other arrangements, 

reflecting the nine entities specifically identified by 

statute or the final rules, and up to 21 additional 

domestic governmental entities or self-regulatory 

organizations that may seek access to such data.’’ 

Id. at 60593. 

727As the Commission noted in the 2016 

Supplemental Position Limits Proposal, even if 

such information were to be made available to 

exchanges, the swaps positions would need to be 

converted to futures-equivalent positions for 

purposes of monitoring position limits on a futuresequivalent basis. 2016 Supplemental Position 

Limits Proposal, 81 FR at 38461. See also December 

2013 Positions Limits Proposal, 78 FR at 78 

FR75825 (describing the proposed definition of 

futures-equivalent); 2016 Supplemental Position 

Limits Proposal at 38461 (describing amendments 

to that proposed definition). 

728 2016 Supplemental Position Limits Proposal, 

81 FR at 38461. The part 20 swaps data is reported 

in futures equivalents, but does not include data 

specifying where reportable positions in swaps 

were established. 

The Commission stated in the December 2013 

Position Limits Proposal that it preliminarily had 

decided not to use the swaps data then reported 

under part 20 for purposes of setting the initial 

levels of the proposed single and all-monthscombined positions limits due to concerns about 

the reliability of such data. December 2013 Position 

Limits Proposal, 78 FR at 75533. The Commission 

also stated that it might use part 20 swaps data 

should it determine such data to be reliable, in 

order to establish higher initial levels in a final rule. 

Id. at 75734. 

However, as the Commission noted in the 2016 

Supplemental Position Limits Proposal, the quality 

of part 20 swaps data does appear to have improved 

somewhat since the December 2013 Position Limits 

Proposal, although some reports continue to have 

significant errors. The Commission stated that it is 

possible that it will be able to rely on swap open 

positions data, given adjustments for obvious errors 

(e.g., data reported based on a unit of measure, such 

as an ounce, rather than a futures equivalent 

number of contracts), to establish higher initial 

levels of non-spot month limits in a final rule. 2016 

Supplemental Position Limits Proposal, 81 FR at 

38461. 

Moreover, the quality of the data regarding 

reportable positions in swaps may have improved 

enough for the Commission to be able to rely on it 

when monitoring market participants’ compliance 

with the proposed federal position limits. 

729 Id. 

730See, e.g., CEA sections 5h(b)(1)(B) and 5h(e), 

7 U.S.C. 7b–3(b)(1)(B) and 7b–3(e), respectively. 

731 2016 Supplemental Position Limits Proposal, 

81 FR at 38461. The Commission stated that once 

the guidance was no longer applicable, a DCM or 

a SEF would be required to file rules with the 

Commission to implement the relevant position 

limits and demonstrate compliance with Core 

Principle 5 or 6, as appropriate. The Commission 

also noted that, for the same reasons regarding swap 

position data discussed above in respect of CEA 

section 5h(f)(6)(B), the guidance proposed in the 

2016 Supplemental Position Limits Proposal would 

temporarily relieve SEFs of their statutory 

obligation under CEA section 5h(f)(6)(A). Id. 

732As the Commission noted above, although the 

2016 Supplemental Position Limits Proposal 

proposed position limits relief to SEFs and to DCMs 

in regards to swaps, it did not propose any 

alteration to the definition of referenced contract 

(including economically equivalent swaps) that was 

proposed in December 2013. See also December 

2013 Position Limits Proposal, 78 FR at 75825. 

733 2016 Supplemental Position Limits Proposal, 

81 FR at 38462. See also id. at n. 44 (See, e.g., Ass’n 

of Irritated Residents v. EPA, 494 F.3d 1027, 1031 

(D.C. Cir. 2007) (allowing regulated entities to enter 

into consent agreements with EPA—without notice 

and comment—that deferred prosecution of 

statutory violation until such time as compliance 

would be practicable); Catron v. County Bd. Of 

Commissioners v. New Mexico Fish & Wildlife 

Serv., 75 F.3d 1429, 1435 (10th Cir.1966) (stating 

that ‘Compliance with [the National Environmental 

Protection Act] is excused when there is a statutory 

conflict with the agency’s authorizing legislation 

that prohibits or renders compliance 

impossible.’ ’’)). The Commission noted, moreover, 

that ‘‘it is axiomatic that courts will avoid reading 

statutes to reach absurd or unreasonable 

consequences’’ (citing, as an example, Griffin v. 

Oceanic Contractors, Inc., 458 U.S. 564 (1982)), and 

pointed out that to require an exchange to monitor 

position limits on swaps, when it currently has 

extremely limited visibility into a market 

participant’s swap position, was, arguably, absurd 

and certainly appeared unreasonable. 2016 

Supplemental Position Limits Proposal, 81 FR at 

38462, n. 44. 

734 Id. at 38462. 

required any DCO 725 or SDR726 to 

provide such swap data to exchanges,727

nor provided any exchange with access 

to swaps data collected under part 20 of 

the Commission’s regulations.728

The Commission stated that in light of 

the foregoing, it was proposing a delay 

in implementation of exchange-set 

limits for swaps only, and only for 

exchanges without sufficient swap 

position information.729 After 

consideration of the circumstances 

described above, and in an effort to 

accomplish the policy objectives of the 

Dodd-Frank Act regulatory regime, 

including to facilitate trade processing 

of any swap and to promote the trading 

of swaps on SEFs,730 the 2016 

Supplemental Position Limits Proposal 

amended the guidance in the 

appendices to parts 37 and 38 of the 

Commission’s regulations regarding SEF 

core principle 6 and DCM core principle 

5, respectively. According to the 2016 

Supplemental Position Limits Proposal, 

the revised guidance clarified that an 

exchange need not demonstrate 

compliance with SEF core principle 6 or 

DCM core principle 5 as applicable to 

swaps until it has access to sufficient 

swap position information, after which 

the guidance would no longer be 

applicable.731 For clarity, the 2016 

Supplemental Position Limits Proposal 

included the same guidance in a new 

Appendix E to proposed part 150 in the 

context of the Commission’s proposed 

regulations regarding exchange-set 

position limits. 

Although the Commission proposed 

to temporarily relieve exchanges that do 

not now have access to sufficient swap 

position information from having to set 

position limits on swaps, it also noted 

that nothing in the 2016 Supplemental 

Position Limits Proposal would prevent 

an exchange from nevertheless 

establishing position limits on swaps, 

while stating that it does seem unlikely 

that an exchange would implement 

position limits before acquiring 

sufficient swap position information 

because of the ensuing difficulty of 

enforcing such a limit. The Commission 

expressed its belief that providing delay 

for those exchanges that need it both 

preserved flexibility for subsequent 

Commission rulemaking and allowed 

for phased implementation of 

limitations on swaps by exchanges, as 

practicable.732

Additionally, the Commission 

observed that courts have authorized 

relieving regulated entities of their 

statutory obligations where compliance 

is impossible or impracticable,733 and 

noted its view that it would be 

impracticable, if not impossible, for an 

exchange to monitor and enforce 

position limits for swaps with only the 

transaction data from that particular 

exchange.734 The Commission 

expressed its belief that, accordingly, it 

was reasonable to delay implementation 

of this discrete aspect of position limits, 

only with respect to swaps position 

limits, and only for exchanges that 

lacked access to sufficient swap position 

information. This approach, the 

Commission believed, would further the 

policy objectives of the Dodd-Frank Act 

regulatory regime, including the 

facilitation of trade processing of swaps 


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735 Id. 736E.g., CL–FIA–60937 at 1,6; CL–WMBA–60945 

at 1–2; CL–AFR–60953 at 2; CL–RER2–60962 at 1; 

CL–Better Markets–60928 at 6. 737CL–FIA–60937 at 2, 5–6; CL–WMBA–60945 at 

1–2; CL–AFR–60953 at 2; CL–RER2–60962 at 1. 738CL–FIA–60937 at 2, 5–6. 739CL–AFR–60953 at 2; CL–RER2–60962 at 1. 740CL–Better Markets–60928 at 6. 741For purposes of clarity, the Commission is 

reproposing the guidance to provide for a 

temporarily delay for DCMs and SEFs that are 

trading facilities that lack access to sufficient swap 

position information the requirement to establish 

and monitor position limits on swaps by 

reproposing as proposed in the 2016 Supplemental 

Position Limits Proposal: (i) Appendix E to Part 150 

to provide guidance regarding reproposed § 150.5; 

and (ii) guidance on DCM Core Principle 5 and SEF 

Core Principle 6 that corresponds to that 

reproposed guidance regarding § 150.5. 

742As the Commission noted in the December 

2013 Position Limits Proposal, ‘‘a phased approach 

will (i) reduce the potential administrative burden 

by not immediately imposing position limits on all 

commodity derivative contracts in physical 

commodities at once, and (ii) facilitate adoption of 

monitoring policies, procedures and systems by 

persons not currently subject to positions limits 

(such as traders in swaps that are not significant 

price discovery contracts).’’ 78 FR 75680. 

743As discussed above, 17 CFR 150.2 provides 

limits for specified agricultural contracts in the spot 

month, individual non-spot months, and allmonths-combined. 

744As previously proposed, § 150.5(a)(1) is in 

keeping with the mandate in core principle 5 as 

amended by the Dodd-Frank Act. See CEA section 

5(d)(1)(B), 7 U.S.C. 7(d)(1)(B). SEF core principle 6 

parallels DCM core principle 5. Compare CEA 

section 5h(f)(5), 7 U.S.C. 7b–3(f)(5) with CEA 

section 5(d)(5), 7 U.S.C. 7(d)(5). 

745The Commission previously proposed to 

exercise its authority under CEA section 4a(a)(7) to 

exempt pre-Dodd-Frank and transition period 

swaps from speculative position limits (unless the 

trader elected to include such a position to net with 

post-effective date commodity derivative contracts). 

Such a pre-existing swap position would be exempt 

from initial spot month speculative position limits. 

December 2013 Position Limits Proposal, 78 FR at 

75756, n. 674. 

746See previously proposed 150.5(a)(4)(ii). See 

also CEA section 22(a)(5)(B), added by section 739 

of the Dodd-Frank Act. 

747See previously proposed 150.5(a)(4)(ii). 

Notwithstanding any pre-existing exemption 

adopted by a DCM or SEF that applied to 

speculative position limits in non-spot months, 

under the December 2013 Position Limits Proposal, 

a person holding pre-existing commodity derivative 

contracts (except for pre-existing swaps as 

described above) would be required to comply with 

spot month speculative position limits. However, 

nothing in previously proposed § 150.5(a)(4) would 

override the exclusion of pre-Dodd-Frank and 

transition period swaps from speculative position 

limits. December 2013 Position Limits Proposal, 78 

FR at 75756, n. 675. 

748 December 2013 Position Limits Proposal, 78 

FR at 75754, 75756. As noted above, aggregation 

exemptions can be used, in effect, as a way for a 

trader to acquire a larger speculative position, and 

the Commission believes that it is important that 

the aggregation rules set out, to the extent feasible, 

‘‘bright line’’ standards that are capable of easy 

application by a wide variety of market participants 

while not being susceptible to circumvention. The 

December 2013 Position Limits Proposal also noted 

that ‘‘. . . position aggregation exemptions, if not 

and the promotion of trading swaps on 

SEFs. Finally, the Commission noted 

that while this approach would delay 

the requirement for certain exchanges to 

establish and monitor exchange-set 

limits on swaps, under the December 

2013 Position Limits Proposal, federal 

position limits would apply to swaps 

that are economically equivalent to 

futures contracts subject to federal 

position limits.735

iv. Comments Received to 2016 

Supplemental Position Limits Proposal 

Several commenters addressed the 

Commission’s proposed guidance on 

exchange-set limits on swaps.736

Regarding insufficient swap data, four 

commenters agreed that SEFs and DCMs 

lack access to sufficient swap position 

data to set exchange limits on swaps, 

and as such, the commenters support 

the Commission’s decision to delay the 

position limit monitoring requirements 

for SEFs that are trading facilities and 

DCMs.737 In addition, one commenter 

recommended that the Commission 

provide notice for public comments 

prior to implementing any 

determination that a DCM or SEF has 

access to sufficient swap position data 

to set exchange limits on swaps.738

Further, two commenters recommended 

that the Commission identify a plan, to 

address the insufficient data issues, that 

goes beyond ‘‘simply exempting affected 

exchanges.’’ 739

On the other hand, one commenter 

asserted that there should be no delay 

in implementing position limits for 

swaps because, according to the 

commenter, the Commission has access 

to sufficient swap data it needs to 

implement position limits.740

v. Commission Determination 

The Commission has determined to 

repropose the treatment of swaps and 

SEFs as previously proposed in the 2016 

Supplemental Position Limits Proposal 

for the reasons given above.741

Regarding the comments 

recommending that the Commission 

identify a plan to address the 

insufficient data issues that goes beyond 

‘‘simply exempting affected exchanges,’’ 

the Commission may consider granting 

DCMs and SEFs, as self-regulatory 

organizations, access to part 20 data or 

SDR data at a later time. 

In addition, regarding the comment 

that the Commission already has access 

to sufficient swap data in order to 

implement position limits, the 

Commission points out that it proposes 

to adopt a phased approach to updating 

its position limits regime.742 In 

conjunction with this phased approach, 

the Commission believes that at this 

time it should limit its implementation 

of position limits for swaps to those that 

are referenced contracts. 

b. § 150.5(a)—Requirements and 

Acceptable Practices for Commodity 

Derivative Contracts That Are Subject to 

Federal Position Limits 

i. December 2013 Position Limits 

Proposal 

Several requirements were added to 

§ 150.5(a) in the December 2013 

Position Limits Proposal to which a 

DCM or SEF that is a trading facility 

must adhere when setting position 

limits for contracts that are subject to 

the federal position limits listed in 

§ 150.2.743 Previously proposed 

§ 150.5(a)(1) specified that a DCM or 

SEF that lists a contract on a commodity 

that is subject to federal position limits 

must adopt position limits for that 

contract at a level that is no higher than 

the federal position limit.744 Exchanges 

with cash-settled contracts price-linked 

to contracts subject to federal limits 

would also be required to adopt those 

limit levels. 

Previously proposed § 150.5(a)(3) 

would have required a DCM or SEF that 

is a trading facility to exempt from 

speculative position limits established 

under § 150.2 a swap position acquired 

in good faith in any pre-enactment and 

transition period swaps, in either case 

as defined in § 150.1.745 However, 

previously proposed § 150.5(a)(3) would 

allow a person to net such a pre-existing 

swap with post-effective date 

commodity derivative contracts for the 

purpose of complying with any nonspot-month speculative position limit. 

Under previously proposed 

§ 150.5(a)(4)(i), a DCM or SEF that is a 

trading facility must require compliance 

with spot month speculative position 

limits for pre-existing positions in 

commodity derivatives contracts other 

than pre-enactment or transition period 

swaps, while previously proposed 

§ 150.5(a)(4)(ii) provides that a nonspot-month speculative position limit 

established under § 150.2 would not 

apply to any commodity derivative 

contract acquired in good faith prior to 

the effective date of such limit.746 As 

proposed in the December 2013 Position 

Limits Proposal, however, such a preexisting commodity derivative contract 

position must be attributed to the 

person if the person’s position is 

increased after the effective date of such 

limit.747

Under the December 2013 Position 

Limits Proposal, the Commission had 

proposed to require DCMs and SEFs that 

are trading facilities to have aggregation 

polices that mirror the federal 

aggregation provisions.748 Therefore, 


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uniform with the Commission’s requirements, may 

serve to permit a person to obtain a larger position 

on a particular DCM or SEF than would be 

permitted under the federal limits. For example, if 

an exchange were to grant an aggregation position 

to a corporate person with aggregate positions above 

federal limits, that exchange may permit such 

person to be treated as two or more persons. The 

person would avoid violating exchange limits, but 

may be in violation of the federal limits. The 

Commission believes that a DCM or SEF, consistent 

with its responsibilities under applicable core 

principles, may serve an important role in ensuring 

compliance with federal positions limits and 

thereby protect the price discovery function of its 

market and guard against excessive speculation or 

manipulation. In the absence of uniform . . . 

position aggregation exemptions, DCMs or SEFs 

may not serve that role. December 2013 Position 

Limits Proposal, 78 FR at 75754. See also 2016 

Final Aggregation Rule (regarding amendments to 

150.4, which were approved by the Commission in 

a separate release concurrently with this reproposed 

rulemaking). 

749Under the December 2013 Position Limits 

Proposal, 17 CFR 150.5(g) would be replaced with 

previously proposed § 150.5(a)(5) which referenced 

17 CFR 150.4 as the regulation governing 

aggregation for contracts subject to federal position 

limits. 

750 December 2013 Position Limits Proposal, 78 

FR at 75755. 

751 December 2013 Position Limits Proposal, 78 

FR at 75756. The Commission stated that, therefore, 

federal spot month position limits do not apply to 

positions in physical-delivery contracts on which 

notices of intention to deliver have been issued, 

stopped long positions, delivery obligations 

established by the clearing organization, or 

deliveries taken. Id. at 75756, n. 678. 

752 Id. at 75756. The December 2013 Position 

Limits Proposal noted, for example, that an 

exchange might restrict a speculative long position 

holder that otherwise would obtain a large long 

position, take delivery, and seek to re-establish a 

large long position in an attempt to corner a 

significant portion of the deliverable supply or to 

squeeze shorts. Previously proposed § 150.5(b)(9) 

set forth the same acceptable practices for contracts 

not subject to federal limits. Id. at 75756, n. 679. 

753CL–DBCS–59569 at 4. 

754CL–FIA–59595 at 41; CL–Nodal-59695 at 3. 

755CL–AMG–59709 at 2, 10–11. 

756As noted above, the changes to § 150.3 as 

proposed in the December 2013 Position Limits 

Proposal would have provided for recognition of 

enumerated bona fide hedge positions, but would 

not have exempted any spread positions from 

federal limits. For any commodity derivative 

contracts subject to federal position limits, 

§ 150.5(a)(2) as proposed in the December 2013 

Position Limits Proposal would have established 

requirements under which exchanges could 

recognize exemptions from exchange-set position 

limits, including hedge exemptions and spread 

exemptions. See also 2016 Supplemental Position 

Limits Proposal, 81 FR at 38482. 

757As proposed in the 2016 Supplemental 

Position Limits Proposal, § 150.5(a)(2)(i) provides 

that a DCM or SEF that is a trading facility ‘‘may 

grant exemptions from any speculative position 

limits it sets under paragraph (a)(1) of this section, 

provided that such exemptions conform to the 

requirements specified in § 150.3.’’ 

758See § 150.5(b)(5)(D) (stating that for excluded 

commodities, a DCM or SEF may grant, pursuant to 

Continued 

previously proposed § 150.5(a)(5) 

required DCMs and SEFs that are 

trading facilities to have aggregation 

rules that conformed to the uniform 

standards listed in § 150.4.749 As noted 

in the December 2013 Position Limits 

Proposal, aggregation policies that vary 

from exchange to exchange would 

increase the administrative burden on a 

trader active on multiple exchanges, as 

well as increase the administrative 

burden on the Commission in 

monitoring and enforcing exchange-set 

position limits.750

A DCM or SEF that is a trading facility 

would have continued to be free to 

enforce position limits that are more 

stringent that the federal limits. The 

Commission clarified in the December 

2013 Position Limits Proposal that 

federal spot month position limits do 

not to apply to physical-delivery 

contracts after delivery obligations are 

established.751 Exchanges generally 

prohibit transfer or offset of positions 

once long and short position holders 

have been assigned delivery obligations. 

Previously proposed § 150.5(a)(6) 

clarified acceptable practices for a DCM 

or SEF that is a trading facility to 

enforce spot month limits against the 

combination of, for example, long 

positions that have not been stopped, 

stopped positions, and deliveries taken 

in the current spot month.752

ii. Comments Received to December 

2013 Position Limits Proposal Regarding 

Proposed § 150.5(a) 

One commenter recommended that 

exchanges be required to withdraw their 

position accountability and position 

limit regimes in deference to any federal 

limits and to conform their position 

limits to the federal limits so that a 

single regime will apply across 

exchanges.753

Two commenters recommended that 

the Commission clarify that basis 

contracts would be excluded from 

exchange-set limits in order to provide 

consistency since such contracts are 

excluded from the Commission’s 

definition of referenced contract and 

thus are not subject to Federal limits.754

One commenter recommended that 

DCMs and SEFs that are trading 

facilities be given more discretion, 

particularly with respect to nonreferenced contracts, over aggregation 

requirements.755

iii. 2016 Supplemental Position Limits 

Proposal 

In the 2016 Supplemental Position 

Limits Proposal, the Commission 

proposed to amend § 150.5(a)(2) as it 

was proposed in the December 2013 

Position Limits Proposal.756 The 

amendments would permit exchanges to 

recognize non-enumerated bona fide 

hedging positions under § 150.9, to 

grant spread exemptions from federal 

limits under § 150.10, and to recognize 

certain enumerated anticipatory bona 

fide hedging positions under § 150.11, 

each as contained in the 2016 

Supplemental Position Limits Proposal. 

In conjunction with those amendments, 

the Commission proposed 

corresponding changes to § 150.3 and 

§ 150.5(a)(2). 

For example, § 150.5(a)(2)(i), as 

proposed in the December 2013 Position 

Limits Proposal, required that any 

exchange rules providing for hedge 

exemptions for commodity derivatives 

contracts subject to federal position 

limits conform to the definition of bona 

fide hedging position as defined in the 

amendments to § 150.1 contained in the 

December 2013 Position Limits 

Proposal. But because the 2016 

Supplemental Position Limits Proposal 

incorporated the bona fide hedging 

position definition and provided for 

spread exemptions in 150.3(a)(1)(i), the 

2016 Supplemental Position Limits 

Proposal proposed instead to cite to 

§ 150.3 in § 150.5(a)(2).757 Similarly, the 

application process provided for in 

§ 150.5(a)(2) was amended to conform to 

the requirement in proposed § 150.10 

and § 150.11 that exchange rules 

providing for exemptions for 

commodity derivatives contracts subject 

to federal position limits require that 

traders reapply on at least an annual 

basis. In addition, the changes to 

§ 150.5(a)(2) clarified that exchanges 

may deny an application, or limit, 

condition, or revoke any exemption 

granted at any time. 

Similarly, the 2016 Supplemental 

Position Limits Proposal amended 

previously proposed § 150.5(b) to 

require that exchange rules provide for 

recognition of a non-enumerated bona 

fide hedge ‘‘in a manner consistent with 

the process described in § 150.9(a).’’ 

Addressing the granting of spread 

exemptions for contracts not subject to 

federal position limits, the 2016 

Supplemental Position Limits Proposal 

integrates in the standards of CEA 

section 4a(a)(3), providing that 

exchanges should take into account 

those standards when considering 

whether to grant spread exemptions. 

Finally, the 2016 Supplemental Position 

Limits Proposal clarified that for 

excluded commodities, the exchange 

can grant certain exemptions provided 

under paragraphs § 150.5(b)(5)(i) and 

(b)(5)(ii) in addition to the risk 

management exemption previously 

proposed in the December 2013 Position 

Limits Proposal.758


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rules submitted to the Commission, ‘‘the 

exemptions under paragraphs (b)(5)(i) and 

(b)(5)(ii)(A) through (C)’’). While the December 2013 

Position Limits Proposal numbered the provisions 

applicable to excluded commodities as 

§ 150.5(b)(5)(ii)(E), the 2016 Supplemental Position 

Limits Proposal renumbered the provision as 

§ 150.5(b)(5)(ii)(D). 

759One example of an issue raised by several 

commenters concerns the application procedures in 

§§ 150.9(a)(4), 150.10(a)(4), and 150.11(a)(3), which 

requires market participants to apply for 

recognition or an exemption in advance of 

exceeding the limit. See, e.g., CL–FIA–60937 at 4, 

13; CL–CME–60926 at 12; CL–ICE–60929 at 11, 20– 

21; CL–NCGA–NGSA–60919 at 10–11; CL–EEI– 

EPSA–60925 at 4; CL–ISDA–60931 at 13; and CL– 

CMC–60950 at 3. For example, ICE requested the 

insertion of a provision for exchanges to recognize 

exemptions retroactively due to ‘‘unforeseen 

hedging needs,’’ and also stated that certain 

exchanges currently utilize a similar rule and it is 

‘‘critical in reflecting commercial hedging needs 

that cannot always be predicted in advance.’’ CL– 

ICE–60929 at 11. 

760CL–NGFA–60941 at 2. 

761The Commission’s current definition of ‘‘bona 

fide hedging transactions and positions,’’ under 

§ 1.3(z), applies the ‘‘five-day rule’’ in § 1.3(z)(2) 

subsections (i)(B), (ii)(C), (iii), and (iv). Under those 

sections of the ‘‘five-day rule,’’ no such positions 

and transactions were maintained in the five last 

days of trading. See § 1.3(z). 

762As noted in the December 2013 Position 

Limits Proposal (which did not change in the 2016 

Supplemental Position Limits Proposal), the 

Commission previously proposed to delete § 1.3(z) 

and replace it with a new definition in § 150.1 of 

‘‘bona fide hedging position.’’ And, as noted above, 

the December 2013 Position Limits Proposal 

retained the five-day rule. The previously proposed 

definition was built on the Commission’s history 

and was grounded for physical commodities in the 

new requirements of CEA section 4a(c)(2) as 

amended by the Dodd-Frank Act. December 2013 

Position Limits Proposal, 78 FR at 75706. 

763E.g., CL–NCGA–ASA–60917 at 1–2; CL–CME– 

60926 at 14–15; CL–ICE–60929 at 7–8; CL–ISDA– 

60931 at 11; CL–CCI–60935 at 3; CL–MGEX–60936 

at 4; CL–Working Group–60947 at 5, 7–9; CL– 

IECAssn–60949 at 7–9; CL–CMC–60950 at 9–14; 

CL–NCC–ACSA–60972 at 2. No comments on the 

December 2013 Position Limits Proposal 

specifically addressed the ‘‘five-day rule’’ in the 

context of § 150.5. 

764See, e.g, CL–ISDA–60931 at 10; CL–CCI–60935 

at 3; CL–MGEX–60936 at 11; CL–Working Group– 

60947 at 7–9. 

765CL–CMC–60950 at 11–12. 

766CL–Working Group–60947 at 8; CL–IECAssn– 

60949 at 7–9. 

767CL–CME–60926 at 6, 8. 

768CL–FIA–60937 at 4, 13; CL–CME–60926 at 12; 

CL–ICE–60929 at 11, 20–21; CL–NCGA–NGSA– 

60919 at 10–11; CL–EEI–EPSA–60925 at 4; CL– 

ISDA–60931 at 13; and CL–CMC–60950 at 3. 

769See 150.9(a)(4) (requiring each person 

intending to exceed position limits to, among other 

things, ‘‘receive notice of recognition from the 

designated contract market or swap execution 

facility of a position as a non-enumerated bona fide 

hedge in advance of the date that such position 

would be in excess of the limits then in effect 

pursuant to section 4a of the Act.’’) 

770CL–ICE–60929 at 11. 

771CL–NCGA–NGSA–60919 at 10–11. 

772 Id. at 11 (footnote omitted). 

773For example, the Commission is reproposing 

the following sections as previously proposed 

without change for the reasons provided above: 

§ 150.5(a)(1); § 150.5(a)(3) (Pre-enactment and 

transition period swap positions), § 150.5(a)(4) (Preexisting positions), and § 150.5(a)(6) (Additional 

acceptable practices); no substantive comments 

were received regarding those sections. 

iv. Comments Received on the 2016 

Supplemental Position Limits Proposal 

Regarding § 150.5(a) 

While comments were submitted on 

the 2016 Supplemental Position Limits 

Proposal that addressed the proposed 

changes to the definitions under § 150.1, 

as well as to the proposed exchange 

processes for recognition of nonenumerated bona fide hedges and 

anticipatory hedges, and for granting 

spreads exemptions under proposed 

§§ 150.9, 150.11, and 150.10, 

respectively, all of which indirectly 

affect § 150.5(a), very few comments 

specifically addressed § 150.5(a). 

Comments received on the 2016 

Supplemental Position Limits Proposal 

regarding the other sections are 

addressed in the discussions of those 

sections.759

One commenter urged the 

Commission to allow exchanges to 

maintain their current authority to set 

speculative limits for both spot month 

and all-months combined limits below 

federal limits to ensure that convergence 

continues to occur.760

While the Commission’s retention of 

what is often referred to as the five-day 

rule 761 was included only in the revised 

definition of bona fide hedging position 

under § 150.1,762 several commenters 

addressed the five-day rule in the 

context of § 150.5 as proposed in the 

2016 Supplemental Position Limits 

Proposal.763 According to the 

commenters, the decision of whether to 

apply the five-day rule to a particular 

contract should be delegated to the 

exchanges because the exchanges are in 

the best position to evaluate facts and 

circumstances, and different markets 

have different dynamics and needs.764

In addition, one commenter requested 

that the Commission specifically 

authorize exchanges to grant bona fide 

hedging position and spread exemptions 

during the last five days of trading or 

less.765 Two commenters suggested, as 

an alternative approach if the five-day 

rule remains, that the Commission 

instead rely on tools available to 

exchanges to address concerns, such as 

exchanges requiring gradual reduction 

of the position (‘‘step down’’ 

requirements) or revoking exemptions to 

protect the price discovery process in 

core referenced futures contracts 

approaching expiration.766 Another 

commenter argued that in spite of any 

five-day rule that is adopted, exchanges 

should be allowed to recognize nonenumerated bona fide hedging 

exemptions during the last five trading 

days for enumerated strategies that are 

otherwise subject to the five-day rule 

and the discretion to grant exemptions 

for hedging strategies that would 

otherwise be subject to the five-day 

rule.767

One issue raised by several 

commenters 768 that did not directly 

address § 150.5 concerns the application 

procedures in §§ 150.9(a)(4), 

150.10(a)(4), and 150.11(a)(3), which 

require market participants to apply for 

recognition or an exemption in advance 

of exceeding the limit.769 For example, 

one commenter requested the insertion 

of a provision permitting exchanges to 

recognize exemptions retroactively due 

to ‘‘unforeseen hedging needs’’; this 

commenter also stated that certain 

exchanges currently utilize a similar 

rule and it is ‘‘critical in reflecting 

commercial hedging needs that cannot 

always be predicted in advance.’’ 770

Another commenter requested that the 

Commission allow exchanges to 

recognize a bona fide hedge exemption 

for up to a five-day retroactive period in 

circumstances where market 

participants need to exceed limits to 

address a sudden and unforeseen 

hedging need.771 That commenter stated 

that CME and ICE currently provide 

mechanisms for such recognition, which 

are used infrequently but are 

nonetheless important. According to 

that commenter, ‘‘[t]o ensure that such 

allowances will not diminish the overall 

integrity of the process, two effective 

safeguards under the current exchangeadministered processes could continue 

to be required. First, the exchange rules 

could continue to require market 

participants making use of the 

retroactive application to demonstrate 

that the applied-for hedge was required 

to address a sudden and unforeseen 

hedging need. . . . Second, if the 

emergency hedge recognition is not 

granted, the exchange rules could 

continue to require the applicant to 

immediately unwind its position and 

also deem the applicant to have been in 

violation for any period in which its 

position exceeded the applicable 

limits.772 While these comments 

address other sections, the Commission 

will respond to these comments in 

explaining its reproposal of § 150.5. 

v. Commission Determination Regarding 

§ 150.5(a) 

The Commission has determined to 

repropose § 150.5(a) as proposed in the 

2016 Supplemental Position Limits 

Proposal for the reasons provided above 

with some changes, as detailed 

below.773


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774But see CL–NGFA–60941 at 2 (urging the 

Commission to allow exchanges to maintain their 

current authority to set speculative limits for both 

spot month and all-months combined limits below 

federal limits). 

775The Commission notes that its singular 

definition of ‘‘referenced contract’’ that excludes 

‘‘basis contracts’’ applies not only to § 150.5(a), but 

also to § 150.5(b). Separately, the Commission notes 

that in the future, it may determine to subject basis 

contracts to a separate class limit in order to 

discourage potential manipulation of the outright 

price legs of the basis contract. 

776See, e.g., CL–ICE–60929 at 2–4, 7–8; CL– 

Working Group–60947 at 14. 

777 7 U.S.C. 7(d)(5) and 7 U.S.C. 7b–3(f)(6). 

778See the discussion regarding the five-day rule 

in connection with the definition of bona fide 

hedging position in the discussion of § 150.9 

(Process for recognition of positions as nonenumerated bona fide hedges). 

779See § 150.1, definition of bona fide hedging 

position sections (2)(ii)(A), (3)(iii), (4), and (5) 

(Other enumerated hedging position). To provide 

greater clarity as to which bona fide hedge positions 

the five-day rule applies, the reproposed rules 

reorganize the definition. 

780The Reproposal includes a similar 

modification to § 150.5(b)(5)(i). 

781CL–NCGA–NGSA–60919 at 10–11. 

782 Id. 

783The Commission’s belief is supported by 

requests from multiple traders for industry-wide, 

standard aggregation requirements. 

Although the Commission is 

reproposing § 150.5(a)(1), in response to 

the comment that the exchanges should 

conform their position limits to the 

federal limits so that a single position 

limit and accountability regime apply 

across exchanges,774 the Commission 

believes that exchanges may find it 

prudent in the course of monitoring 

position limits to impose lower (that is, 

more restrictive) limit levels. The 

flexibility for exchanges to set more 

restrictive limits is granted in CEA 

section 4a(e), which provides that if an 

exchange establishes limits on a 

contract, those limits shall be set at a 

level no higher than the level of any 

limits set by the Commission. This 

expressly permits an exchange to set 

lower limit levels than federal limit 

levels. The reproposed rules track this 

statutory provision. 

For purposes of clarification in 

response to comments on the treatment 

of basis contracts, the reproposed rules 

provide a singular definition of 

‘‘referenced contract’’ which, as stated 

by the commenters, excludes ‘‘basis 

contracts.’’ For commodities subject to 

federal limits under reproposed § 150.2, 

the definition of referenced contract 

remains the same for federal and 

exchange-set limits and may not be 

amended by exchanges. An exchange 

could, but is not required to, impose 

limits on any basis contract 

independently of the federal limit for 

the commodity in question, but a 

position in a basis contract with an 

independent, exchange-set limit would 

not count for the purposes of the federal 

limit.775

After consideration of comments 

regarding § 150.5(a)(2)(i) (Grant of 

exemption),776 as proposed in the 2016 

Supplemental Position Limits Proposal, 

the Commission is reproposing it with 

modifications. Reproposed 

§ 150.5(a)(2)(i) provides that any 

exchange may grant exemptions from 

any speculative position limits it sets 

under paragraph § 150.5(a)(1), provided 

that such exemptions conform to the 

requirements specified in § 150.3, and 

provided further that any exemptions to 

exchange-set limits not conforming to 

§ 150.3 are capped at the level of the 

applicable federal limit in § 150.2. 

The Commission notes that under the 

2013 Position Limits Proposal, 

exchanges could adopt position 

accountability at a level lower than the 

federal limit (along with a position limit 

at the same level as the federal limit); in 

such cases, the exchange would not 

need to grant exemptions for positions 

no greater than the level of the federal 

limit. Under the Reproposal, exchanges 

could choose, instead, to adopt a limit 

lower than the federal limit; in such a 

case, the Commission would permit the 

exchange to grant an exemption to the 

exchange’s lower limit, where such 

exemption does not conform to § 150.3, 

provided that such exemption to an 

exchange-set limit is capped at the level 

of the federal limit. Such a capped 

exemption would basically have the 

same effect as if the exchange set its 

speculative position limit at the level of 

the federal limit, as required under DCM 

core principle 5(B) and SEF core 

principle 6(B)(1).777

In regards to the five-day rule, the 

Commission notes that the reproposed 

rule does not apply the prudential 

condition of the five-day rule to nonenumerated hedging positions. The 

Commission considered the 

recommendations that the Commission: 

Allow exchanges to recognize a bona 

fide hedge exemption for up to a fiveday retroactive period in circumstances 

where market participants need to 

exceed limits to address a sudden and 

unforeseen hedging need; specifically 

authorize exchanges to grant bona fide 

hedge and spread exemptions during 

the last five days of trading or less, and/ 

or delegate to the exchanges for their 

consideration the decision of whether to 

apply the five-day rule to a particular 

contract after their evaluation of the 

particular facts and circumstances. As 

reproposed, and as discussed in 

connection with the definition of bona 

fide hedging position,778 the five-day 

rule would only apply to certain 

positions (pass-through swap offsets, 

anticipatory and cross-commodity 

hedges).779 However, in regards to 

exchange processes under § 150.9, 

§ 150.10, and § 150.11, the Commission 

would allow exchanges to waive the 

five-day rule on a case-by-case basis. 

In addition, the Commission proposes 

to amend § 150.5(a)(2)(ii) (Application 

for exemption). The reproposed rule 

would permit exchanges to adopt rules 

that allow a trader to file an application 

for an enumerated bona fide hedging 

exemption within five business days 

after the trader assumed the position 

that exceeded a position limit.780 The 

Commission expects that exchanges will 

carefully consider whether allowing 

such retroactive recognition of an 

enumerated bona fide hedging 

exemption would, as noted by one 

commenter, diminish the overall 

integrity of the process.781 In addition, 

the Commission cautions exchanges to 

carefully consider whether to adopt in 

those rules the two safeguards 

recommended by that commenter: (i) 

Requiring market participants making 

use of the retroactive application to 

demonstrate that the applied-for hedge 

was required to address a sudden and 

unforeseen hedging need; and (ii) 

providing that if the emergency hedge 

recognition was not granted, exchange 

rules would continue to require the 

applicant to unwind its position in an 

orderly manner and also would deem 

the applicant to have been in violation 

for any period in which its position 

exceeded the applicable limits.782

Concerning the comment 

recommending greater discretion be 

given DCMs and SEFs that are trading 

facilities with respect to aggregation 

requirements, the Commission reiterates 

its belief in the benefits of requiring 

exchanges to conform to the federal 

standards on aggregation, including 

lower burden and less confusion for 

traders active on multiple exchanges,783

efficiencies in administration for both 

exchanges and the Commission, and the 

prevention of a ‘‘race-to-the-bottom’’ 

wherein exchanges compete over lower 

standards. The Commission notes that 

the provision regarding aggregation in 

reproposed § 150.5(a)(5) incorporates by 

reference § 150.4 and thus would, on a 

continuing basis, reflect any changes 

made to the aggregation standard 

provided in the section. 


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96790 Federal Register / Vol. 81, No. 251 / Friday, December 30, 2016 / Proposed Rules 

784For position limits purposes, § 150.1(k), as 

proposed in the December 2013 Position Limits 

Proposal, would define ‘‘physical commodity’’ to 

mean any agricultural commodity, as defined in 17 

CFR 1.3, or any exempt commodity, as defined in 

section 1a(20) of the Act. Excluded commodity is 

defined in section 1a(19) of the Act. 

785As Commission noted at that time, hedging 

exemptions and aggregation policies that vary from 

exchange to exchange would increase the 

administrative burden on a trader active on 

multiple exchanges, as well as increase the 

administrative burden on the Commission in 

monitoring and enforcing exchange-set position 

limits. December 2013 Position Limits Proposal, 78 

FR at 75756. 

786See December 2013 Position Limits Proposal, 

78 FR at 75757. 

787As proposed in the December 2013 Position 

Limits Proposal, § 150.5(b)(1)(i)(A) was consistent 

with the Commission’s longstanding policy 

regarding the appropriate level of spot-month limits 

for physical delivery contracts. These position 

limits would be set at a level no greater than 25 

percent of estimated deliverable supply. The spotmonth limits would be reviewed at least every 24 

months thereafter. The 25 percent formula narrowly 

targeted the trading that may be most susceptible to, 

or likely to facilitate, price disruptions. The goal for 

the formula, as noted in the December 2013 

Position Limits Proposal release, was 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 

swap positions that may be used to influence the 

price of referenced contracts that are executed 

centrally. December 2013 Position Limits Proposal, 

78 FR at 75756, n. 686. 

788The Commission noted in the December 2013 

Position Limits Proposal that, 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 to 

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. Previously proposed § 150.1 would 

define commodity derivative contract to mean any 

futures, option, or swap contract in a commodity 

(other than a security futures product as defined in 

CEA section 1a(45)). December 2013 Position Limits 

Proposal, 78 FR at 75756, n. 687. 

789 December 2013 Position Limits Proposal, 78 

FR at 75757. The Commission noted that this 

descriptive standard is largely based on the 

language of DCM core principle 5 and SEF core 

principle 6. The Commission does not suggest that 

an excluded commodity derivative contract that is 

based on a commodity without a measurable supply 

should adhere to a numeric formula in setting spot 

month position limits. Id. at 75757, n. 688. 

790The Commission noted that ‘‘in this context, 

‘substantially the same’ means a close economic 

substitute. For example, a position in Eurodollar 

futures can be a close economic substitute for a 

fixed-for-floating interest rate swap.’’ December 

2013 Position Limits Proposal, 78 FR at 75757. 

791 In contrast, 17 CFR 150.5(b)(3) lists this as an 

acceptable practice for contracts for ‘‘energy 

products and non-tangible commodities.’’ Excluded 

commodity is defined in CEA section 1a(19), and 

exempt commodity is defined CEA section 1a(20). 

792 December 2013 Position Limits Proposal, 78 

FR at 75757. 

c. § 150.5(b)—Requirements and 

Acceptable Practices for Commodity 

Derivative Contracts That Are Not 

Subject to Federal Position Limits 

i. December 2013 Position Limits 

Proposal 

The Commission set forth in 

§ 150.5(b), as proposed in the December 

2013 Position Limits Proposal, 

requirements and acceptable practices 

that would generally update and 

reorganize the set of acceptable 

practices listed in current § 150.5 as 

they relate to contracts that are not 

subject to the federal position limits, 

including physical and excluded 

commodities.784 As discussed above, 

the Commission also proposed to revise 

§ 150.5 to implement uniform 

requirements for DCMs and SEFs that 

are trading facilities relating to hedging 

exemptions across all types of 

commodity derivative contracts, 

including those that are not subject to 

federal position limits. The Commission 

further proposed to require DCMs and 

SEFs that are trading facilities to have 

uniform aggregation polices that 

mirrored the federal aggregation 

provisions for all types of commodity 

derivative contracts, including for 

contracts that were not subject to federal 

position limits.785

The previously proposed revisions to 

DCM and SEF acceptable practices 

generally concerned how to: (1) Set 

spot-month position limits; (2) set 

individual non-spot month and allmonths-combined position limits; (3) set 

position limits for cash-settled contracts 

that use a referenced contract as a price 

source; (4) adjust position limit levels 

after a contract has been listed for 

trading; and (5) adopt position 

accountability in lieu of speculative 

position limits.786

For spot months under the December 

2013 Position Limits Proposal, for a 

derivative contract that was based on a 

commodity with a measurable 

deliverable supply, previously proposed 

§ 150.5(b)(1)(i)(A) updated the 

acceptable practice in current 

§ 150.5(b)(1) whereby spot month 

position limits should be set at a level 

no greater than one-quarter of the 

estimated deliverable supply of the 

underlying commodity.787 Previously 

proposed § 150.5(b)(1)(i)(A) clarified 

that this acceptable practice for setting 

spot month position limits would apply 

to any commodity derivative contract, 

whether physical-delivery or cashsettled, that has a measurable 

deliverable supply.788

For a derivative contract that was 

based on a commodity without a 

measurable deliverable supply, the 

December 2013 Position Limits Proposal 

proposed for spot months, in 

§ 150.5(b)(1)(i)(B), to codify as guidance 

that the spot month limit level should 

be no greater than necessary and 

appropriate to reduce the potential 

threat of market manipulation or price 

distortion of the contract’s or the 

underlying commodity’s price.789

Under previously proposed 

§ 150.5(b)(1)(ii)(A), the December 2013 

Position Limits Proposal preserved the 

existing acceptable practice in current 

§ 150.5(b)(2) whereby individual nonspot or all-months-combined levels for 

agricultural commodity derivative 

contracts that are not subject to the 

federal limits should be no greater than 

1,000 contracts at initial listing. As then 

proposed, the rule would also codify as 

guidance that the 1,000 contract limit 

should be taken into account when the 

notional quantity per contract is no 

larger than a typical cash market 

transaction in the underlying 

commodity, or reduced if the notional 

quantity per contract is larger than a 

typical cash market transaction. 

Additionally, the December 2013 

Position Limits Proposal proposed in 

§ 150.5(b)(1)(ii)(A), to codify for 

individual non-spot or all-monthscombined, that if the commodity 

derivative contract was substantially the 

same as a pre-existing DCM or SEF 

commodity derivative contract, then it 

would be an acceptable practice for the 

DCM or SEF that is a trading facility to 

adopt the same limit as applies to that 

pre-existing commodity derivative 

contract.790

In § 150.5(b)(1)(ii)(B), the December 

2013 Position Limits Proposal preserved 

the existing acceptable practice for 

individual non-spot or all-monthscombined in exempt and excluded 

commodity derivative contracts, set 

forth in current § 150.5(b)(3), for DCMs 

to set individual non-spot or all-monthscombined limits at levels no greater 

than 5,000 contracts at initial listing.791

Previously proposed § 150.5(b)(1)(ii)(B) 

would codify as guidance for exempt 

and excluded commodity derivative 

contracts that the 5,000 contract limit 

should be applicable when the notional 

quantity per contract was no larger than 

a typical cash market transaction in the 

underlying commodity, or should be 

reduced if the notional quantity per 

contract was larger than a typical cash 

market transaction. Additionally, 

previously proposed § 150.5(b)(1)(ii)(B) 

would codify a new acceptable practice 

for a DCM or SEF that is a trading 

facility to adopt the same limit as 

applied to the pre-existing contract if 

the new commodity contract was 

substantially the same as an existing 

contract.792

The December 2013 Position Limits 

Proposal provided in § 150.5(b)(1)(iii) 


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793 December 2013 Position Limits Proposal, 78 

FR at 75757. As the Commission noted with respect 

to cash-settled contracts where the underlying 

product is a physical commodity with limited 

supplies, thus enabling a trader to exert market 

power (including agricultural and exempt 

commodities), the Commission has viewed the 

specification of speculative position limits 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 DCM core principle 

3 requirement. Id. at 75757, n. 692. 

794 Id. at 75757. 

795 Id. at 75757–58. 

796 Id. at 75758. 

797 Id. 

798 Id. Cf. 17 CFR 150.5(e)(2)–(3). 

799 December 2013 Position Limits Proposal, 78 

FR at 75758. 

800The December 2013 Position Limits Proposal 

noted that 17 CFR 150.5(e)(3) applies this 

acceptable practice to a ‘‘tangible commodity, 

including, but not limited to metals, energy 

products, or international soft agricultural 

products.’’ Id. at 75758. It also cited to the 

comparison of the ‘‘minimum open interest and 

volume test’’ in proposed § 150.5(b)(3)(A) to that in 

current § 150.5(e)(3). Id. 

801 Id. 

802 Id. 

803 Id. The December 2013 Position Limits 

Proposal pointed out that the ‘‘minimum open 

interest and volume’’ test, as presented in 17 CFR 

150.5(e)(1)–(2), need not be used to determine 

whether an excluded commodity derivative 

contract should be eligible for position 

accountability rules in lieu of position limits in the 

spot month. Id. 

that if a commodity derivative contract 

was cash-settled by referencing a daily 

settlement price of an existing contract 

listed on a DCM or SEF, then it would 

be an acceptable practice for a DCM or 

SEF to adopt the same position limits as 

the original referenced contract, 

assuming the contract sizes are the 

same. Based on its enforcement 

experience, the Commission expressed 

the belief that limiting a trader’s 

position in cash-settled contracts in this 

way would diminish the incentive to 

exert market power to manipulate the 

cash-settlement price or index to 

advantage a trader’s position in the 

cash-settled contract.793

In previously proposed 

§ 150.5(b)(2)(i)(A), the Commission was 

updating the acceptable practices in 

current § 150.5(c) for adjusting limit 

levels for the spot month.794 For a 

derivative contract that was based on a 

commodity with a measurable 

deliverable supply, previously proposed 

§ 150.5(b)(2)(i)(A) maintained the 

acceptable practice in current § 150.5(c) 

to adjust spot month position limits to 

a level no greater than one-quarter of the 

estimated deliverable supply of the 

underlying commodity, but would 

apply this acceptable practice to any 

commodity derivative contract, whether 

physical-delivery or cash-settled, that 

has a measurable deliverable supply. 

For a derivative contract that was based 

on a commodity without a measurable 

deliverable supply, previously proposed 

§ 150.5(b)(2)(i)(B) would codify as 

guidance that the spot month limit level 

should not be adjusted to levels greater 

than necessary and appropriate to 

reduce the potential threat of market 

manipulation or price distortion of the 

contract’s or the underlying 

commodity’s price. In addition, the 

December 2013 Position Limit Proposal 

would have codified in 

§ 150.5(b)(2)(i)(A) a new acceptable 

practice that spot month limit levels be 

reviewed no less than once every two 

years.795

The December 2013 Position Limits 

Proposal explained that then proposed 

§ 150.5(b)(2)(ii) maintained as an 

acceptable practice the basic formula set 

forth in current § 150.5(c)(2) for 

adjusting non-spot-month limits at 

levels of no more than 10% of the 

average combined futures and deltaadjusted option month-end open 

interest for the most recent calendar 

year up to 25,000 contracts, with a 

marginal increase of 2.5% of the 

remaining open interest thereafter.796

Previously proposed § 150.5(b)(2)(ii) 

would also maintain as an alternative 

acceptable practice the adjustment of 

non-spot-month limits to levels based 

on position sizes customarily held by 

speculative traders in the contract.797

Previously proposed § 150.5(b)(3) 

generally updated and reorganized the 

existing acceptable practices in current 

§ 150.5(e) for a DCM or SEF that is a 

trading facility to adopt position 

accountability rules in lieu of position 

limits, under certain circumstances, for 

contracts that are not subject to federal 

position limits. As noted in the 

December 2013 Position Limits 

Proposal, this section would reiterate 

the DCM’s authority, with conforming 

changes for SEFs, to require traders to 

provide information regarding their 

position when requested by the 

exchange.798 In addition, previously 

proposed § 150.5(b)(3) would codify a 

new acceptable practice for a DCM or 

SEF to require traders to consent to not 

increase their position in a contract if so 

ordered, as well as a new acceptable 

practice for a DCM or SEF to require 

traders to reduce their position in an 

orderly manner.799

The December 2013 Position Limits 

Proposal would maintain under 

§ 150.5(b)(3)(i) the acceptable practice 

for a DCM or SEF to adopt position 

accountability rules outside the spot 

month, in lieu of position limits, for an 

agricultural or exempt commodity 

derivative contract that: (1) Had an 

average month-end open interest of 

50,000 or more contracts and an average 

daily volume of 5,000 or more contracts 

during the most recent calendar year; (2) 

had a liquid cash market; and (3) was 

not subject to federal limits in § 150.2— 

provided, however, that such DCM or 

SEF that is a trading facility should 

adopt a spot month speculative position 

limit with a level no greater than onequarter of the estimated spot month 

deliverable supply.800

The December 2013 Position Limits 

Proposal would maintain in 

§ 150.5(b)(3)(ii)(A) the acceptable 

practice for a DCM or SEF to adopt 

position accountability rules in the spot 

month in lieu of position limits for an 

excluded commodity derivative contract 

that had a highly liquid cash market and 

no legal impediment to delivery.801 For 

an excluded commodity derivative 

contract without a measurable 

deliverable supply, previously proposed 

§ 150.5(b)(3)(ii)(A) would codify an 

acceptable practice for a DCM or SEF to 

adopt position accountability rules in 

the spot month in lieu of position limits 

because there was not a deliverable 

supply that was subject to 

manipulation. However, for an excluded 

commodity derivative contract that had 

a measurable deliverable supply, but 

that may not be highly liquid and/or 

was subject to some legal impediment to 

delivery, previously proposed 

§ 150.5(b)(3)(ii)(A) set forth an 

acceptable practice for a DCM or SEF to 

adopt a spot-month position limit equal 

to no more than one-quarter of the 

estimated deliverable supply for that 

commodity, because the estimated 

deliverable supply may be susceptible 

to manipulation.802 Furthermore, the 

December 2013 Position Limits Proposal 

in § 150.5(b)(3)(ii) would remove the 

‘‘minimum open interest and volume’’ 

test for excluded commodity derivative 

contracts generally.803 Finally, the 

December 2013 Position Limits Proposal 

would codify in § 150.5(b)(3)(ii)(B) an 

acceptable practice for a DCM or SEF to 

adopt position accountability levels for 

an excluded commodity derivative 

contract in lieu of position limits in the 

individual non-spot month or allmonths-combined. 

The December 2013 Position Limits 

Proposal added in § 150.5(b)(3)(iii) a 

new acceptable practice for an exchange 

to list a new contract with position 

accountability levels in lieu of position 

limits if that new contract was 

substantially the same as an existing 

contract that was currently listed for 

trading on an exchange that had already 


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804See supra discussion of what is meant by 

‘‘substantially the same’’ in this context. See also 

December 2013 Position Limits Proposal, 78 FR at 

75757, n. 690. 

805As noted in the December 2013 Position 

Limits Proposal, for SEFs, trading volume and open 

interest for swaptions should be calculated on a 

delta-adjusted basis. See id. at 75758, n. 697. 

806See id. at 75698–99 (defining ‘‘Futuresequivalent’’ in § 150.1 to account for swaps in 

referenced contracts). 

807See December 2013 Position Limits Proposal, 

78 FR at 75756. See also supra regarding 

§ 150.5(a)(5). 

808The requirement proposed in § 150.5(b)(8) that 

DCMs and SEFs have uniform aggregation polices 

that mirror the federal aggregation provisions is 

addressed below. 

809See December 2013 Position Limits Proposal, 

78 FR at 75735–41, 75827–28. See also supra 

discussion of the § 150.3 exemptions. 

810See id. 

811As the Commission noted, previously 

proposed Appendix A to part 150 ‘‘is intended to 

capture the essence of the Commission’s 1987 

interpretation of its definition of bona fide hedge 

transactions to permit exchanges to grant hedge 

exemptions for various risk management 

transactions. See Risk Management Exemptions 

From Speculative Position Limits Approved Under 

Commission Regulation 1.61, 52 FR 34633, Sep. 14, 

1987.’’ The Commission also specified that such 

exemptions be granted on a case-by-case basis, 

subject to a demonstrated need for the exemption, 

required that applicants for these exemptions be 

typically engaged in the buying, selling, or holding 

of cash market instruments, and required the 

exchanges to monitor the exemptions they granted 

to ensure that any positions held under the 

exemption did not result in any large positions that 

could disrupt the market. Id. See also December 

2013 Position Limits Proposal, 78 FR at 75756, n. 

683. 

812See supra discussion of pre-enactment and 

transition period swap positions. 

813 December 2013 Position Limits Proposal, 78 

FR at 75756, 75831. 

814Proposed § 150.5(b)(7) would replace 17 CFR 

150.5(g) as it relates to contracts that are not subject 

to federal position limits. 

815 Id. at 75756. 

816CL–CMC–59634 at 14–15; CL–FIA–60392 at 

10; and CL–ISDA/SIFMA–59611 at 35. One 

commenter stated that SEFs should be exempt from 

the requirement to set positions limits because SEFs 

are in the early stages of development and could be 

harmed by limits that restrict liquidity. CL–ISDA/ 

SIFMA–59611 at 35. 

817CL–CMC–59634 at 14–15; and CL–FIA–60392 

at 10. 

818Under CEA section 5h(a)(1), no person may 

operate a facility for trading swaps unless the 

facility is registered as a SEF or DCM. 7 U.S.C. 7b– 

3(a)(1). A SEF must comply with core principles, 

including Core Principle 6 regarding position 

limits, as a condition of registration. CEA section 

5h(f)(1), 7 U.S.C. 7b–3(f)(1). 

819For example, in a submission to the 

Commission under part 40 of the Commission’s 

regulations, BGC Derivative Markets, L.P. states that 

‘‘[t]he information to administer limits or 

accountability levels cannot be readily ascertained. 

Position limits or accountability levels apply 

market-wide to a trader’s overall position in a given 

swap. To monitor this position, a SEF must have 

access to information about a trader’s overall 

position. However, a SEF only has information 

about swap transactions that take place on its own 

Facility and has no way of knowing whether a 

particular trade on its facility adds to or reduces a 

trader’s position. And because swaps may trade on 

a number of facilities or, in many cases, over-thecounter, a SEF does not know the size of the 

trader’s overall swap position and thus cannot 

ascertain whether the trader’s position relative to 

any position limit. Such information would be 

required to be supplied to a SEF from a variety of 

independent sources, including SDRs, DCOs, and 

market participants themselves. Unless coordinated 

by the Commission operating a centralized 

reporting system, such a data collection 

requirement would be duplicative as each separate 

SEF required reporting by each information 

sources.’’ BGC Derivative Markets, L.P., Rule 

Submission 2015–09 (Oct. 6, 2015). 

adopted position accountability levels 

in lieu of position limits.804

As previously proposed, § 150.5(b)(4) 

would maintain the acceptable practice 

that for contracts not subject to federal 

position limits, DCMs and SEFs should 

calculate trading volume and open 

interest in the manner established in 

current § 150.5(e)(4).805 The 

Commission stated in the December 

2013 Position Limits Proposal that then 

proposed § 150.5(b)(4) would build 

upon these standards by accounting for 

swaps in referenced contracts on a 

futures-equivalent basis.806

As noted above, under the December 

2013 Position Limits proposal, the 

Commission proposed to require DCMs 

and SEFs to have uniform hedging 

exemptions and aggregation polices that 

mirror the federal aggregation 

provisions for all types of commodity 

derivative contracts, including for 

contracts that are not subject to federal 

position limits. The Commission 

explained that hedging exemptions and 

aggregation policies that vary from 

exchange to exchange would increase 

the administrative burden on a trader 

active on multiple exchanges, as well as 

increase the administrative burden on 

the Commission in monitoring and 

enforcing exchange-set position 

limits.807 Therefore, the December 2013 

Position Limits Proposal in 

§ 150.5(b)(5)(i) would require any hedge 

exemption rules adopted by a 

designated contract market or a swap 

execution facility that is a trading 

facility to conform to the definition of 

bona fide hedging position in previously 

proposed § 150.1.808

The December 2013 Position Limits 

Proposal also set forth in § 150.5(b)(5)(ii) 

acceptable practices for DCMs and SEFs 

to grant exemptions from position limits 

for positions, other than bona fide 

hedging positions, in contracts not 

subject to federal limits. The 

exemptions in § 150.5(b)(5)(ii) under the 

December 2013 Position Limits Proposal 

generally tracked the exemptions then 

proposed in § 150.3; acceptable 

practices were suggested based on the 

same logic that underpinned those 

exemptions.809 The acceptable practices 

contemplated that a DCM or SEF might 

grant exemptions under certain 

circumstances for financial distress, 

intramarket and intermarket spread 

positions (discussed above), and 

qualifying cash-settled contract 

positions in the spot month.810

Previously proposed § 150.5(b)(5)(ii)(E) 

also set forth an acceptable practice for 

a DCM or SEF to grant for contracts on 

excluded commodities, a limited risk 

management exemption pursuant to 

rules submitted to the Commission, and 

consistent with the guidance in new 

Appendix A to part 150.811

The December 2013 Position Limits 

Proposal provided in § 150.5(b)(6)–(7) 

acceptable practices relating to preenactment and transition period swap 

positions (as those terms were defined 

in previously proposed § 150.1),812 as 

well as to commodity derivative 

contract positions acquired in good faith 

prior to the effective date of mandatory 

federal speculative position limits.813

Additionally, for any contract that is 

not subject to federal position limits, 

previously proposed § 150.5(b)(8) 

required the DCM or SEF that is a 

trading facility to conform to the 

uniform federal aggregation 

provisions.814 As noted above, 

aggregation policies that vary from 

exchange to exchange would increase 

the administrative burden on a trader 

active on multiple exchanges, as well as 

increase the administrative burden on 

the Commission in monitoring and 

enforcing exchange-set position limits. 

The requirement generally mirrored the 

requirement in § 150.5(a)(5) for 

contracts that are subject to federal 

position limits by requiring the DCM or 

SEF that is a trading facility to have 

aggregation rules that conform to 

previously proposed § 150.4.815

ii. Comments Received to December 

2013 Position Limits Proposal Regarding 

§ 150.5(b) 

Three commenters on previously 

proposed regulation § 150.5 

recommended that the Commission not 

require SEFs to establish position 

limits.816 Two noted that because SEF 

participants may use more than one 

derivatives clearing organization 

(‘‘DCO’’), a SEF may not know when a 

position has been offset.817 Further, 

during the ongoing SEF registration 

process,818 a number of entities 

applying to become registered as SEFs 

told the Commission that they lacked 

access to information that would enable 

them to knowledgeably establish 

position limits or monitor positions.819

The Commission observes that this 


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820CL–EDF–60398 at 6–7. 

821CL–ICE–59962 at 7. 

822CL–Nodal–59695 at 3. 

823CL–FIA–59595 at 5, 39 and 41; see also CL– 

FIA–60303 at 3–4. 

824CL–FIA–60392 at 9. 

825 2016 Supplemental Position Limits Proposal, 

81 FR at 38482. 

826 Id. at 38482, 38506–7. Compare December 

2013 Position Limits Proposal, 78 FR at 75830. 

827 2016 Supplemental Position Limits Proposal, 

81 FR at 38482, 38506–07. 

828CMC, for example, requested that the 

Commission clarify that exchange-granted hedge 

exemption procedures would be ‘‘applicable if, and 

to the extent that, the exchange granted exemption 

exceeds federally established speculative position 

limits and not otherwise.’’ CL–CMC–60950 at 14. 

According to CME, on the other hand, proposed 

section 150.5(b) was unclear and ambiguous and so 

should be reproposed. For example, CME stated 

that the proposal was ‘‘riddled with ambiguities 

and potential oversights,’’ and, in connection with 

non-referenced contracts under section 150.5(b), 

CME also stated ‘‘the scope of exchange discretion 

under proposed section 150.9(a) is unclear. Thus, 

exchanges could be bound by the five-day rule in 

recognizing as NEBFH positions certain enumerated 

hedge strategies for non-referenced contracts, 

despite the same five-day rule limitation not 

applying in similar scenarios today.’’ CL–CME– 

60926 at 14–15. 

829CL–CME–60926 at 14–15; CL–Working 

Group–60947 at 14; and CL–ICE–60929 at 8. For 

example, CME stated that requiring exchanges to 

recognize non-enumerated bona fide hedge 

positions for non-referenced contracts ‘‘in a manner 

consistent with the process described in § 150.9(a)’’ 

appears to ‘‘break with historical practice in 

administering NEBFHs for non-referenced 

contracts,’’ and ‘‘would appear to impose new 

burdensome and unnecessary compliance 

obligations on market participants that do not exist 

today.’’ CL–CME–60926 at 14–15. 

830CL–Working Group–60947 at 14. 

831CL–ICE–60929 at 8. 

832CL–CME–60926 at 15. 

information gap would also be a 

concern for DCMs in respect of swaps. 

One commenter expressed the view 

that deliverable supply calculations 

used to establish spot month limits 

should be based on commodity specific 

actual physical transport/transmission, 

generation and production.820

One commenter urged the 

Commission to allow the listing 

exchange to set non-spot month limits at 

least as high as the spot-month position 

limit, rather than base the non-spot 

month limit strictly on the open interest 

formula.821 Another commenter 

recommended that the Commission 

remove from § 150.5(b)(1)(ii)(B) the 

provision setting a 5,000 contract limit 

for non-spot-month or all-monthscombined accountability levels for 

exempt commodities, because that level 

may not be appropriate for all markets; 

instead, the Commission should rely on 

the exchanges to set accountability 

levels for exempt commodity 

markets.822

One commenter recommended that 

DCMs be permitted to establish position 

accountability levels in lieu of position 

limits outside of the spot month.823 The 

commenter recommended that the 

administration of position 

accountability should be coordinated 

with the Commission and other DCMs 

to the extent that a market participant 

holds positions on more than one 

DCM.824

iii. 2016 Supplemental Position Limits 

Proposal 

In the 2016 Supplemental Position 

Limits Proposal, the Commission 

proposed to revise § 150.5(b)(5) from 

what was proposed in the December 

2013 Position Limits Proposal; proposed 

§ 150.5(b) establishes requirements and 

acceptable practices that pertain to 

commodity derivative contracts not 

subject to federal position limits.825 The 

proposed revisions to § 150.5(b)(5) 

would, under the 2016 Supplemental 

Position Limits Proposal, permit 

exchanges, in regards to commodity 

derivative contracts not subject to 

federal position limits, to recognize nonenumerated bona fide hedging 

positions, as well as spreads. Moreover, 

the exchanges would no longer be 

prohibited from recognizing spreads 

during the spot month.826 Instead, as the 

Commission noted in the 2016 

Supplemental Position Limits Proposal, 

what it was proposing would, in part, 

maintain the status quo: Exchanges that 

currently recognize spreads in the spot 

month under current § 150.5(a) would 

be able to continue to do so. Rather than 

a prohibition, the exchanges would be 

responsible for determining whether 

recognizing spreads, including spreads 

in the spot month, would further the 

policy objectives in section 4a(a)(3) of 

the Act.827

iv. Comments Received to 2016 

Supplemental Position Limits Proposal 

Regarding § 150.5(b) 

Exchange-Administered Exemptions 

Under § 150.5(b) 

Several commenters requested 

clarification as to the application of 

exchange-administered exemption 

requests to non-referenced contracts 

generally under § 150.5(b).828 In 

addition, several commenters raised 

concerns with the requirement in 

§ 150.5(b)(5)(i) that the exchanges 

provide exemptions ‘‘in a manner 

consistent with the process described in 

§ 150.9(a).’’ 829 Similarly, according to 

one commenter, the exchanges should 

not be bound to the same exemption 

process provided under proposed CFTC 

Regulation 150.9 when administering 

exemptions from exchange-set limits. 

Rather, the commenter recommended 

that the Commission: ‘‘(i) not adopt 

proposed CFTC Regulation 150.5(b)(5)(i) 

in any final rule issued in this 

proceeding or (ii) clarify that the phrase 

‘in a manner consistent with the process 

described in [proposed CFTC 

Regulation] 150.5(b)(5)(i)’ does not 

mean that the Exchanges must apply the 

virtually identical process for 

recognizing non-enumerated bona fide 

hedging positions under proposed CFTC 

Regulation 150.9(a) to their exemption 

process for exchange-set speculative 

position limits.’’ 830

Another commenter stated that the 

Commission should remove the 

requirements of § 150.5(b) that apply the 

exemption procedures of § 150.9 to 

exemptions granted for contracts in 

excluded commodities and physical 

commodities that are not subject to 

federal position limits. In support of this 

request, the commenter maintained that 

exchange exemption programs have 

been operating successfully without the 

need for such rules, and exchanges do 

not require additional guidance from the 

Commission on how to assess 

recognitions under the 2016 

Supplemental Position Limits Proposal 

and that rule enforcement reviews are 

adequate.831

Treatment of Spread and Anticipatory 

Hedge Exemptions Under § 150.5(b) 

Several commenters requested that 

the Commission clarify that spread and 

anticipatory hedge exemptions are 

unnecessary for excluded commodities 

and other products not subject to federal 

limits. For example, one commenter 

seeks clarity regarding the application of 

§ 150.5(b) to spread exemption and 

anticipatory hedge exemption requests, 

stating that ‘‘[p]roposed section 150.5(b) 

is silent with respect to anticipatory 

hedges contemplated under the process 

in proposed section 150.11, and makes 

no reference in proposed section 

150.5(b)(5)(ii)(C) to the process in 

proposed section 150.10 when 

describing spread exemptions an 

exchange may recognize. The 

Commission must clarify whether it 

intends that market participants and 

exchanges may avail themselves of such 

processes in applying for and 

recognizing exemptions from exchange 

limits for non-referenced contracts.’’ 832

On the other hand, in the associated 

footnote, the same commenter observes 

‘‘[h]owever, in its cost-benefit analysis, 

the Commission notes that proposed 

section 150.11 ‘works in concert with’ 

‘proposed § 150.5(b)(5), with the effect 

that recognized anticipatory enumerated 


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833 Id. 834CL–CMC–60950 at 14. 835CL–ISDA–60931 at 11. 836CL–CME–60926 at 15, quoting the 2016 

Supplemental Position Limits Proposal, 81 FR at 

38475. 

837 Id. 

838E.g., CL–NCGA–ASA–60917 at 1–2; CL–CME– 

60926 at 14–15; CL–ICE–60929 at 7–8; CL–ISDA– 

60931 at 11; CL–CCI–60935 at 3; CL–MGEX–60936 

at 4; CL–Working Group–60947 at 5, 7–9; CL– 

IECAssn–60949 at 7–9; CL–CMC–60950 at 9–14; 

CL–NCC–ACSA–60972 at 2. 

839See, e.g, CL–ISDA–60931 at 10; CL–CCI–60935 

at 3; CL–MGEX–60936 at 11; CL–Working Group– 

60947 at 7–9. 

840CL–CME–60926 at 14–15. 

841See CL–CME–61007 at 2–4; CL–CME–61008 at 

2–3. 

842See CL–CME–61007 at 2. 

843 Id. at 3. CME claims that the underlying 

Congressional intent is clear, stating that whether 

a cash-settled contract is called a ‘‘linked contract’’ 

or a ‘‘referenced contract,’’ ‘‘the limit levels and 

hedge exemptions for that contract and the related 

physically-delivered contract must be 

‘comparable.’’ Id. 

844 Id. 

845 Id. [footnotes omitted]. The Commission notes 

that CME incorrectly attributed preamble language 

as pertaining to § 48.8(c)(1)(ii)(A), which addresses 

statutory requirements, when it stated that the 

Commission ‘‘acknowledged that a linked contract 

and its physically-delivered benchmark contract 

‘create a single market’ capable of being affected 

through trading in either of the linked or 

physically-delivered markets’’ as this discussion 

actually addressed the Commission’s adoption of its 

second set of conditions for linked contracts, found 

in § 48.8(c)(2) (Other Conditions on Linked 

Contracts). 

846The Commission is reproposing the following 

sections without further discussion, for the reasons 

provided above, since no substantive comments 

were received: § 150.5(b)(6)(Pre-enactment and 

transition period swap positions), § 150.5(b)(7) (Preexisting positions), and § 150.5(b)(9) (Additional 

acceptable practices). 

bona fide hedging positions may exceed 

exchange-set position limits for 

contracts not subject to federal position 

limits.’ ’’ 833

Another commenter urges the 

Commission to clarify that spread and 

anticipatory hedge exemptions are 

unnecessary for excluded commodities 

and other products not subject to federal 

limits. In this regard, the commenter 

seeks the removal of requirements found 

in § 150.5(b).834 A third commenter 

states that extending the requirements 

for exchange hedge exemption rules to 

contracts on excluded commodities is 

‘‘clearly an error’’ that needs to be 

rectified, stating that there was no 

discussion of this expansion in the 

preamble to the Supplemental. 

According to the commenter, ‘‘there is 

no basis in the Dodd-Frank amendments 

to the CEA for this extension of the 

Commission’s authority over exchange 

position limits on excluded 

commodities. To the contrary, that 

authority is clearly limited to position 

limits on contracts on physical 

commodities.’’ 835

Reporting Requirements Under 

§ 150.5(b) 

According to one commenter, the 

2016 Supplemental Position Limits 

Proposal does not provide any 

explanation regarding the Commission’s 

need to receive from the exchanges the 

same exemption reports for nonreferenced contracts that it would 

receive for referenced contracts. The 

commenter states that the 2016 

Supplemental Position Limits Proposal 

characterizes exchange submissions of 

exemption recipient reports to the CFTC 

as ‘‘support[ing] the Commission’s 

surveillance program, by facilitating the 

tracking of non-enumerated bona fide 

hedging positions recognized by the 

exchange, and helping the Commission 

to ensure that an applicant’s activities 

conform to the terms of recognition that 

the exchange has established.’’ 836 While 

acknowledging that the Commission has 

a surveillance obligation with respect to 

federal limits, the commenter maintains 

that, ‘‘the same obligation has never 

before existed with respect to exchangeset limits for non-referenced contracts, 

and does not exist today.’’ 837 The 

commenter also states that the 

Commission has misinterpreted its 

mandate and therefore should drop this 

unnecessary reporting requirement and 

related procedures with respect to nonreferenced contracts.’’ 

Five-Day Rule Under § 150.5(b) 

As noted above, several 

commenters 838 addressed the five-day 

rule, suggesting that the decision 

whether to apply the five-day rule to a 

particular contract should be delegated 

to the exchanges as the exchanges are in 

the best position to evaluate facts and 

circumstances, and different markets 

have different dynamics and needs.839

And, specifically in connection with 

non-referenced contracts under 

§ 150.5(b), one commenter states that, as 

it believes that the scope of exchange 

discretion under proposed section 

150.9(a) is unclear, ‘‘exchanges could be 

bound by the five-day rule in 

recognizing as non-enumerated bona 

fide hedging positions certain 

enumerated hedge strategies for nonreferenced contracts, despite the same 

five-day rule limitation not applying in 

similar scenarios today.’’ 840

Comment Letter Received After the 

Close of the Comment Period for the 

2016 Supplemental Position Limits 

Proposal Regarding Limit Levels Under 

§ 150.5(b) 

One commenter noted that when the 

CEA addresses ‘‘linked contracts’’ in 

CEA section 4(b)(1)(B)(ii)(I), in relation 

to FBOTS, it provides that the 

Commission may not permit an FBOT to 

provide direct access to participants 

located in the United States unless the 

Commission determines that the FBOT 

(or the foreign authority overseeing the 

FBOT) adopts position limits that are 

comparable to the position limits 

adopted by the registered entity for the 

contract(s) against which the FBOT 

contract settles.841 According to the 

commenter, CEA section 4(b), which 

was added by the Dodd-Frank Act, 

‘‘contains an explicit Congressional 

endorsement of ‘comparable’ ’’ limits for 

cash-settled contracts in relation to the 

physically-delivered contracts to which 

they are linked.842 The statutory 

definition of ‘‘linked contract,’’ the 

commenter stated, ‘‘mirrors the 

definition of ‘referenced contract’ in the 

Commission’s 2013 position limits 

proposal: Both definitions capture cashsettled contracts that are ‘linked’ to the 

price of a physically-delivered contract 

traded on a DCM (referred to as a ‘core 

referenced futures contract’ in the 

proposal).’’ 843 That commenter stated 

that the only place in the CEA which 

addresses how to treat a cash-settled 

contract and its physically-delivered 

benchmark contract for position limit 

purposes is in CEA section 4(b), 

claiming that ‘‘Congress unmistakably 

wanted the two trading instruments to 

be treated ‘comparably.’ ’’ 844

In addition, according to the 

commenter, when the Commission, in 

response to the Dodd-Frank Act 

provisions regarding FBOTs in amended 

CEA section 4(b), adopted final 

§ 48.8(c)(1)(ii)(A), ‘‘it acknowledged that 

a linked contract and its physicallydelivered benchmark contract ‘create a 

single market’ capable of being affected 

through trading in either of the linked 

or physically-delivered markets,’’ and 

further noted that the Commission 

‘‘observed that the price discovery 

process would be protected by ‘ensuring 

that [ ] linked contracts have position 

limits and accountability provisions that 

are comparable to the corresponding 

[DCM] contracts [to which they are 

linked].’ ’’ 845

iv. Commission Determination 

Regarding § 150.5(b) 

The Commission has determined to 

repropose § 150.5(b) generally as 

proposed in the the 2016 Supplemental 

Position Limits Proposal, for the reasons 

stated above, with specific exceptions 

discussed below.846 An overall nonsubstantive change has been made in 

reproposing § 150.5 pertaining to 

excluded commodities. To provide 


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847The Commission expressed the belief that, 

based on its enforcement experience, limiting a 

trader’s position in cash-settled contracts in this 

way would diminish the incentive to exert market 

power to manipulate the cash-settlement price or 

index to advantage a trader’s position in the cashsettled contract. See December 2013 Position Limits 

Proposal, 78 FR at 75757. As the Commission noted 

with respect to cash-settled contracts where the 

underlying product is a physical commodity with 

limited supplies, thus enabling a trader to exert 

market power (including agricultural and exempt 

commodities), the Commission has viewed the 

specification of speculative position limits 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 DCM core principle 

3 requirement. Id. at 75757, n. 692. 

848See, e.g., CL–CME–61007 at 2–4; CL–CME– 

61008 at 2–3. 

849CL–CME–61007 at 2. ‘‘Registered entities’’ are 

defined in CEA section 1a(40) as DCMs, DCOs, 

SEFs, SDRs, notice-registered DCMs under CEA 

section 5f, and any electronic trading facility upon 

which a contract is executed or traded which the 

Commission has determined is a significant price 

discovery contract. According to CME, CEA Section 

4(b) ‘‘contains an explicit Congressional 

endorsement of ‘comparable’ ’’ limits for cashsettled contracts in relation to the physicallydelivered contracts to which they are linked. See 

CL–CME–61007 at 2. 

850CL–CME–61007 at 3. See 76 FR 80674, 80685, 

80697 (Dec. 23, 2011). See also § 48.8(c)(1)(ii)(A). 

851The comparability standard is also used in 

determinations as to which foreign DCOs are 

subject to comparable, comprehensive supervision 

and regulation by the appropriate government 

authority in the DCO’s home country. See CEA 

section 5b)(h). See also the Commission’s Notice of 

Comparability Determination for Certain 

Requirements Under the European Market 

Infrastructure Regulation, 81 FR 15260 (Mar. 22, 

2016). 

greater clarity regarding which 

provisions concern excluded 

commodities, the Commission proposes 

to move all provisions applying to 

excluded commodities from § 150.5(b) 

into § 150.5(c). As the Commission 

observed in the December 2013 Position 

Limits Proposal, ‘‘CEA section 4a(a) 

only mandates position limits with 

respect to physical commodity 

derivatives (i.e., agricultural 

commodities and exempt commodities). 

Additionally, the Commission 

proposes to make some substantive 

revisions specific to excluded 

commodities in what was previously 

§ 150.5 (b), addressed in the discussion 

of § 150.5(c). 

Limit Levels for Commodity Derivative 

Contracts in a Physical Commodity Not 

Subject to Federal Limits 

In response to the comment regarding 

the method for calculating deliverable 

supply, the Commission notes that 

guidance for calculating deliverable 

supply can be found in Appendix C to 

part 38. Amendments to part 38 are 

beyond the scope of this rulemaking. 

However, that guidance already 

provides that deliverable supply 

calculations are estimates based on what 

‘‘reasonably can be expected to be 

readily available’’ on a monthly basis 

based on a number of types of data from 

the physical marketing channels, as 

suggested by the commenter, and these 

calculations are done for each month 

and each commodity separately. 

Furthermore, much of § 150.5(b) 

reiterates longstanding guidance and 

acceptable practices for DCMs, rather 

than proposing new concepts for 

administering limits on contracts that 

are not subject to federal limits under 

§ 150.2. 

The Commission agrees with the 

commenter urging the Commission to 

allow exchanges to set non-spot month 

limits at least as high as the spot-month 

position limit, in the event the open 

interest formula would result in a limit 

level lower than the spot month. 

Accordingly, consistent with the 

recommended revisions to the initial 

limit level listings for contracts subject 

to federal limits found in 

§ 150.2(e)(4)(iv), the Commission 

proposes to revise § 150.5(b)(2)(ii) to 

allow exchanges to set non-spot month 

limit levels at the maximum of the spot 

month limit level, the level derived 

from the 10/2.5% formula, or 5,000 

contracts. To conform with those 

revisions, the Commission also proposes 

to revise § 150.5(b)(1)(ii)(A)–(B) to 

remove the distinction between 

agricultural and exempt commodities. 

Regarding the commenter who 

expressed concern regarding 

requirements for accountability levels 

for exempt commodities, the 

Commission notes that the provisions 

set forth guidance and acceptable 

practices for exchanges in setting 

position limit levels and accountability 

levels and, as guidance and acceptable 

practices, are not binding regulations. 

Under the Commission’s guidance, an 

initial non-spot month limit level of no 

more than 5,000 is viewed as suitable. 

Similarly, in response to the 

commenter who recommended that 

DCMs be permitted to establish position 

accountability levels in lieu of position 

limits outside the spot month and 

coordinate the administration of such 

levels with the Commission and other 

DCMs, the Commission agrees that 

position accountability may be 

permitted for certain physical 

commodity derivative contracts. 

Reproposed § 150.5(b)(3), therefore, 

provides guidance and acceptable 

practices concerning exchange adoption 

of position accountability outside the 

spot month for contracts having an 

average month-end open interest of 

50,000 contracts and an average daily 

volume of 5,000 or more contracts 

during the most recent calendar year 

and a liquid cash market. The 

Commission again notes that guidance 

and acceptable practices do not 

establish mandatory means of 

compliance. As such, in regards to 

meeting the specified volume and open 

interest thresholds in § 150.5(b)(3), the 

Commission notes that the guidance in 

§ 150.5(b)(3)(i) may not be the only 

circumstances under which sufficiently 

high liquidity may be shown to exist for 

the establishment of position 

accountability levels in lieu of position 

limits. 

The December 2013 Position Limits 

Proposal provided in § 150.5(b)(1)(iii) 

that if a commodity derivative contract 

was cash-settled by referencing a daily 

settlement price of an existing contract 

listed on a DCM or SEF, then it would 

be an acceptable practice for a DCM or 

SEF to adopt the same position limits as 

the original referenced contract, 

assuming the contract sizes are the 

same.847 However, the Commission is 

reproposing § 150.5(b)(1)(iii) with a 

modification: While the previously 

proposed guidance in § 150.5(b)(1)(iii) 

provided that the exchange should 

adopt the ‘‘same’’ spot-month, 

individual non-spot month, and allmonths combined limit levels as the 

original price referenced contract, the 

Commission is reproposing 

§ 150.5(c)(1)(iii) to provide that the limit 

levels should, instead, be ‘‘comparable.’’ 

As pointed out by one commenter,848

the CEA establishes a comparability 

standard for linked FBOT contracts in 

CEA section 4(b)(1)(B)(ii)(I), when it 

provides that the Commission may not 

permit an FBOT to provide direct access 

to participants located in the United 

States unless the Commission 

determines that the FBOT (or the foreign 

authority overseeing the FBOT) adopts 

position limits that are ‘‘comparable to’’ 

the position limits adopted by the 

registered entity for the contract(s) 

against which the FBOT contract 

settles.849 In addition, as noted by the 

commenter, the Commission, in 

adopting § 48.8(c)(2), recognized that 

the comparability standard and its 

associated requirements would protect 

the price discovery process by ensuring 

that the linked contracts and the U.S. 

contracts to which they are linked ‘‘have 

position limits and accountability 

provisions that are comparable to the 

corresponding [DCM] contracts [to 

which they are linked].’ ’’ 850 The 

Commission notes that this change will 

better align § 150.5(b)(1)(iii) with the 

statute and with the standard provided 

in § 48.8(c).851 Moreover, use of 


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852As the Commission explained in preamble to 

final part 48 in connection with comparability 

determinations, ‘‘[t]he Commission’s determination 

of the comparability of the foreign regulatory regime 

to which the FBOT applying for registration is 

subject will not be a ‘‘line by line’’ examination of 

the foreign regulator’s approach to supervision of 

the FBOTs it regulates. Rather, it will be a 

principles-based review conducted in a manner 

consistent with the part 48 regulations pursuant to 

which the Commission will look to determine if 

that regime supports and enforces regulatory 

objectives in the oversight of the FBOT and the 

clearing organization that are substantially 

equivalent to the regulatory objectives supported 

and enforced by the Commission in its oversight of 

DCMs and DCOs.’’ 76 FR 80674, 80680 (Dec. 23, 

2011). See also § 48.5(d)(5). 

853For example, both CME and ICE currently 

have conditional spot-month limit exemptions for 

cash-settled natural gas contracts at a level up to 

five times the level of the spot-month limit level on 

CME’s economically-equivalent NYMEX Henry Hub 

Natural Gas (physical-delivery) futures contract to 

which they settle. 

854As noted above, the relief was proposed in the 

2016 Supplemental Position Limits Proposal, 81 FR 

at 38459–62. See also DCM Core Principle 5, 

Position Limitations or Accountability (contained 

in CEA section 5(d)(5), 7 U.S.C. 7(d)(5)) and SEF 

Core Principle 6, Position Limits or Accountability 

(contained in CEA section 5h(f)(6), 7 U.S.C. 7b– 

3(f)(6)). 

855The modification made to § 150.5(b)(5)(i) is 

similar manner to its the Commission’s 

modification of § 150.5(a)(2)(ii), but, as mentioned, 

§ 150.5(b)(5)(i) is guidance rather than a regulatory 

requirement. 

856See CL-Working Group-60947 at 14; see also 

CL–ICE–60929 at 8, 32. As previously proposed, 

§ 150.5(b)(5)(i) provides, ‘‘(i) Hedge exemption. Any 

hedge exemption rules adopted by a designated 

contract market or swap execution facility that is a 

trading facility must conform to the definition of 

bona fide hedging position in § 150.1 or provide for 

recognition as a non-enumerated bona fide hedge in 

a manner consistent with the process described in 

§ 150.9(a).’’ 

857See also December 2013 Position Limits 

Proposal, 78 FR at 75725 (stating ‘‘[t]he Commission 

is proposing a phased approach to implement the 

statutory mandate. The Commission is proposing in 

this release to establish speculative position limits 

on 28 core referenced futures contracts in physical 

commodities. The Commission anticipates that it 

will, in subsequent releases, propose to expand the 

list of core referenced futures contracts in physical 

commodities. The Commission believes that a 

phased approach will (i) reduce the potential 

administrative burden by not immediately imposing 

position limits on all commodity derivative 

contracts in physical commodities at once, and (ii) 

facilitate adoption of monitoring policies, 

procedures and systems by persons not currently 

subject to positions limits (such as traders in swaps 

that are not significant price discovery contracts.). 

. . . Thus, in the first phase, the Commission 

generally is proposing limits on those contracts that 

it believes are likely to play a larger role in 

interstate commerce than that played by other 

physical commodity derivative contracts.’’). 

858See also supra discussion under regarding the 

bona fide hedging position definition. 

859Most comments concerning the conditional 

spot month limit were submitted by CME and ICE; 

‘‘comparable’’ rather than ‘‘same’’ limit 

levels provides exchanges with a more 

flexible standard based on statutory 

language.852 This change also provides 

a standard that is consistent with 

existing practice for domestic contracts 

that are linked to the price of a physicaldelivery contract.853

The Commission proposes to revise 

§ 150.5(b)(4)(B) regarding the 

calculation of open interest for use in 

setting exchange-set speculative 

position limits to provide that a DCM or 

SEF that is a trading facility would 

include swaps in their open interest 

calculation only if such entities are 

required to administer position limits 

on swap contracts of their facilities. 

This revision clarifies and harmonizes 

§ 150.5(b)(4)(B) with the relief in 

Appendix E to part 150, as well as in 

appendices to parts 37 and 38, which 

delays for DCMs and SEFs that are 

trading facilities and lack access to 

sufficient swap position information the 

requirement to establish and monitor 

position limits on swaps at this time. 

This approach conforms § 150.5(b) with 

other proposed changes regarding the 

treatment of swaps.854

Exchange—Administered Exemptions 

for Commodity Derivative Contracts in a 

Physical Commodity Not Subject to 

Federal Limits 

The Commission is reproposing 

§ 150.5(b)(5)(i) with modifications to 

clarify that it is guidance rather than a 

regulatory requirement. In addition, as 

modified, it provides that under 

exchange rules allowing a trader to file 

an application for an enumerated bona 

fide hedging exemption, the application 

should be filed no later than five 

business days after the trader assumed 

the position that exceeded a position 

limit.855 As noted above, the 

Commission expects that exchanges will 

carefully consider whether allowing 

retroactive recognition of an enumerated 

bona fide hedging exemption would, as 

noted by one commenter, diminish the 

overall integrity of the process, and 

should carefully consider whether to 

adopt in those rules the two safeguards 

noted: (i) To continue to require market 

participants making use of the 

retroactive application to demonstrate 

that the applied-for hedge was required 

to address a sudden and unforeseen 

hedging need; and (ii) providing that if 

the emergency hedge recognition was 

not granted, exchange rules would 

continue to require the applicant to 

promptly unwind its position and also 

would deem the applicant to have been 

in violation for any period in which its 

position exceeded the applicable limits. 

Additionally, the Commission is 

reproposing § 150.5(b)(5)(i) with 

modifications to clarify, as requested by 

commenters,856 that the exchanges have 

reasonable discretion as to whether they 

apply to their exemption process from 

exchange-set speculative position limits, 

a virtually identical process as provided 

for recognizing non-enumerated bona 

fide hedging positions under CFTC 

Regulation 150.9(a). As explained in the 

discussion regarding the changes to the 

bona fide hedging definition under 

§ 150.1, the Commission is proposes a 

phased approach with respect to the 

definition of a bona fide hedging 

position applicable to physical 

commodities.857 The Commission 

recognizes that exchanges, under 

§ 150.9, may need to adapt their current 

process to recognize non-enumerated 

bona fide hedging positions for 

commodity derivative contracts that are 

subject to a federal position limit under 

§ 150.2, or adopt a new one. In turn, 

market participants will need to seek 

recognition of a non-enumerated bona 

fide hedge from an exchange under that 

new process. In light of this 

implementation issue, the Commission 

proposes to limit the mandatory scope 

of the new definition of bona fide 

hedging position to contracts that are 

subject to a federal position limit.858

This means that the Commission would 

permit exchanges to maintain both their 

current bona fide hedging position 

definition and their existing processes 

for recognizing non-enumerated bona 

fide hedging positions for physical 

commodity contracts not subject to 

federal limits under § 150.2. The 

Commission notes an exchange may, but 

need not, adopt for physical 

commodities not subject to federal 

limits the new bona fide hedging 

position definition and the new process 

to recognize non-enumerated bona fide 

hedging positions. 

In addition, the Commission is 

proposing that, for enumerated bona 

fide hedging positions, exchange rules 

may allow traders to file an application 

for an enumerated bona fide hedging 

exemption within five business days 

after the trader assumed the position 

that exceeded a position limit. 

Finally, as to § 150.5(b)(5)(ii) (Other 

exemptions), the Commission did not 

receive any comments regarding 

§ 150.5(b)(5)(ii)(A) (Financial distress), 

and is reproposing this exemption 

without change. 

Conditional Spot Month Limit 

Exemption for Commodity Derivative 

Contracts in a Physical Commodity Not 

Subject to Federal Limits 

While the conditional spot month 

limit exemption is addressed in more 

detail under § 150.3, after consideration 

of comments, the Commission is 

reproposing § 150.5(b)(5)(ii)(B) with a 

modification.859 The December 2013 


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recent letters include: CL–CME–61007; CL–ICE– 

61009; CL–CME–61008; CL–ICE–60929; CL–CME– 

60926. 

860The second proviso included in 

§ 150.5(b)(5)(ii)(B) was that the person holding or 

controlling the positions should not hold or control 

positions in such spot-month physical-delivery 

contract. 

861As noted above, it is the Commission’s 

responsibility under CEA section 4a(a)(3)(B) to set 

limits, to the maximum extent practicable, in its 

discretion, that, in addition to ensuring sufficient 

market liquidity for bona fide hedgers, diminish, 

eliminate or prevent excessive speculation; deter 

and prevent market manipulation, squeezes, and 

corners; and ensure that the price discovery 

function of the underlying market is not disrupted. 

862The Commission notes that reproposed 

§ 150.5(b)(5)(ii)(B) retains both of the recommended 

provisos, although, as noted above, the guidance 

recommends that such positions should not exceed 

two times the level of the spot-month limit 

specified by the exchange that lists the applicable 

physical-delivery contract, rather than five times. 

863As noted in the December 2013 Position 

Limits Proposal, the guidance is consistent with the 

statutory policy objectives for position limits on 

physical commodity derivatives in CEA section 

4a(a)(3)(B). See December 2013 Position Limits 

Proposal, 78 FR at 38464. The Commission 

interprets the CEA as providing it with the statutory 

authority to exempt spreads that are consistent with 

the other policy objectives for position limits, such 

as those in CEA section 4a(a)(3)(B). Id. CEA section 

4a(a)(3)(B) provides that the Commission shall set 

limits to the maximum extent practicable, in its 

discretion—to diminish, eliminate, or prevent 

excessive speculation as described under this 

section; to deter and prevent market manipulation, 

squeezes, and corners; to ensure sufficient market 

liquidity for bona fide hedgers; and to ensure that 

the price discovery function of the underlying 

market is not disrupted. 

864See the discussion regarding the five-day rule 

in connection with the definition of bona fide 

hedging position and the discussion of § 150.9 

(Process for recognition of positions as nonenumerated bona fide hedges). 

865See § 150.1 definition of bona fide hedging 

position, sections (2)(ii)(A), (3)(iii), (4), and (5) 

(Other enumerated hedging position). To provide 

greater clarity as to which bona fide hedging 

positions the five-day rule applies, the reproposed 

rules reorganize the definition. 

Position Limits Proposal proposed 

guidance that an exchange may adopt a 

conditional spot month position limit 

exemption for cash-settled contracts, 

with one of two provisos being that such 

positions should not exceed five times 

the level of the spot-month limit 

specified by the exchange that lists the 

physical-delivery contract to which the 

cash-settled contracts were directly or 

indirectly linked.860 As reproposed, the 

guidance recommends that such 

conditional exemptions should not 

exceed two times the level of the spotmonth limit specified by the exchange 

that lists the applicable physicaldelivery contract. 

After review of comments and an 

impact analysis regarding the federal 

limits, the Commission believes that a 

five-times conditional exemption is too 

large, other than in natural gas because, 

in the markets that the Commission 

proposes to subject to federal limits, the 

Commission observed few or no market 

participants with positions in cashsettled contracts in the aggregate that 

exceed 25 percent of deliverable supply 

in the spot month. This is so even 

though cash-settled contracts that are 

swaps are not currently subject to 

position limits. A five-times conditional 

exemption would not ensure liquidity 

for bona fide hedgers in the spot month 

for cash-settled contracts because there 

appear to be few or no positions that 

large (other than in natural gas). 

Consequently, and in light of the other 

three policy objectives of CEA section 

4a(a)(3)(B), the Commission reproposes 

a more cautious approach.861

Since transactions of large speculative 

traders may tend to cause unwarranted 

price changes, exchanges should 

exercise caution in determining whether 

such conditional exemptions are 

warranted; for example, an exchange 

may determine that a conditional 

exemption is warranted because such a 

speculative trader is demonstrably 

providing liquidity for bona fide 

hedgers. Where an exchange may not 

have access to data regarding a market 

participant’s cash-settled positions away 

from a particular exchange, such 

exchange should require, for any 

conditional spot-month limit exemption 

it grants, that a trader report promptly 

to such exchange the trader’s aggregate 

positions in cash-settled contracts, 

physical-delivery contracts, and cash 

market positions. 

As noted above, under reproposed 

§ 150.5(b)(5)(ii)(B), an exchange has the 

choice of whether or not to adopt a 

conditional spot month position limit 

exemption for cash-settled contracts that 

are not subject to federal limits. As also 

discussed above regarding reproposed 

§ 150.3(c), the Commission is not 

proposing a conditional spot-month 

limit for agricultural contracts subject to 

federal limits under reproposed § 150.2. 

Further, the Commission notes that the 

current cash-settled natural gas spot 

month limit rules of two commenters, 

CME Group (which operates NYMEX) 

and ICE, both include the same spotmonth limit level and the same 

conditional spot-month limit 

exemption. In each case the current 

cash-settled conditional exemption is 

five times the limit for the physicaldelivery contract. Such natural gas 

contracts would be subject to federal 

limits under reproposed § 150.2, so the 

guidance in reproposed § 150.5(b) 

would not be applicable to those 

contracts.862

Treatment of Spread and Anticipatory 

Hedge Exemptions for Commodity 

Derivative Contracts in a Physical 

Commodity Not Subject to Federal 

Limits 

In regards to the exemption for 

intramarket and intermarket spread 

positions under § 150.5(b)(5)(ii)(C), the 

comments received concerned the 

exchange process for providing spread 

exemptions under § 150.10. The 

Commission addresses those comments 

below in its discussion of § 150.10, and 

is reproposing § 150.5(b)(5)(ii)(C) as 

proposed in the 2016 Supplemental 

Position Limits Proposal. 

The Commission points out, however, 

that reproposed § 150.5(b)(5)(ii)(C) 

would apply only to physical 

commodity derivative contracts, and 

would not apply to any derivative 

contract in an excluded commodity. 

Furthermore, as noted above, 

reproposed § 150.5(b)(5)(ii)(C) provides 

guidance rather than rigid requirements. 

Instead, under § 150.5(b)(5)(ii)(C), 

exchanges should take into account 

whether granting a spread exemption in 

a physical commodity derivative would, 

to the maximum extent practicable, 

ensure sufficient market liquidity for 

bona fide hedgers, and not unduly 

reduce the effectiveness of position 

limits to diminish, eliminate, or prevent 

excessive speculation; deter and prevent 

market manipulation, squeezes, and 

corners; and ensure that the price 

discovery function of the underlying 

market is not disrupted.863

Five-Day Rule for Commodity 

Derivative Contracts in a Physical 

Commodity Not Subject to Federal 

Limits 

While the Commission’s 

determination regarding the five-day 

rule is addressed elsewhere,864 the 

Commission points out that, as 

discussed in connection with the 

definition of bona fide hedging position 

and in relation to exchange processes 

under § 150.9, § 150.10, and § 150.11, 

and as noted above in connection with 

§ 150.5(a), the five-day rule would only 

apply to certain enumerated positions 

(pass-through swap offsets, anticipatory, 

and cross-commodity hedges),865 rather 

than when determining whether to 

recognize as non-enumerated bona fide 

hedging positions certain nonenumerated hedge strategies for nonreferenced contracts. As reproposed, 

therefore, § 150.5(b) would apply the 

five-day rule only to pass-through swap 

offsets, anticipatory, and crosscommodity hedges. However, in regards 

to exchange processes under § 150.9, 

§ 150.10, and § 150.11, the Commission 


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866CL–CME–60926 at 15. 

867 2016 Supplemental Position Limits Proposal, 

81 FR at 38466, n. 85 (quoting the Federal 

Speculative Position Limits for Referenced Energy 

Contracts and Associated Regulations, 75 FR 4144, 

4145 (Jan. 36, 2010)). 

868See Futures Trading Act of 1982, Public Law 

97–444, 96 Stat. 2299–30 (1983) (amending CEA 

section 4a by including, in what was then a new 

CEA section 4a(5), since been re-designated as CEA 

section 4a(e) ‘‘. . . It shall be a violation of this 

chapter for any person to violate any bylaw, rule, 

regulation, or resolution of any contract market, 

derivatives transaction execution facility, or other 

board of trade licensed, designated, or registered by 

the Commission or electronic trading facility with 

respect to a significant price discovery contract 

fixing limits on the amount of trading which may 

be done or positions which may be held by any 

person under contracts of sale of any commodity for 

future delivery or under options on such contracts 

or commodities, if such bylaw, rule, regulation, or 

resolution has been approved by the Commission or 

certified by a registered entity pursuant to section 

7a–2(c)(1) of this title: Provided, That the 

provisions of section 13(a)(5) of this title shall apply 

only to those who knowingly violate such limits.’’). 

869 2016 Supplemental Position Limits Proposal, 

81 FR at 38465–66. 

870Establishment of Speculative Position Limits, 

46 FR 50938, 50939 (Oct. 16, 1981). As the 

Commission noted at that time that ‘‘[s]ince many 

exchanges have already implemented their own 

speculative position limits on certain contracts, the 

new rule merely effectuates completion of a 

regulatory philosophy the industry and the 

Commission appear to share.’’ Id. at 50940. 

871 2016 Supplemental Position Limits Proposal, 

81 FR at 38466. See also Futures Trading Act of 

1982, Public Law 97–444, 96 Stat. 2299–30 (1983). 

In 2010, the Commission noted that the 1982 

legislation ‘‘also gave the Commission, under 

section 4a(5) of the Act, the authority to directly 

enforce violations of exchange-set, Commissionapproved speculative position limits in addition to 

position limits established directly by the 

Commission through orders or regulations.’’ Federal 

Speculative Position Limits for Referenced Energy 

Contracts and Associated Regulations, 75 FR 4144, 

4145 (Jan. 36, 2010) (‘‘2010 Position Limits Proposal 

for Referenced Energy Contracts’’). Section 4a(5) has 

since been re-designated as section 4a(e) of the Act. 

872 2010 Position Limits for Referenced Energy 

Contracts at 4145; see also 2016 Supplemental 

Position Limits Proposal, 81 FR at 38466. 

873See 2010 Position Limits for Referenced 

Energy Contracts, 75 FR at 4145; see also 2016 

Supplemental Position Limits Proposal, 81 FR at 

38466. 

874The Commission is reproposing the following 

sections without further discussion, for the reasons 

provided above, because it received no substantive 

comments: § 150.5(c)(6) (Pre-enactment and 

transition period swap positions), § 150.5(c)(7) (Preexisting positions), and § 150.5(b)(9) (Additional 

acceptable practices). 

875As reproposed, § 150.5(c)(1)(iii), like 

§ 150.5(b)(1)(iii), provides that the spot-month, 

individual non-spot month, and all-months 

combined limit levels should be ‘‘comparable’’ 

rather than the ‘‘same.’’ 

876See supra for discussion of the modifications 

made to the reproposed provisions of § 150.5(b)(1) 

as compared to the December 2103 Position Limits 

Proposal; the explanation provided above also 

pertains to the inclusion of those modifications in 

reproposed § 150.5(c)(1). 

proposes to allow exchanges to waive 

the five-day rule on a case-by-case basis. 

As the Commission cautioned above, 

exchanges should carefully consider 

whether to recognize a position as a 

bona fide hedge or to exempt a spread 

position held during the last few days 

of trading in physical-delivery contracts. 

The Commission points to the tools that 

exchanges currently use to address 

concerns during the spot month; as two 

commenters observed, current tools 

include requiring gradual reduction of 

the position (‘‘step down’’ requirements) 

or revoking exemptions to protect the 

price discovery process in core 

referenced futures contracts 

approaching expiration. Consequently, 

under the reproposed rule, exchanges 

may recognize positions, on a case-bycase basis in physical-delivery contracts 

that would otherwise be subject to the 

five-day rule, as non-enumerated bona 

fide hedging positions, by applying the 

exchanges experience and expertise in 

protecting its own physical-delivery 

market. 

Reporting Requirements for Commodity 

Derivative Contracts in a Physical 

Commodity Not Subject to Federal 

Limits 

In response to the comment 

questioning the proposed reporting 

requirements by a claim that, ‘‘while the 

Commission has a surveillance 

obligation with respect to federal limits, 

the same obligation has never before 

existed with respect to exchange-set 

limits for non-referenced contracts, and 

does not exist today,’’ 866 the 

Commission points out, as it did in the 

2016 Supplemental Position Limits 

Proposal, that the Futures Trading Act 

of 1982 ‘‘gave the Commission, under 

section 4a(5) [since redesignated as 

section 4a(e)] of the Act, the authority 

to directly enforce violations of 

exchange-set, Commission-approved 

speculative position limits in addition 

to position limits established directly by 

the Commission through orders or 

regulations.’’ 867 And, since 2008, it has 

also been a violation of the Act for any 

person to violate an exchange position 

limit rule certified by the exchange.868

To address any confusion that might 

have led to such a comment, the 

Commission reiterates, under CEA 

section 4a(e), its authority to enforce 

violations of exchange-set speculative 

position limits, whether certified or 

Commission-approved. As the 

Commission explained in the 2016 

Supplemental Position Limits Proposal, 

exchanges, as SROs, do not act only as 

independent, private actors.869 In fact, 

to repeat the explanation provided by 

the Commission in 1981, when the Act 

is read as a whole, ‘‘it is apparent that 

Congress envisioned cooperative efforts 

between the self-regulatory 

organizations and the Commission. 

Thus, the exchanges, as well as the 

Commission, have a continuing 

responsibility in this matter under the 

Act.’’ 870 The 2016 Supplemental 

Position Limits Proposal pointed out 

that the ‘‘Commission’s approach to its 

oversight of its SROs was subsequently 

ratified by Congress in 1982, when it 

gave the CFTC authority to enforce 

exchange set limits.’’ 871 In addition, as 

the Commission observed in 2010, and 

reiterated in the 2016 Supplemental 

Position Limits Proposal, ‘‘since 1982, 

the Act’s framework explicitly 

anticipates the concurrent application of 

Commission and exchange-set 

speculative position limits.’’ 872 The 

Commission further noted that the 

‘‘concurrent application of limits is 

particularly consistent with an 

exchange’s close knowledge of trading 

activity on that facility and the 

Commission’s greater capacity for 

monitoring trading and implementing 

remedial measures across 

interconnected commodity futures and 

option markets.’’ 873

The Commission retains the power to 

approve or disapprove the rules of 

exchanges, under standards set out 

pursuant to the CEA, and to review an 

exchange’s compliance with the 

exchange’s rules, by way of additional 

examples of the Commission’s 

continuing responsibility in this matter 

under the Act. 

v. Commission Determination Regarding 

§ 150.5(c) 

As noted above, in an overall nonsubstantive change made in reproposing 

§ 150.5, the Commission moved all 

provisions applying to excluded 

commodities from § 150.5(b) into 

reproposed § 150.5(c) to provide greater 

clarity regarding which provisions 

concern excluded commodities. The 

Commission has determined to 

repropose the rule largely as proposed 

for excluded commodities (previously 

under § 150.5(b)), for the reasons noted 

above, with certain changes discussed 

below.874

Limit Levels for Excluded Commodities 

The Commission is reproposing the 

provisions under § 150.5(c)(1) regarding 

levels of limits for excluded 

commodities as modified and 

reproposed under § 150.5(b)(1),875 to 

reference excluded commodities and to 

remove provisions that were solely 

addressed to agricultural 

commodities.876 These provisions 

generally provide guidance rather than 

rigid requirements; the guidance for 

levels of limits remains the same for 


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877 In addition, as noted above, the Commission 

is reproposing § 150.5(b)(5)(i) with a modification 

that clarifies that this provision is guidance in the 

case of commodity derivatives contracts in a 

physical commodity not subject to federal limits. 

878See 2016 Supplemental Position Limits 

Proposal, definition of bona fide hedging position 

(amending the definition previously proposed in 

the December 2013 Position Limits Proposal), 78 FR 

at 38463–64, 38505–06. 

879The economically appropriate test has 

historically been interpreted primarily in the 

context of physical commodities, rather than 

applied to excluded commodities. 

880 In each case pursuant to rules submitted to the 

Commission, consistent with the guidance in 

Appendix A of this part. 881 17 CFR parts 15–21. 

excluded commodities as for all other 

commodity derivative contracts that are 

not subject to the limits set forth in 

reproposed § 150.2, including derivative 

contracts in a physical commodity as 

defined in reproposed § 150.1. 

Similarly, as to adjustment of limit 

levels for excluded commodity 

derivative contracts under § 150.5(c)(2), 

the reproposed provisions are modified 

to reference only excluded commodities 

and to remove provisions that were 

solely addressed to agricultural 

commodities. As reproposed, 

§ 150.5(c)(2)(i) provides guidance that 

the spot month position limits for 

excluded commodity derivative 

contracts ‘‘should be maintained at a 

level that is necessary and appropriate 

to reduce the potential threat of market 

manipulation or price distortion of the 

contract’s or the underlying 

commodity’s price or index.’’ 

The Commission did not receive 

comments regarding § 150.5(c)(3). The 

guidance in § 150.5(c)(3), on exchange 

adoption of position accountability 

levels in lieu of speculative position 

limits, has been reproposed as was 

previously proposed in § 150.5(b)(3), 

modified to remove provisions under 

§ 150.5(b)(3)(i), which were solely 

addressed to physical commodity 

derivative contracts, and to reference 

excluded commodities. 

As to the calculation of open interest 

for use in setting exchange-set 

speculative position limits for excluded 

commodities, the Commission is 

reproposing, in § 150.5(c)(4), the same 

guidance for excluded commodities that 

is being reproposed under § 150.5(b)(4) 

as for all other commodity derivative 

contracts that are not subject to the 

limits set forth in § 150.2, including the 

modification to provide that a DCM or 

SEF that is a trading facility would 

include swaps in its open interest 

calculation only if such entity is 

required to administer position limits 

on swap contracts of its facility. 

Exchange—Administered Exemptions 

for Excluded Commodities 

In regards to hedge exemptions, the 

Commission is reproposing in new 

§ 150.5(c)(5)(i) for contracts in excluded 

commodities a modification of what was 

previously proposed in § 150.5(b)(5)(i) 

that eliminates the guidance that 

exchanges ‘‘may provide for recognition 

of a non-enumerated bona fide hedge in 

a manner consistent with the process 

described in § 150.9(a).’’ That provision 

was intended to apply only to physical 

commodity contracts and not to 

exemptions granted by exchanges for 

contracts in excluded commodities.877

As noted above, in reproposing the 

definition of bona fide hedging position, 

the Commission is clarifying that an 

exchange may otherwise recognize as 

bona fide any position in a commodity 

derivative contract in an excluded 

commodity, so long as such recognition 

is pursuant to such exchange’s rules. 

Although the Commission’s standards 

in the December 2013 Position Limits 

Proposal applied the incidental test and 

the orderly trading requirements to all 

commodities, the Commission, as 

previously described, proposed in the 

2016 Supplemental Position Limits 

Proposal to remove both those standards 

from the definition of bona fide hedging 

position.878 Moreover, the reproposed 

definition of bona fide hedging position 

would provide only that the position is 

either: (i) Enumerated in the definition 

(in paragraphs (3), (4), or (5)) and meets 

the economically appropriate test; or (ii) 

recognized by an exchange under rules 

previously submitted to the 

Commission.879 The Commission’s 

standards for recognizing a position as 

a bona fide hedge in an excluded 

commodity, therefore, would not 

include the additional requirements 

applicable to physical commodities 

subject to federal limits. Consequently, 

as reproposed, the exchanges would 

have reasonable discretion to comply 

with core principles regarding position 

limits on excluded commodities so long 

as the exchange does so pursuant to 

exchange rules previously submitted to 

the Commission under Part 40. 

In addition, in conjunction with the 

amendments to the definition of bona 

fide hedging positions in regards to 

excluded commodities,880 the 

Commission is reproposing 

§ 150.5(c)(5)(ii), proposed as 

§ 150.5(b)(5)(ii)(D) in the 2016 

Supplemental Position Limits Proposal, 

with no further modification, to afford 

greater flexibility for exchanges when 

granting exemptions for excluded 

commodities. The 2016 Supplemental 

Position Limits Proposal provided, in 

addition to granting exemptions under 

paragraphs (b)(5)(ii)(A), (b)(5)(ii)(B), and 

(b)(5)(ii)(C) of § 150.5, that exchanges 

may grant a ‘‘limited’’ risk management 

exemptions pursuant to rules consistent 

with the guidance in Appendix A of 

part 150. As reproposed, § 150.5(c)(5)(ii) 

eliminates the modifier ‘‘limited’’ from 

the risk management exemptions, and 

provides merely that exchanges may 

grant, in addition to the exemptions 

under paragraphs (b)(5)(ii)(A), 

(b)(5)(ii)(B), and (b)(5)(ii)(C), risk 

management exemptions pursuant to 

rules submitted to the Commission, 

‘‘including’’ for a position that is 

consistent with the guidance in 

Appendix A of part 150. 

In regards to the provisions 

addressing applications for exemptions 

for positions in excluded commodities, 

the Commission is modifying what was 

copied from § 150.5(b)(5)(iii) to provide, 

under § 150.5(c)(5)(iii), simply that an 

exchange may allow a person to file an 

exemption application for excluded 

commodities after the person assumes 

the position that exceeded a position 

limit. 

Finally, in reproposing the 

aggregation provision for excluded 

commodities under § 150.5(c)(8), the 

Commission is not merely mirroring the 

aggregation provision as previously 

proposed in § 150.5(b)(8). As noted 

above, the reproposed aggregation 

provisions for physical commodity 

derivatives contracts, whether under 

§ 150.5(a)(8) or § 150.5(b)(8), provide 

that exchanges must have aggregation 

provisions that conform to § 150.4. 

Reproposed § 150.5(c)(8), consistent 

with the rest of reproposed § 150.5(c), 

would instead provide guidance, that 

exchanges ‘‘should’’ have aggregation 

rules for excluded commodity 

derivative contracts that conform to 

§ 150.4. 

E. Part 19—Reports by Persons Holding 

Bona Fide Hedge Positions Pursuant to 

§ 150.1 of This Chapter and by 

Merchants and Dealers in Cotton 

1. Current Part 19 

The market and large trader reporting 

rules are contained in parts 15 through 

21 of the Commission’s regulations.881

Collectively, these reporting rules 

effectuate the Commission’s market and 

financial surveillance programs by 

enabling the Commission to gather 

information concerning the size and 

composition of the commodity futures, 

options, and swaps markets, thereby 

permitting the Commission to monitor 

and enforce the speculative position 


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882See CEA section 4g(a); 7 U.S.C. 6g(a). 

883See CEA section 4i; 7 U.S.C. 6i. 

884See 17 CFR part 19. Current part 19 crossreferences a provision of the definition of reportable 

position in 17 CFR 15.00(p)(2). As discussed below, 

that provision would be incorporated into proposed 

§ 19.00(a). 

885Current CFTC Form 204: Statement of Cash 

Positions in Grains is available at http://

www.cftc.gov/ucm/groups/public/@forms/ 

documents/file/cftcform204.pdf. 

886Current CFTC Form 304 Report: Statement of 

Cash Positions in Cotton is available at http://

www.cftc.gov/ucm/groups/public/@forms/ 

documents/file/cftcform304.pdf. 

887 In addition, in the cotton market, merchants 

and dealers file a weekly CFTC Form 304 Report of 

their unfixed-price cash positions, which is used to 

publish a weekly Cotton On-call report, a service to 

the cotton industry. The Cotton On-Call Report 

shows how many unfixed-price cash cotton 

purchases and sales are outstanding against each 

cotton futures month. 

888See December 2013 Position Limits Proposal, 

78 FR at 75741–75746. 

889CL–Working Group–59959 at 3–4. 

890CL–NFP–60393 at 15–16. 

891CL–COPE–59662 at 24; CL–COPE–60932 at 10; 

CL–EEI–EPSA–60925 at 9. 

892CL–FIA–60937 at 17. 

893CL–EEI–EPSA–60925 at 9. 

894CL–COPE–59662 at 24; CL–COPE–60932 at 10; 

CL–ASR–60933 at 4; CL–Working Group–60947 at 

17–18; CL–EEI–EPSA–60925 at 3. 

895CL–U.S. Dairy–59597 at 6. 

limits that have been established, among 

other regulatory goals. The 

Commission’s reporting rules are 

implemented pursuant to the authority 

of CEA sections 4g and 4i, among other 

CEA sections. Section 4g of the Act 

imposes reporting and recordkeeping 

obligations on registered entities, and 

obligates FCMs, introducing brokers, 

floor brokers, and floor traders to file 

such reports as the Commission may 

require on proprietary and customer 

positions executed on any board of 

trade.882 Section 4i of the Act requires 

the filing of such reports as the 

Commission may require when 

positions equal or exceed Commissionset levels.883

Current part 19 of the Commission’s 

regulations sets forth reporting 

requirements for persons holding or 

controlling reportable futures and 

option positions ‘‘which constitute bona 

fide hedging positions as defined in [§ ] 

1.3(z)’’ and for merchants and dealers in 

cotton holding or controlling reportable 

positions for future delivery in 

cotton.884 In the several markets with 

federal speculative position limits— 

namely those for grains, the soy 

complex, and cotton—hedgers that hold 

positions in excess of those limits must 

file a monthly report pursuant to part 19 

on CFTC Form 204: Statement of Cash 

Positions in Grains,885 which includes 

the soy complex, and CFTC Form 304 

Report: Statement of Cash Positions in 

Cotton.886 These monthly reports, 

collectively referred to as the 

Commission’s ‘‘series ’04 reports,’’ must 

show the trader’s positions in the cash 

market and are used by the Commission 

to determine whether a trader has 

sufficient cash positions that justify 

futures and option positions above the 

speculative limits.887

2. Amendments to Part 19 

In the December 2013 Position Limits 

Proposal, the Commission proposed to 

amend part 19 so that it would conform 

to the Commission’s proposed changes 

to part 150.888 First, the Commission 

proposed to amend part 19 by adding 

new and modified cross-references to 

proposed part 150, including the new 

definition of bona fide hedging position 

in proposed § 150.1. Second, the 

Commission proposed to amend 

§ 19.00(a) by extending reporting 

requirements to any person claiming 

any exemption from federal position 

limits pursuant to proposed § 150.3. The 

Commission proposed to add new series 

’04 reporting forms to effectuate these 

additional reporting requirements. 

Third, the Commission proposed to 

update the manner of part 19 reporting. 

Lastly, the Commission proposed to 

update both the type of data that would 

be required in series ’04 reports as well 

as the timeframe for filing such reports. 

Comments Received: One commenter 

acknowledges concerns presented by 

Commission staff at the Staff 

Roundtable that exemptions from 

position limits be limited to prevent 

abuse, but does not believe that the 

adoption of additional recordkeeping or 

reporting rules or the development of 

costly infrastructure is required because 

statutory and regulatory safeguards 

already exist or are already proposed in 

the December 2013 Position Limits 

Proposal, noting that: (i) The series ’04 

forms as well as DCM exemption 

documents will be required of market 

participants, who face significant 

penalties for false reporting, and the 

Commission may request additional 

information if the information provided 

is unsatisfactory; and (ii) market 

participants claiming a bona fide 

hedging exemption are still subject to 

anti-disruptive trading prohibitions in 

CEA section 4c(a)(5), anti-manipulation 

prohibitions in CEA sections 6(c) and 

9(c), the orderly trading requirement in 

proposed § 150.1, and DCM oversight. 

The commenter stated that these 

requirements comprise a ‘‘thorough and 

robust regulatory structure’’ that does 

not need to be augmented with new 

recordkeeping, reporting, or other 

obligations to prevent misuse of hedging 

exemptions.889 A second commenter 

echoed that additional recordkeeping or 

reporting obligations are unnecessary 

and would create unnecessary 

regulatory burdens.890

Another commenter stated that the 

various forms required by the regime, 

while not lengthy, represent significant 

data collection and categorization that 

will require a non-trivial amount of 

work to accurately prepare and file. The 

commenter claimed that a 

comprehensive position limits regime 

could be implemented with a ‘‘far less 

burdensome’’ set of filings and 

requested that the Commission review 

the proposed forms and ensure they are 

‘‘as clear, limited, and workable’’ as 

possible to reduce burden. The 

commenter stated that it is not aware of 

any software vendors that currently 

provide solutions that can support a 

commercial firm’s ability to file the 

proposed forms.891

One commenter recommended that 

the Commission eliminate the series ’04 

reports in light of the application and 

reporting requirements laid out in the 

2016 Supplemental Position Limits 

Proposal. The commenter asserted that 

the application requirements are in 

addition to the series ’04 forms, which 

the commenter claims ‘‘only provide the 

Commission with a limited surveillance 

benefit.’’ 892 Another commenter raised 

concerns regarding forms filed under 

part 19 and the data required to be filed 

with exchanges under §§ 150.9–11. The 

commenter stated that the 2016 

Supplemental Position Limits Proposal 

requires that ‘‘those exceeding the 

federal limits file the proposed forms 

including Form 204’’ but lacks 

‘‘meaningful guidance’’ regarding the 

data that must be maintained 

‘‘effectively in real-time’’ to populate 

the forms.893

Several commenters requested that 

the Commission create user-friendly 

guidebooks for the forms so that all 

entities can clearly understand any 

required forms and build the systems to 

file such forms, including providing 

workshops and/or hot lines to improve 

the forms.894

One commenter expressed concern for 

reporting requirements in conflict with 

other regulatory requirements (such as 

FASB ASC 815).895

Finally, two commenters 

recommended modifying or removing 

the requirement to certify series ’04 

reports as ‘‘true and correct’’. One 

commenter suggested that the 

requirement be removed due to the 

difficulty of making such a certification 


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896See CL–CMC–59634 at 17. 

897CL–Working Group–59693 at 65. 

898See, e.g., ‘‘Obligation of Reportable Market 

Participants to File CFTC Form 204 Reports,’’ CFTC 

Staff Advisory 13–42, July 8, 2013; and CFTC 

Dockets Nos. 16–21, 15–41, 16–07, 16–20. 

and the fact that CEA section 6(c)(2) 

already prohibits the submission of false 

or misleading information.896 Another 

noted that the requirement to report 

very specific information relating to 

hedges and cash market activity 

involves data that may change over 

time. The commenter suggested the 

Commission adopt a good-faith standard 

regarding ‘‘best effort’’ estimates of the 

data when verifying the accuracy of 

Form 204 submissions and, assuming 

the estimate of physical activity does 

not otherwise impact the bona fide 

hedge exemption (e.g. cause the firm to 

lose the exemption), not penalize 

entities for providing the closest 

approximation of the position 

possible.897

Commission Reproposal: The 

Commission responds to specific 

comments regarding the content and 

timing of the series ’04 forms and other 

concerns below. The Commission agrees 

with the commenters that the forms 

should be clear and workable, and offers 

several clarifications and amendments 

below in response to comments about 

particular aspects of the series ’04 

reports. 

The Commission notes that the 

information required on the series ’04 

reports represents a trader’s most basic 

position data, including the number of 

units of the cash commodity that the 

firm has purchased or sold, or the size 

of a swap position that is being offset in 

the futures market. The Commission 

believes this information is readily 

available to traders, who routinely make 

trading decisions based on the same 

data that is required on the series ’04 

reports. The Commission is proposing to 

move to an entirely electronic filing 

system, allowing for efficiencies in 

populating and submitting forms that 

require the same information every 

month. Most traders who are required to 

file the series ’04 reports must do so for 

only one day out of the month, further 

lowering the burden for filers. In short, 

the Commission believes potential 

burdens under the Reproposal have 

been reduced wherever possible while 

still providing adequate information for 

the Commission’s Surveillance program. 

For market participants who may 

require assistance in monitoring for 

speculative position limits and 

gathering the information required for 

the series ’04 reports, the Commission is 

aware of several software companies 

who, prior to the vacation of the Part 

151 Rulemaking, produced tools that 

could be useful to market participants in 

fulfilling their compliance obligations 

under the new position limits regime. 

The Commission notes that the 

reporting obligations proposed in the 

2016 Supplemental Position Limits 

Proposal are intended to be 

complimentary to, not duplicative of, 

the series ’04 reporting forms. In 

particular, the Commission notes the 

distinction between Form 204 

enumerated hedging reporting and 

exchange-based non-enumerated 

hedging reporting. The 2016 

Supplemental Position Limits Proposal 

provides exchanges with the authority 

to require reporting from market 

participants. That is, regarding an 

exchange’s process for non-enumerated 

bona fide hedging position recognition, 

the exchange has discretion to 

implement any additional reporting that 

it may require. The Commission 

declines to eliminate series ’04 reporting 

in response to the commenters because, 

as noted throughout this section, the 

data provided on the forms is critical to 

the mission of the Commission’s 

Surveillance program to detect and 

deter manipulation and abusive trading 

practices in physical commodity 

markets. 

In response to the commenters that 

requested guidebooks for the series ’04 

reporting forms, the Commission 

believes that it is less confusing to 

ensure that form instructions are clear 

and detailed than it is to provide 

generalized guidebooks that may not 

respond to specific issues. The 

Commission has clarified the sample 

series ‘04 forms found in Appendix A to 

part 19, including instructions to such 

forms, and invites comments in order to 

avoid future confusion. Specifically, the 

Commission has added instructions 

regarding how to fill out the trader 

identification section of each form; 

reorganized instructions relating to 

individual fields on each form; edited 

the examples of each form to reduce 

confusion and match changes to 

information required as described in 

this section; and clarified the authority 

for the certifications made on the 

signature/authorization page of each 

form. 

The Commission’s longstanding 

experience with collecting and 

reviewing Form 204 and Form 304 has 

shown that many questions about the 

series ’04 reports are specific to the 

circumstances and trading strategies of 

an individual market participant, and 

do not lend themselves to generalization 

that would be helpful to many market 

participants. 

The Commission also notes, in 

response to the commenter expressing 

concerns about other regulatory 

requirements, the policy objectives and 

standards for hedging under financial 

accounting standards differ from the 

statutory policy objectives and 

standards for hedging under the Act. 

Because of this, reporting requirements, 

and the associated burdens, would also 

differ between the series ’04 reports and 

accounting statements. 

Finally, the Commission is proposing 

to amend the certification language 

found at the end of each form to clarify 

that the certification requires nothing 

more than is already required of market 

participants in section 6(c)(2) of the Act. 

In response to the commenters’ request 

for a ‘‘best effort’’ standard, the 

Commission added the phrase ‘‘to the 

best of my knowledge’’ preceding the 

certification from the authorized 

representative of the reporting trader 

that the information on the form is true 

and correct. The Commission has also 

added instructions to each form 

clarifying what is required on the 

signature/authorization page of each 

form. The Commission notes that, in the 

recent past, the Division of Market 

Oversight has issued advisories and 

guidance on proper filing of series ’04 

reports, and the Division of Enforcement 

has settled several cases regarding lack 

of accuracy and/or timeliness in filing 

series ’04 forms.898 The Commission 

believes the certification language is an 

important reminder to reporting traders 

of their responsibilities to file accurate 

information under several sections of 

the Act, including but not limited to 

CEA section 6(c)(2). 

a. Amended cross references 

Proposed Rule: As discussed above, in 

the December 2013 Position Limits 

Proposal, the Commission proposed to 

replace the definition of bona fide 

hedging transaction found in § 1.3(z) 

with a new proposed definition of bona 

fide hedging position in proposed 

§ 150.1. As a result, proposed part 19 

would replace cross-references to 

§ 1.3(z) with cross-references to the new 

definition of bona fide hedging 

positions in proposed § 150.1. 

The Commission also proposed 

expanding Part 19 to include reporting 

requirements for positions in swaps, in 

addition to futures and options 

positions, for any part of which a person 

relies on an exemption. To accomplish 

this, ‘‘positions in commodity derivative 

contracts,’’ as defined in proposed 

§ 150.1, would replace ‘‘futures and 

option positions’’ throughout amended 


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899See discussion above. 

900See 17 CFR part 19. Current part 19 crossreferences the definition of reportable position in 17 

CFR 15.00(p). 

901 17 CFR 15.02. 902As noted in the December 2013 Position 

Limits Proposal, the Commission is avoiding the 

use of any form numbers with ‘‘404’’ to avoid 

confusion with the part 151 Rulemaking, which 

required Forms 404, 404A, and 404S. See December 

2013 Position Limits Proposal, 78 FR at 75742. 903See supra discussion of proposed § 150.3(c). 904Proposed Form 604 would replace Form 404S 

(as contemplated in vacated part 151). 905The updated definition of bona fide hedging 

in proposed § 150.1 incorporates several specific 

types of anticipatory transactions: Unfilled 

anticipated requirements, unsold anticipated 

production, anticipated royalties, anticipated 

services contract payments or receipts, and 

anticipatory cross-commodity hedges. See 

paragraphs (3)(iii), (4)(i), (4)(iii), (4)(iv) and (5), 

respectively, of the Commission’s amended 

definition of bona fide hedging transactions in 

proposed § 150.1 as discussed above. 

906See 17 CFR 19.00(b)(1) (providing that ‘‘[i]f the 

regular business practice of the reporting trader is 

to exclude certain products or byproducts in 

determining his cash position for bona fide hedging 

. . . ., the same shall be excluded in the report’’). 907See supra discussion of the ‘‘economically 

appropriate test’’ as it relates to the definition of 

bona fide hedging position. In order for a position 

to be economically appropriate to the reduction of 

risks in the conduct and management of a 

commercial enterprise, the enterprise generally 

should take into account all inventory or products 

that the enterprise owns or controls, or has 

contracted for purchase or sale at a fixed price. For 

example, in line with its historical approach to the 

reporting exclusion, the Commission does not 

believe that it would be economically appropriate 

to exclude large quantities of a source commodity 

held in inventory when an enterprise is calculating 

its value at risk to a source commodity and it 

intends to establish a long derivatives position as 

a hedge of unfilled anticipated requirements. 

908Proposed § 19.00(b)(1) adds a caveat to the 

alternative manner of reporting: When reporting for 

the cash commodity of soybeans, soybean oil, or 

soybean meal, the reporting person shall show the 

cash positions of soybeans, soybean oil and soybean 

meal. This proposed provision for the soybean 

complex is included in the current instructions for 

preparing Form 204. 

part 19 as shorthand for any futures, 

option, or swap contract in a commodity 

(other than a security futures product as 

defined in CEA section 1a(45)).899 This 

amendment was intended to harmonize 

the reporting requirements of part 19 

with proposed amendments to part 150 

that encompass swap transactions. 

Proposed § 19.00(a) would eliminate 

the cross-reference to the definition of 

reportable position in § 15.00(p)(2). The 

Commission noted that the current 

reportable position definition 

essentially identifies futures and option 

positions in excess of speculative 

position limits. Proposed § 19.00(a) 

would simply make clear that the 

reporting requirement applies to 

commodity derivative contract positions 

(including swaps) that exceed 

speculative position limits, as discussed 

below. 

Comments Received: The Commission 

received no comments on the proposed 

cross-referencing amendments. 

Commission Reproposal: The 

Commission is repurposing the 

amended cross-references in part 19, as 

originally proposed. 

b. Persons required to report—§ 19.00(a) 

Proposed Rule: Because the reporting 

requirements of current part 19 apply 

only to persons holding bona fide hedge 

positions and merchants and dealers in 

cotton holding or controlling reportable 

positions for future delivery in cotton, 

the Commission proposed to extend the 

reach of part 19 by requiring all persons 

who wish to avail themselves of any 

exemption from federal position limits 

under proposed § 150.3 to file 

applicable series ’04 reports.900 The 

Commission also proposed to require 

that anyone exceeding a federal limit 

who has received a special call related 

to part 150 must file a series ’04 form. 

Collection of this information would 

facilitate the Commission’s surveillance 

program with respect to detecting and 

deterring trading activity that may tend 

to cause sudden or unreasonable 

fluctuations or unwarranted changes in 

the prices of the referenced contracts 

and their underlying commodities. By 

broadening the scope of persons who 

must file series ’04 reports, the 

Commission seeks to ensure that any 

person who claims any exemption from 

federal speculative position limits can 

demonstrate a legitimate purpose for 

doing so. 

Series ’04 reports currently refers to 

Form 204 and Form 304, which are 

listed in current § 15.02.901 The 

Commission proposed to add three new 

series ’04 reporting forms to effectuate 

the expanded reporting requirements of 

part 19.902 Proposed Form 504 would be 

added for use by persons claiming the 

conditional spot-month limit exemption 

pursuant to proposed § 150.3(c).903

Proposed Form 604 would be added for 

use by persons claiming a bona fide 

hedge exemption for either of two 

specific pass-through swap position 

types, as discussed further below.904

Proposed Form 704 would be added for 

use by persons claiming a bona fide 

hedge exemption for certain 

anticipatory bona fide hedging 

positions.905

Comments Received: The Commission 

received no comments on proposed 

§ 19.00(a) regarding who must file series 

’04 reports. 

Commission Reproposal: The 

Commission is reproposing the 

expansion of § 19.00(a), as originally 

proposed. 

c. Manner of reporting—§ 19.00(b) 

i. Excluding certain source 

commodities, products or byproducts of 

the cash commodity hedged— 

§ 19.00(b)(1) 

Proposed Rule: For purposes of 

reporting cash market positions under 

current part 19, the Commission 

historically has allowed a reporting 

trader to ‘‘exclude certain products or 

byproducts in determining his cash 

positions for bona fide hedging’’ if it is 

‘‘the regular business practice of the 

reporting trader’’ to do so.906 The 

Commission has proposed to clarify the 

meaning of ‘‘economically appropriate’’ 

in light of this reporting exclusion of 

certain cash positions.907 Therefore, in 

the December 2013 Position Limits 

Proposal, the Commission proposed in 

§ 19.00(b)(1) that a source commodity 

itself can only be excluded from a 

calculation of a cash position if the 

amount is de minimis, impractical to 

account for, and/or on the opposite side 

of the market from the market 

participant’s hedging position.908

The Commission explained in the 

December 2013 Position Limits Proposal 

that the original part 19 reporting 

exclusion was intended to cover only 

cash positions that were not capable of 

being delivered under the terms of any 

derivative contract, an intention that 

ultimately evolved to allow crosscommodity hedging of products and 

byproducts of a commodity that were 

not necessarily deliverable under the 

terms of any derivative contract. The 

Commission also noted that the 

instructions on current Form 204 go 

further than current § 19.00(b)(1) by 

allowing the exclusion of certain source 

commodities in addition to products 

and byproducts, when it is the firm’s 

normal business practice to do so. 

Comments Received: One commenter 

suggested the Commission expand the 

provision in proposed § 19.00(b)(1) that 

allows a reporting person to exclude 

source commodities, products or 

byproducts in determining its cash 

position for bona fide hedging to allow 

a person to also exclude inventory and 

contracts of the actual commodity in the 

course of his or her regular business 

practice. The commenter also noted that 

proposed § 19.00(b)(1) only permits this 

exclusion if the amount is de minimis, 

despite there being ‘‘many 

circumstances’’ that make the inclusion 

of such source commodities irrelevant 

for reporting purposes. The commenter 

requested that the Commission only 

require a reporting person to calculate 

its cash positions in accordance with its 

regular business practice and report the 


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909See CL–Working Group–60396 at 16–17; CL– 

Working Group–60947 at 15–17. 910See December 2013 Position Limits Proposal, 

78 FR at 75743. The Commission provided an 

example: ‘‘By way of example, the alternative 

manner of reporting in proposed § 19.00(b)(1) 

would permit a person who has a cash inventory 

of 5 million bushels of wheat, and is short 5 million 

bushels worth of commodity derivative contracts, to 

underreport additional cash inventories held in 

small silos in disparate locations that are 

administratively difficult to count.’’ This person 

could instead opt to calculate and report these hardto-count inventories and establish additional short 

positions in commodity derivative contracts as a 

bona fide hedge against such additional inventories. 

911See CL-Working Group-59693 at 65. 

912See December 2013 Position Limits Proposal, 

78 FR at 75743. The proposed § 19.00(b)(2) is 

consistent with provisions in the current section, 

but would add the term commodity derivative 

contracts (as defined in proposed § 150.1). The 

proposed definition of cross-commodity hedge in 

proposed § 150.1 is discussed above. 

913See December 2013 Position Limits Proposal, 

78 FR at 75743. 

914 Id. 

915The list of data required for persons filing on 

Forms 204 and 304 has been relocated from current 

§ 19.01(a) to proposed § 19.01(a)(3). 

916CL–ASR–59668 at 3. 

cash positions that it considered in 

making its bona fide hedging 

determinations.909

Commission Reproposal: The 

Commission is reproposing 

§ 19.00(b)(1), as originally proposed, 

because the Commission is concerned 

that adopting the commenter’s request 

could lead to ‘‘cherry-picking’’ a cash 

market position in an attempt to justify 

a speculative position as a hedge. As 

noted in the December 2013 Position 

Limits Proposal, the Commission’s 

clarification of the § 19.00(b)(1) 

reporting exclusion was proposed to 

prevent the definition of bona fide 

hedging positions in proposed § 150.1 

from being swallowed by this reporting 

rule. The Commission stated ‘‘. . . it 

would not be economically appropriate 

behavior for a person who is, for 

example, long derivative contracts to 

exclude inventory when calculating 

unfilled anticipated requirements. Such 

behavior would call into question 

whether an offset to unfilled anticipated 

requirements is, in fact, a bona fide 

hedging position, since such inventory 

would fill the requirement. As such, a 

trader can only underreport cash market 

activities on the opposite side of the 

market from her hedging position as a 

regular business practice, unless the 

unreported inventory position is de 

minimis or impractical to account 

for.’’ 910 If a person were only required 

to report cash positions that are offset by 

particular derivative positions, then the 

form would not provide an indication as 

to whether the derivative position is 

economically appropriate to the 

reduction of risk, making the inclusion 

of source commodities very relevant for 

reporting purposes, contrary to the 

commenter’s suggestion. 

Because of these and other concerns, 

market participants have historically 

been required to report cash market 

information in aggregate form for the 

commodity as a whole, not the ‘‘line 

item’’ style of hedge reporting requested 

by the commenter (where firms report 

cash trades by category, tranche, or 

corresponding futures position). 

Further, since it is important for 

Surveillance purposes to receive a 

snapshot of a market participant’s cash 

market position, the series ’04 forms 

currently require a market participant to 

provide relevant inventories and fixed 

price contracts in the hedged (or crosshedged) commodity. The Commission 

believes it is necessary to maintain this 

aggregate reporting in order for the 

Commission’s Surveillance program to 

properly monitor for position limit 

violations and to prevent market 

manipulation. 

Further, the Commission believes that 

firms may find reporting an aggregate 

cash market position less burdensome 

than attempting to identify portions of 

that position that most closely align 

with individual hedge positions as, 

according to some commenters, many 

firms hedge on a portfolio basis, making 

identifying the particular hedge being 

used difficult.911

ii. Cross-commodity Hedges, Standards 

and Conversion Factors—§ 19.00(b)(2)– 

(3) 

Proposed Rules: In the December 2013 

Position Limits Proposal, the 

Commission proposed under 

§ 19.00(b)(2) instructions for reporting a 

cash position in a commodity that is 

different from the commodity 

underlying the futures contract used for 

hedging.912 The Commission also 

proposed to maintain the requirement in 

§ 19.00(b)(3) that standards and 

conversion factors used in computing 

cash positions for reporting purposes 

must be made available to the 

Commission upon request.913 The 

Commission clarified that such 

information would include hedge ratios 

used to convert the actual cash 

commodity to the equivalent amount of 

the commodity underlying the 

commodity derivative contract used for 

hedging, and an explanation of the 

methodology used for determining the 

hedge ratio. Finally, the Commission 

provided examples of completed series 

’04 forms in proposed Appendix A to 

part 19 along with blank forms and 

instructions.914

Comments Received: The Commission 

received no comments on proposed 

§§ 19.00(b)(2)–(3). 

Commission Reproposal: The 

Commission is reproposing 

§§ 19.00(b)(2)–(3), as originally 

proposed. 

d. Information Required—§ 19.01(a) 

i. Bona Fide Hedgers Reporting on Form 

204—§ 19.01(a)(3) 

Proposed Rule: Current § 19.01(a) sets 

forth the data that must be provided by 

bona fide hedgers (on Form 204) and by 

merchants and dealers in cotton (on 

Form 304). The Commission proposed 

to continue using Forms 204 and 304, 

which will feature only minor changes 

to the types of data to be reported under 

§ 19.01(a)(3).915 These changes include 

removing the modifier ‘‘fixed price’’ 

from ‘‘fixed price cash position;’’ 

requiring cash market position 

information to be submitted in both the 

cash market unit of measurement (e.g. 

barrels or bushels) and futures 

equivalents; and adding a specific 

request for data concerning open price 

contracts to accommodate open price 

pairs. In addition, the monthly reporting 

requirements for cotton, including the 

granularity of equity, certificated and 

non-certificated cotton stocks, would be 

moved to Form 204, while weekly 

reporting for cotton would be retained 

as a separate report made on Form 304 

in order to maintain the collection of 

data required by the Commission to 

publish its weekly public cotton ‘‘on 

call’’ report. 

Comments Received: The Commission 

received several comments regarding 

the proposed revisions to Form 204. 

These comments can be grouped loosely 

into three categories: general comments 

on bona fide hedge reporting; comments 

regarding the general information 

required on Form 204; and comments 

regarding the more specific nature of the 

cash market information required to be 

reported. The Commission responds to 

each category separately below. 

Comments: One commenter stated 

that CFTC should reduce the complexity 

and compliance burden of bona fide 

hedging record keeping and reporting by 

using a model similar to the current 

exchange-based exemption process.916

The commenter also stated that the 

requirement to keep records and file 

reports, in futures equivalents, regarding 

the commercial entity’s cash market 

contracts and derivative market 

positions on a real-time basis globally, 

will be complex and impose a 

significant compliance burden. The 


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917CL–ASR–59668 at 7; CL–ASR–60933 at 5. 

918CL–AGA–59935 at 13. 

919CL–NFP–60393 at 15–16. 

920The Commission notes that advance notice is 

required for recognition of anticipatory hedging 

positions by the Commission. See below for more 

discussion of anticipatory hedging reporting 

requirements. 

921See supra the discussion of proposed §§ 150.9 

and 150.11. 

922The reasoning behind the Commission’s 

determinations with respect to previous requests for 

exemption under CEA section 4a(a)(7) is 

documented in the December 2013 Position Limits 

Proposal, 78 FR at 75719–75722. See also the 

definition of bona fide hedging position discussed 

supra. 

923CL–FIA–59595 at 38. 

924The Commission notes that the commenters 

are referring to titular language on column 3 of the 

example Form 204 found in proposed Appendix A 

to part 19, which states ‘‘Commodity Derivative 

Contract or Referenced Contract’’ as the information 

required in that column. CL–FIA–59595 at 38; CL– 

Working Group–59693 at 65. 

925CL–Working Group–59693 at 65. 

926CL–ASR–60933 at 4. 

927CL–FIA–59595 at 37. 

928CL–ASR–60933 at 4. 

commenter noted such records are not 

needed for commercial purposes.917

One commenter requested that the 

Commission provide for a single hedge 

exemption application and reporting 

process, and should not require 

applicants to file duplicative forms at 

the exchange and at the Commission. 

The commenter noted its support for 

rules that would delegate, to the 

exchanges, (1) the hedge exemption 

application and approval process, and 

(2) hedge exemption reporting (if any is 

required). The commenter argued that 

the exchanges, rather than the 

Commission, have a long history with 

enforcing position limits on all of their 

contracts and are in a much better 

position than the Commission to judge 

the applicant’s hedging needs and set an 

appropriate hedge level for the hedge 

being sought. Thus, the commenter 

suggested, the exchanges should be the 

point of contact for market participants 

seeking hedge exemptions.918

One commenter requested that the 

Commission address all pending 

requests for CEA 4a(a)(7) exemptions 

and respond to all requests for bona fide 

hedging exemptions from the energy 

industry.919

Commission Reproposal: In response 

to the first commenter, the Commission 

notes that, while the exchange referred 

to by the commenter does not have a 

reporting process analogous to Form 

204, it does require an application prior 

to the establishment of a position that 

exceeds a position limit. In contrast, 

advance notice is not required for most 

federal enumerated bona fide hedging 

positions.920 In the Commission’s 

experience, the series ’04 reports have 

been useful and beneficial to the 

Commission’s Surveillance program and 

the Commission finds no compelling 

reason to change the forms to conform 

to the exchange’s process. Further, the 

Commission notes that Form 204 is filed 

once a month as of the close of business 

of the last Friday of the month; it is not 

and has never been required to be filed 

on a real-time basis globally. A market 

participant only has to file Form 204 if 

it is over the limit at any point during 

the month, and the form requires only 

cash market activity (not derivatives 

market positions). 

The second commenter was 

responding to questions raised at the 

Energy and Environmental Markets 

Advisory Council Meeting in June 2014; 

the Commission notes in response to 

that commenter that there is no federal 

exemption application process for most 

enumerated hedges. For nonenumerated hedges and certain 

enumerated anticipatory hedges, in 

response to the EEMAC meeting and 

other comments from market 

participants, the Commission proposed 

a single exchange based process for 

recognizing bona fide hedges for both 

federal and exchange limits. Under this 

process, proposed in the 2016 

Supplemental Position Limits Proposal, 

market participants would not be 

required to file with both the exchange 

and the Commission.921

Finally, in response to the 

commenter’s request that the 

Commission respond to pending 

requests for exemptions under CEA 

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

that it responded to the outstanding 

section 4a(a)(7) requests in the 

December 2013 Position Limits 

Proposal. In particular, the Commission 

proposed to include some of the energy 

industry’s requests in the definition of 

bona fide hedging position and declined 

to include other requests.922

Comments: One commenter 

recommended that the Commission 

clarify that column three of Form 204 

should permit a market participant to 

identify the number of futuresequivalent referenced contracts that 

hedge an identified amount of cashmarket positions, but without separately 

identifying the positions in each 

referenced contract. The commenter 

stated that separate identification would 

add to the financial burden, but that it 

does not believe that it adds any benefit 

to the Commission.923 Two commenters 

also recommended the Commission 

remove from Form 204 the requirement 

for reporting non-referenced contracts, 

noting that the Commission did not 

explain why a market participant 

should report commodity derivative 

contracts that are not referenced 

contracts.924

One commenter also recommended 

that the Commission either delete or 

make optional the identification of a 

particular enumerated position in 

column two of Section A or provide a 

good-faith standard. The commenter 

claimed that many energy firms hedge 

on a portfolio basis, and would not be 

able to identify a particular enumerated 

position that applies to the referenced 

contract position needing bona fide 

hedging treatment.925

One commenter asked for clarification 

regarding whether Section C of Form 

204, which requires information 

regarding cotton stocks, is required of 

market participants in all commodities 

or just those in cotton markets.926

One commenter recommended that 

the Commission remove the 

requirement in Form 204 to submit 

futures-equivalent derivative positions, 

stating that the Commission did not 

explain why it needs to obtain data on 

a market participant’s futures-equivalent 

position as part of proposed Form 204 

in light of the presumption that the 

Commission already has a market 

participant’s future-equivalent position 

from large-trader reporting rules and 

access to SDR data.927 Another 

commenter noted that Form 204 mixes 

units of measurement between futures 

and cash positions and requested the 

Commission require market participants 

to use either cash units or futures units. 

The commenter noted that it’s an easy 

conversion to make but that the ‘‘mix’’ 

of both units is confusing.928

Commission Reproposal: With respect 

to the comments regarding column three 

of Form 204, the Commission clarifies 

that Form 204 allows filers to identify 

multiple referenced contracts used for 

hedging a particular commodity cash 

position in the same line of Form 204. 

Because position limits under § 150.2 

are to be imposed on referenced 

contracts, cash positions hedged by 

such referenced contracts should be 

reported on an aggregate basis, not 

separated out by individual contract. 

However, the Commission declines to 

adopt the commenters’ recommendation 

to delete the phrase ‘‘Commodity 

Derivative Contract’’ from the title of 

column three, because § 19.00(a)(3) 

allows the Commission to require filing 

of a series ’04 form of anyone holding 

a reportable position under 

§ 15.00(p)(1), which may involve a 

commodity derivative contract that does 

not fit the definition of referenced 


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929The Commission notes that Form 704 has been 

removed from the list of series ’04 forms that could 

be required under a special call. This is a nonsubstantive change resulting from changes made to 

§ 150.7, discussed infra. 

930CL–Working Group–60947 at 17–18. 

931CL–COPE–60932 at 10. The commenter made 

the same requests for clarification regarding the 

cash market information required on Form 504; 

since the information is similar, the Commission is 

responding here to the comment for both forms. 

932CL–ASR–60933 at 5. 

933See CL–Working Group–60396 at 17. 

934CL–FIA–59595 at 37–38. 

contract.929 Further, the Commission 

can require a special call respondent to 

file their response using the relevant 

series ’04 form, and the Form 204 may 

be filed in order to claim exemptions 

from §§ 150.3(b) or 150.3(d), exemptions 

which may not involve a referenced 

contract. In sum, because the 

Commission may require the filing of 

Form 204 for purposes other than bona 

fide hedging, the form should include 

both ‘‘Commodity Derivative Contract’’ 

and, separately, ‘‘Referenced Contract’’ 

in the title of column three. To avoid 

further confusion, the Commission has 

rephrased the wording of the column 

title and amended the instructions to 

the form. 

With respect to column two of Form 

204, the Commission is proposing to 

adopt the commenter’s recommendation 

to delete the requirement to identify 

which paragraphs of the bona fide 

hedging definition are represented by 

the hedged position. The requirement 

seemed to be confusing to commenters 

who found it unclear whether the 

column required the identification of all 

bona fide hedge definition paragraphs 

used for the total cash market position 

or the identification of separate cash 

positions for each paragraph used. 

While the requirement was intended to 

provide insight into which enumerated 

provision of the bona fide hedging 

definition was being relied upon in 

order to provide context to the cash 

position, the column was never 

intended to prevent multiple paragraphs 

being cited at once. Given the 

confusion, the Commission is concerned 

that the information in column two may 

not provide the intended information 

while being burdensome to implement 

for both market participants and 

Commission staff. For these reasons, the 

Commission is proposing to delete 

column two of Form 204, and has 

updated the sample forms in Appendix 

A to part 19 accordingly. 

In response to the commenter 

requesting clarification regarding 

Section C of Form 204, the Commission 

confirms that Section C is only required 

of entities which hold positions in 

cotton markets that must be reported on 

Form 204. Further, the Commission 

proposes that, in order for the 

Commission to effectively evaluate the 

legitimacy of a claimed bona fide 

hedging position, filers of Section C of 

Form 204 will be required to 

differentiate between equity stock held 

in their capacities as merchants, 

producers, and/or agents in cotton. The 

Commission has updated Section C of 

Form 204 and § 19.01(a)(3)(vi)(A) to 

reflect this change. The Commission 

does not believe this distinction will 

create any significant extra burden on 

cotton merchants, as the Commission 

understands that many entities in cotton 

markets will hold equity stocks in just 

one of the three capacities required on 

the form. 

The Commission notes in response to 

the last commenter that Form 204 does 

not require the futures equivalent value 

of derivative positions but rather the 

futures equivalent of the cash position 

underlying a hedged position (e.g., 

20,000,000 barrels of crude oil is 

equivalent to 20,000 futures equivalents, 

given a 1,000 barrel unit of trading for 

the futures contract). The futures 

equivalent of the cash position quantity 

is not available from any Commission 

data source because cash positions are 

not reported to the Commission under, 

for example, large trader reporting or 

swap data repository regulations. The 

Commission is proposing to require 

firms to report both the cash market unit 

of measurement and the futures 

equivalent measurement for a position 

in order to easily identify the size of the 

position underlying a hedge position, 

and has updated § 19.01(a)(3), 

instructions to the sample Form 204 in 

Appendix A to part 19, and the field 

names on the Form 204 itself to clarify 

this requirement. The Commission 

agrees with the commenter that it is an 

easy conversion to make, and does not 

anticipate that this requirement will 

create any significant extra burden on 

market participants. Obtaining the 

futures equivalent information directly 

from the market participant—as 

opposed to calculating it upon receipt of 

the form—is necessary particularly with 

respect to cross-commodity hedging 

where calculating the hedging ratio may 

not be as clear-cut. In its experience 

administering and collecting Form 204, 

the Commission has noted much 

confusion regarding whether cash 

market information should be reported 

in futures equivalents or in cash market 

units. Currently, the form requires cash 

market units, but the Commission has 

seen both units of measurement used 

(sometimes on the same form), which 

requires Commission staff to contact 

traders in order to validate the numbers 

on the form. The Commission is 

proposing to require both in order to 

avoid such confusion. 

Comment: One commenter proposed 

modifications to the information 

required to be reported on Form 204. 

Specifically, the commenter suggested 

that the filer should be required to 

report the aggregate quantity of cash 

positions that underlie bona fide 

hedging positions in equivalent core 

referenced futures contract units, 

excluding all or part of the commodity 

that it excludes in its regular business 

practice. The commenter also suggested 

that if the filer is cross hedging, the filer 

must also report the aggregated quantity 

of bona fide hedge positions it is cross 

hedging in terms of the actual 

commodity as well as specify the 

futures market in which it is hedging.930

Another commenter suggested that 

the information required on Form 204 is 

‘‘ambiguous’’ and asked the 

Commission to clarify what scope of, for 

example, stocks or fixed price purchase 

and sales agreements must be reported 

as well as what level of data precision 

is required.931

A commenter requested that the 

Commission allow hedges to be reported 

on a ‘‘macro’’ basis (e.g. futures 

positions vs. cash positions) as opposed 

to requiring the matching of individual 

physical market transactions to 

enumerated bona fide hedges. The 

commenter stated that performing 

specific linkage of individual physical 

transactions to individual hedge 

transactions is burdensome and does 

not provide any ‘‘managerial or 

economic benefit.’’ 932

In contrast, another commenter 

suggested that the Commission tailor the 

series ’04 reports to require ‘‘only the 

information that is required to justify 

the claimed hedge exemption.’’ The 

commenter stated that Form 204 

appears to require a market participant 

to list all cash market exposures, even 

if the exposures are not relevant to the 

bona fide hedge exemption being 

claimed, which it believes would 

provide no value to the Commission in 

determining whether a hedge was bona 

fide.933

Another commenter stated that 

because the prompt (spot) month for 

certain referenced contracts will no 

longer trade as of the last Friday of the 

month, a market participant that 

exceeds a spot-month position limit 

who no longer has that spot-month 

position should not be required to 

report futures-equivalent positions for 

referenced contract on Form 204.934 The 

commenter recommended that the 

Commission should require a market 


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935CL–FIA–59595 at 38. 

936CL–ASR–60933 at 4. 

937CL–Sen. Levin–59637 at 8. 

938See supra discussion of the exclusion of 

certain source commodities, products, and 

byproducts of the cash commodity hedged when 

reporting on Form 204. 

939 In the December 2013 Position Limits 

Proposal, the Commission highlighted the 

importance of the data collected on Form 204 to its 

Surveillance program, stating that ‘‘[c]ollection of 

this information would facilitate the Commission’s 

surveillance program with respect to detecting and 

deterring trading activity that may tend to cause 

sudden or unreasonable fluctuations or 

unwarranted changes in the prices of the referenced 

contracts and their underlying commodities.’’ See 

December 2013 Position Limits Proposal, 78 FR at 

75742. 

940The Commission stated that the Form 204 

‘‘must show the trader’s positions in the cash 

market and are used by the Commission to 

determine whether a trader has sufficient cash 

positions that justify futures and option positions 

above the speculative limits’’ because the 

Commission is seeking to ‘‘ensure that any person 

who claims any exemption from federal speculative 

position limits can demonstrate a legitimate 

purpose for doing so.’’ See December 2013 Position 

Limits Proposal, 78 FR at 75741–2. 

941The Commission’s Weekly Cotton On-Call 

Report can be found here: http://www.cftc.gov/ 

MarketReports/CottonOnCall/index.htm. 

participant with a position in excess of 

a spot-month position limit to report on 

Form 204 only the cash-market activity 

related to that particular spot-month 

derivative position, and not to require it 

to report cash-market activity related to 

non-spot-month positions where it did 

not exceed a non-spot-month position 

limit; the commenter stated that the 

burden associated with such a reporting 

obligation would increase 

significantly.935 Separately, another 

commenter claimed that Form 204 

appears to address only non-spot-month 

position limits and asked the 

Commission to clarify how it will 

distinguish reporting on Form 204 that 

is related to a spot-month position limit 

versus a non-spot-month position 

limit.936

One commenter recommended that 

reporting rules require traders to 

identify the specific risk being hedged at 

the time a trade is initiated, to maintain 

records of termination or unwinding of 

a hedge when the underlying risk has 

been sold or otherwise resolved, and to 

create a practical audit trail for 

individual trades, to discourage traders 

from attempting to mask speculative 

trades under the guise of hedges.937

Commission Reproposal: In response 

to the modifications to Form 204 

proposed by the commenter, the 

Commission notes that no modifications 

are necessary because the form, as 

proposed, requires the reporting of 

aggregated quantity of cash positions 

that underlie bona fide hedging 

positions in equivalent core referenced 

futures contract units, excluding a de 

minimis portion of the commodity, 

products, and byproducts that it 

excludes in its regular business 

practice.938 Reproposed Form 204 also 

requires cross-hedgers to report the 

aggregated quantity of bona fide hedging 

positions it is cross hedging in terms of 

the actual commodity as well as specify 

the futures market in which it is 

hedging. 

The Commission reproposes that the 

Form 204 requires a market participant 

to report all cash market positions in 

any commodity in which the participant 

has exceeded a spot-month or non-spotmonth position limit. Form 204 is not 

intended to match a firm’s hedged 

positions to underlying cash positions 

on a one-to-one basis; rather, it is 

intended to provide a ‘‘snapshot’’ into 

the firm’s cash market position in a 

particular commodity as of one day 

during a month. The information on this 

form is used for several purposes in 

addition to reviewing hedged positions, 

including helping Surveillance analysts 

understand changes in the market 

fundamentals in underlying commodity 

markets.939 The Commission believes 

that adopting the commenters’ 

recommendations to require cash 

market information underlying a single 

derivative hedge position would result 

in a more burdensome reporting process 

for firms, particularly those who hedge 

on a portfolio basis. Instead, the 

Commission is confirming that, as 

requested by the commenter, cash 

market positions should be reported on 

an aggregated or ‘‘macro’’ basis. 

The Commission notes that this 

‘‘snapshot’’ requirement has historically 

been—and is currently—required on 

Form 204 for the nine legacy 

agricultural contracts. Further, the 

Commission understands that exchange 

hedge application forms require similar 

cash position information; firms that 

have applied to an exchange for hedge 

exemptions in non-legacy contracts 

should already be familiar with 

providing cash market information 

when they exceed a position limit or a 

position accountability level. 

The commenters that focus on the 

Form 204 as it relates to exceeding 

either spot-month position limits or 

non-spot-month position limits contrast 

each other: one believed Form 204 was 

to be filed in response to exceeding only 

spot-month position limits and the other 

that Form 204 was to be filed in 

response to exceeding only non-spotmonth position limits. However, the 

Commission has never distinguished 

between spot-month limits and nonspot-month limits with respect to the 

filing of Form 204. The Commission 

notes that, as discussed in the December 

2013 Position Limits Proposal, Form 

204 is used to review positions that 

exceed speculative limits in general, not 

just in the spot-month.940 Because of 

this, the Commission is not adopting the 

commenter’s recommendation to only 

require Form 204 when a market 

participant exceeds a spot-month limit. 

In response to the commenter who 

suggested the Commission require a 

‘‘practical audit trail’’ for bona fide 

hedgers, the Commission notes that 

other sections of the Commission’s 

regulations provide rules regarding 

detailed individual transaction 

recordkeeping as suggested by the 

commenter. 

ii. Cotton Merchants and Dealers 

Reporting on Form 304—§ 19.02 

Proposed Rule: In the December 2013 

Position Limits Proposal, the 

Commission proposed to continue to 

require the filing of Form 304, which 

requires information on the quantity of 

call cotton bought or sold, on a weekly 

basis. The Commission noted that Form 

304 is required in order for the 

Commission to produce its weekly 

cotton ‘‘on call’’ report.941 The 

Commission also proposed to relocate 

the list of required information for Form 

304 from current § 19.01(a) to proposed 

§ 19.01(a)(3). 

Comments Received: The Commission 

did not receive any comments on the 

proposed changes to Form 304. 

Commission Reproposal: The 

Commission is reproposing Form 304, 

as originally proposed. 

iii. Conditional Spot-Month Limit 

Exemption Reporting on Form 504— 

§ 19.01(a)(1) 

Proposed Rule: As proposed, 

§ 19.01(a)(1) would require persons 

availing themselves of the conditional 

spot-month limit exemption (pursuant 

to proposed § 150.3(c)) to report certain 

detailed information concerning their 

cash market activities for any 

commodity specially designated by the 

Commission for reporting under § 19.03 

of this part. In the December 2013 

Position Limits Proposal, the 

Commission noted its concern about the 

cash market trading of those availing 

themselves of the conditional spotmonth limit exemption and so proposed 

to require that persons claiming a 

conditional spot-month limit exemption 

must report on new Form 504 daily, by 

9 a.m. Eastern Time on the next 

business day, for each day that a person 

is over the spot-month limit in certain 


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942CL–Working Group–59693 at 65–66. 

943CL–Working Group–59693 at 65–66. 

944CL–COPE–59662 at 24. 

945CL–COPE–59662 at 24. 

946CL–NGFA–60941 at 7–8. 

947CL–FIA–59595 at 37. 

948Specifically, the Commission stated that 

‘‘[w]hile traders who avail themselves of this 

exemption could not directly influence particular 

settlement prices by trading in the physical-delivery 

referenced contract, the Commission remains 

concerned about such traders’ activities in the 

underlying cash commodity.’’ See December 2013 

Position Limits Proposal, 78 FR at 75744. 

949Under the definition of bona fide hedging 

position in Section 4a(c)(2) of the Act, a person who 

uses a swap to reduce risks attendant to a position 

that qualifies as a bona fide hedging position may 

pass-through those bona fides to the counterparty, 

even if the person’s swap position is not in excess 

of a position limit. As such, positions in commodity 

derivative contracts that reduce the risk of passthrough swaps would qualify as bona fide hedging 

positions. See supra discussion of the proposed 

definition of bona fide hedging position. 

950Persons holding pass-through swap positions 

that are offset with referenced contracts outside the 

spot month (whether such contracts are for physical 

delivery or are cash-settled) need not report on 

Form 604 because swap positions that are 

referenced contracts will be netted with offsetting 

referenced contract positions outside the spot 

month pursuant to proposed § 150.2(b). 

special commodity contracts specified 

by the Commission. 

The Commission proposed to require 

reporting on new Form 504 for 

conditional spot-month limit 

exemptions in the natural gas 

commodity derivative contracts only. 

Comments Received: One commenter 

stated its belief that the information 

required on Form 504 is redundant of 

information required on Form 204 and 

would overly burden hedgers.942 The 

commenter suggested that, if the 

Commission decides to retain the 

conditional spot-month limit 

exemption, and thereby Form 504, the 

Commission should require only an 

affirmative representation from market 

participants that they do not hold any 

physical delivery Referenced 

Contracts.943

Another commenter stated that Form 

504 creates a burden for hedgers to track 

their cash business and affected 

contracts and to create systems to file 

multiple forms. The commenter noted 

its belief that end-users/hedgers should 

never be subjected to the daily filing of 

reports.944 Further, the commenter 

suggested the Commission delete Form 

504 entirely, asserting that it will be 

unnecessary if the Commission adopts 

the commenter’s separate cash settled 

limit idea (the commenter proposed a 

higher cash settled limit with no 

condition on the physical delivery 

market).945 Another commenter 

suggested deleting the Form 504 

because it believes that no matter how 

extensive the Commission makes 

reporting requirements, the Commission 

will still need to request additional 

information on a case-by-case basis to 

ensure hedge transactions are 

legitimate.946

A third commenter suggested that the 

Commission should modify the data 

requirements for Form 504 in a manner 

similar to the approach used by ICE 

Futures U.S. for natural gas contracts, 

that is, requiring a description of a 

market participant’s cash-market 

positions as of a specified date filed in 

advance of the spot-month.947

Commission Reproposal: The 

Commission has tentatively determined 

under § 19.03 to designate the Henry 

Hub Natural Gas referenced contracts 

for reporting of a conditional spotmonth limit exemption under 

§ 19.00(a)(1)(i). 

In response to the first three 

commenters, the Commission reiterates 

a key distinction between the Form 504 

and the Form 204. Form 504 is required 

of speculators that are relying upon the 

conditional spot-month limit 

exemption. Form 204 is required for 

hedgers that exceed position limits. To 

the extent a firm is hedging, there is no 

requirement to file the Form 504. 

In the unlikely event that a firm is 

both hedging and relying upon the 

conditional spot-month limit 

exemption, the firm would be required 

to file both forms at most one day a 

month, given the timing of the spotmonth in natural gas markets (the only 

market for which Form 504 will be 

required at first). In that event, however, 

the Commission believes that requiring 

similar information on both forms 

should encourage filing efficiencies 

rather than duplicating the burden. For 

example, both forms require the filer to 

identify fixed price purchase 

commitments; the Commission believes 

it is not overly burdensome for the same 

firm to report such similar information 

on the Form 204 and the Form 504, 

should a market participant ever be 

required to file both forms. 

The Commission is not adopting the 

commenters’ recommendations to delete 

the Form 504 or to require only an 

affirmative representation that the 

condition of the conditional spot-month 

limit exemption has been met (i.e. that 

the trader holds no position in physical 

delivery referenced contracts). The 

Commission explained in the December 

2013 Position Limits Proposal that its 

primary motive in requiring the cash 

market information required on Form 

504 is the need to detect and deter 

manipulative activities in the 

underlying cash commodity that might 

be used to benefit a derivatives position 

(or vice-versa).948

In response to the third commenter, 

the Commission does not believe that a 

description of a cash market position is 

sufficient to allow Commission staff to 

administer its Surveillance program. 

Descriptions are not as exact as reported 

information, and the Commission 

believes the information gathered in 

daily Form 504 reports would be more 

complete—and thus more beneficial—in 

determining compliance and detecting 

and deterring manipulation. 

The Commission notes that since the 

Commission is proposing to limit the 

conditional spot month limit exemption 

to natural gas markets, the Form 504 

will only be required from participants 

in natural gas markets who seek to avail 

themselves of the conditional spotmonth limit exemption and any 

corresponding burden will apply to only 

those participants. 

iv. Pass-Through Swap Exemption 

Reporting on Form 604—§ 19.01(a)(2) 

Proposed Rule: As proposed, 

§ 19.01(a)(2) would require a person 

relying on the pass-through swap 

exemption who holds either of two 

position types to file a report with the 

Commission on new Form 604.949 The 

first type of position, filed on Section A 

of Form 604, is a swap executed 

opposite a bona fide hedger that is not 

a referenced contract and for which the 

risk is offset with referenced contracts 

(e.g., cross commodity hedging 

positions). The second type of position, 

filed on Section B of Form 604, is a 

cash-settled swap (whether or not the 

swap is, itself, a referenced contract) 

executed opposite a bona fide hedger 

that is offset with physical-delivery 

referenced contracts held into a spotmonth. 

These reports on Form 604 would 

explain hedgers’ needs for large 

referenced contract positions and would 

give the Commission the ability to verify 

the positions were a bona fide hedge, 

with heightened daily surveillance of 

spot-month offsets. Persons holding any 

type of pass-through swap position 

other than the two described above 

would report on Form 204.950

Comments Received: The Commission 

received three comments regarding 

Form 604, all from the same commenter. 

These comments and the Commission’s 

responses are detailed below. 

Comment: One commenter 

recommended that the Commission 

remove the requirement in Form 604 to 

submit futures-equivalent derivative 


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951CL–FIA–59595 at 37. 

952CL–FIA–59595 at 37–38. 

953See supra discussion regarding the time and 

place of filing series ’04 reports. 

954CL–FIA–59595 at 38. 

955The timeframe for filing Form 704 is included 

as part of proposed § 150.7. See supra for 

discussion regarding the filing of Form 704. 

956 In proposed § 19.01(b)(2), the Commission 

inadvertently failed to include reports filed under 

§ 19.00(a)(1)(ii)(B) (i.e. Form 604 during the spot 

month) in the same filing timeframe as reports filed 

under § 19.00(a)(1)(i) (i.e. Form 504). The correct 

filing timeframe was described in multiple places 

on the forms published in the Federal Register as 

part of the December 2013 Position Limits Proposal. 

957CL–Working Group–59693 at 65. 

958CL–DFA–59621 at 2. 

959CL–FIA–60937 at 17. 

960CL–Working Group–60947 at 17–18. 

positions, claiming that the Commission 

did not explain why it needs to obtain 

data on a market participant’s futuresequivalent position as part of proposed 

Form 604 in light of the commenter’s 

presumption that the Commission 

already has a market participant’s 

future-equivalent position from largetrader reporting rules and access to SDR 

data.951

Commission Reproposal: In response 

to the commenter, the Commission 

notes that futures-equivalent position 

information is necessary to allow staff to 

match the offset futures position with 

the non-referenced-contract swap 

position underlying the hedge because 

such positions are not subject to part 20 

reporting. The Commission notes that 

Form 604 is filed outside of the spot 

month only if the swap position being 

offset is not a referenced contract. Since 

only referenced contracts are 

automatically netted for purposes of 

determining compliance with position 

limits, the Commission would not have 

knowledge or reason to net a passthrough swap position with the 

participant’s futures positions without 

the filing of Form 604. During the spot 

month, the Commission notes that, 

while it has access to referenced 

contract swap positions in part 20 data, 

the Commission would not know that a 

particular swap forms the basis for a 

pass-through swap offset exemption, 

and so again would not have knowledge 

or reason to net a pass-through swap 

position with the participant’s futures 

position. Without Section B of Form 604 

filed during the spot month, the 

Commission may believe a firm is in 

violation of physical-delivery spot 

month limits despite the firm being 

eligible for a pass-through swap offset 

exemption. The Commission is 

proposing to require the identification 

of a particular swap position and the 

offsetting referenced contract position to 

alleviate concerns about the disruption 

of the price discovery function of the 

underlying physical-delivery contract 

during the spot month period. 

Comment: The same commenter also 

noted that the spot-month for certain 

referenced contracts will no longer trade 

as of the last Friday of the month and 

so recommended that a market 

participant exceeding a spot-month 

position limit who no longer has that 

spot-month position should not be 

required to report futures-equivalent 

derivatives positions for referenced 

contract on Form 604.952

Commission Reproposal: As 

proposed, pass-through swap offsets 

that last into the spot-month would be 

filed daily during the spot period, not as 

of the last Friday of the month.953 Passthrough swap offset positions outside of 

the spot-month are required to be filed 

as of the last Friday of the month. The 

Commission expects that, in most cases, 

the Form 604 would be filed outside of 

the spot-month which means only 

Section A would need to be filed. That 

filing is required as of the last Friday of 

the month, the same timeline that is 

required for the Form 204, for 

convenience and ease of filing. 

Comment: Finally, the commenter 

recommended that CFTC require a 

market participant with a position in 

excess of a spot-month position limit to 

report on Form 604 only the cashmarket activity related to that particular 

spot-month derivative position, and not 

to require it to report cash-market 

activity related to non-spot-month 

positions where it did not exceed a nonspot-month position limit, since the 

burden associated with such a reporting 

obligation would increase 

significantly.954

Commission Reproposal: The 

Commission notes in response to the 

commenter that neither Sections A nor 

B of Form 604 would require the filer 

to report cash market activity. 

This commenter makes the same 

remarks regarding Form 204, but the 

Form 204 requires cash-market activity 

in a particular commodity whereas the 

Form 604 requires information on a 

particular swap market position. 

The Commission is reproposing Form 

604, as originally proposed. 

e. Time and Place of Filing Reports— 

§ 19.01(b) 

Proposed Rule: As proposed, 

§ 19.01(b)(1) would require all reports 

except those submitted in response to 

special calls or on Form 504, Form 604 

during the spot-month, or Form 704 to 

be filed monthly as of the close of 

business on the last Friday of the month 

and not later than 9 a.m. Eastern Time 

on the third business day following the 

last Friday of the month.955 For reports 

submitted on Form 504 and Form 604 

during the spot-month, proposed 

§ 19.01(b)(2) would require filings to be 

submitted as of the close of business for 

each day the person exceeds the limit 

during the spot period and not later 

than 9 a.m. Easter Time on the next 

business day following the date of the 

report.956 Finally, proposed 

§ 19.01(b)(3) would require series ‘04 

reports to be transmitted using the 

format, coding structure, and electronic 

data transmission procedures approved 

in writing by the Commission or its 

designee. 

Comments Received: One commenter 

stated its support for the proposed 

monthly, rather than daily, filing of 

Form 204.957 Another commenter 

recommended an annual Form 204 

filing requirement, rather than a 

monthly filing requirement. The 

commenter noted that because the 

general size and nature of its business 

is relatively constant, the differences 

between each monthly report would be 

insignificant. The commenter 

recommended the CFTC ‘‘not impose 

additional costs of monthly reporting 

without a demonstration of significant 

additional regulatory benefits.’’ The 

commenter noted its futures position 

typically exceeds the proposed position 

limits, but such positions are bona fide 

hedging positions. In addition to 

futures, the commenter noted it 

executes a small notional volume of 

swaps as hedges of forward contracts.958

Similarly, another commenter 

suggested that if the Commission does 

not eliminate the forms in favor of the 

requirements in the 2016 Supplemental 

Position Limits Proposal the 

Commission should require only an 

annual notice that details its maximum 

cash market exposure that justifies an 

exemption, to be filed with the 

exchange.959

One commenter suggested that the 

reporting date for Form 204 should be 

the close of business on the day prior to 

the beginning of the spot period and 

that it should be required to filed no 

later than the 15th day of the month 

following a month in which a filer 

exceeded a federal limit to allow the 

market participant sufficient time to 

collect and report its information.960

With regards to proposed 

§ 19.01(b)(2), one commenter 

recommended CFTC change the 

proposed next-day reporting of Form 

504 for the conditional spot-month limit 

exemption and Form 604 for the passthrough swap offsets during the spotmonth, to a monthly basis, noting 


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961CL–FIA–59595 at 35. 

962CL–ICE–59669 at 7. 

963 December 2013 Position Limits Proposal, 78 

FR at 75744–5. The Commission noted that its 

experience overseeing the ‘‘dramatic instances of 

disruptive trading practices in the natural gas 

markets’’ warranted enhanced reporting for that 

commodity during the spot month on Form 504. 

The Commission noted its intent to wait until it 

gained additional experience with limits in other 

commodities before imposing enhanced reporting 

requirements for those commodities. The 

Commission further noted that it was concerned 

that a trader could hold an extraordinarily large 

position early in the spot month in the physicaldelivery contract along with an offsetting short 

position in a cash-settled contract (such as a swap), 

and that such a large position could disrupt the 

price discovery function of the core referenced 

futures contract. 

964Reproposed § 150.3(c) provides a conditional 

spot-month limit exemption only for the natural gas 

cash-settled referenced contracts. 

965 It should be noted, however that an exchange, 

using its discretion, could require the filing of Form 

604, for example, in an energy contract, as part of 

the exchange’s recognition of a non-enumerated 

bona fide hedging position under § 150.9, discussed 

below. 

966The Commission notes that the electronic 

filing requirement was proposed in § 19.01(b)(3) but 

due to other changes within that section it is now 

located in § 19.01(b)(4). The substance of the 

requirement has not changed. 

market participants need time to 

generate and collect data and verify the 

accuracy of the reported data. The 

commenter further stated that CFTC did 

not explain why it needs the data on 

Form 504 or Form 604 on a next-day 

basis.961

Another asserted that the daily filing 

requirement (Form 504) for participants 

who rely on the conditional spot-month 

limit exemption ‘‘imposes significant 

burdens and substantial costs on market 

participants.’’ The commenter urged a 

monthly rather than a daily filing of all 

cash market positions, which the 

commenter claimed is consistent with 

current exchange practices.962

Commission Reproposal: The 

Commission is reproposing 

§ 19.01(b)(1), as originally proposed, 

with some minor clarifications to the 

language to make the text easier to 

follow. As discussed above, the 

Commission believes that Form 204 

provides a monthly ‘‘snapshot’’ of the 

cash market positions of traders whose 

positions are in excess of spot-month or 

non-spot-month speculative position 

limits and for that reason it is necessary 

to provide its Surveillance program the 

ability to detect and deter market 

manipulation and protect the price 

discovery process. The Commission is 

retaining the last Friday of the month as 

the required reporting date in order to 

avoid confusion and uncertainty, 

particularly for those participants who 

already file Form 204 and thus are 

accustomed to that reporting date. 

In response to the commenters’ 

suggestions that Form 204 be filed 

annually, the Commission notes that 

throughout the course of a year, most 

commodities subject to federal position 

limits under proposed § 150.2 are 

subject to seasonality of prices as well 

as less predictable imbalances in supply 

and demand such that an annual filing 

would not provide Surveillance insight 

into cash market trends underlying 

changes in the derivative markets. This 

insight is necessary for Surveillance to 

determine whether price changes in 

derivative markets are caused by 

fundamental factors or manipulative 

behavior. Further, the Commission 

believes that an annual filing could 

actually be more burdensome for firms, 

as an annual filing could lead to special 

calls or requests between filings for 

additional information in order for the 

Commission’s Surveillance program to 

fulfill its responsibility to detect and 

deter market manipulation. In addition, 

the Commission notes that while one 

participant’s positions may remain 

constant throughout a year, the same is 

not true for many other market 

participants. The Commission believes 

that varying the filing arrangement 

depending on a particular market or 

market participant is impractical and 

would lead to increased burdens for 

market participants due to uncertainty 

regarding when each firm, or each firm 

by each commodity, is supposed to file. 

The Commission is reproposing, as 

originally proposed, the provision in 

proposed § 19.01(b)(2) to require nextday, daily filing of Forms 504 and 604 

in the spot-month. In response to the 

commenter, the Commission notes that 

it described its rationale for requiring 

Forms 504 and 604 daily during the 

spot-month in the December 2013 

Position Limits Proposal.963 In order to 

detect and deter manipulation during 

the spot-month, concurrent information 

regarding the cash positions of a 

speculator holding a conditional spotmonth limit exemption (Form 504) or 

the swap contract underlying a large 

offsetting position in the physical 

delivery contract (Form 604) is 

necessary during the spot-month. 

Receiving Forms 504 or 604 before or 

after the spot-month period would not 

help the Surveillance program to protect 

the price discovery process of physicaldelivery contracts and to ensure that 

market participants have a qualifying 

pass-through swap contract position 

underlying offsetting futures positions 

held during the spot-month. 

The Commission notes that, as 

reproposed, the Form 504 is required 

only for the Natural Gas commodity, 

which has a 3-day spot period.964 Daily 

reporting of the Form 504 during the 

spot-month allows Surveillance to 

monitor a market participant’s cash 

market activity that could impact or 

benefit their derivatives position. Given 

the short filing period for natural gas 

and the importance of accurate 

information during the spot-month, the 

Commission believes that requiring the 

Form 504 to be filed daily provides an 

important benefit that outweighs the 

potential burdens for filers 

As a practical matter, the Commission 

notes that the Form 604 is collected 

during the spot-month only under 

particular circumstances, i.e. for an 

offsetting position in physical delivery 

referenced contracts during the spotmonth. Because the ‘‘five-day rule’’ 

applies to such positions, the spotmonth filing of the Form 604 would 

only occur in contracts whose spotmonth period is longer than 5 days 

(excluding, for example, energy 

contracts but including many 

agricultural commodities).965

The Commission is reproposing 

§§ 19.01(b)(1)–(2), as originally 

proposed, with some minor 

clarifications to the language to make 

the text easier to follow. The 

Commission inadvertently left out of 

proposed § 19.01(b)(2) a reference to the 

requirement to file Section B of Form 

604 (pass-through swap offsets held into 

the spot-month). No commenter 

appeared to be confused about this 

requirement, as the correct timeframe 

was described in multiple places on the 

forms published in the Federal Register 

as part of the December 2013 Position 

Limits Proposal, but to avoid future 

confusion the Commission has modified 

the language—but not the substance—of 

§ 19.01(b)(1)–(2) to clarify the time and 

place for filing series ’04 reports. 

Finally, the Commission is 

reproposing the electronic filing 

requirement, as originally proposed.966

Further instructions on submitting ’04 

reports will be available at http://

www.cftc.gov/Forms/index.htm. 

F. § 150.7—Reporting Requirements for 

Anticipatory Hedging Positions 

1. Reporting Requirements for 

Anticipatory Hedging Positions and 

New Form 704 

Proposed Rule: The Commission’s 

revised definition of bona fide hedging 

in § 150.1 enumerates two new types of 

anticipatory bona hedging positions. 

Two existing types of anticipatory 

hedges are being continued from the 

existing definition of bona fide hedging 

in current § 1.3(z): Hedges of unfilled 

anticipated requirements and hedges of 


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967See current definition of bona fide hedging 

transactions at 17 CFR 1.3(z)(2)(i)(B) and (ii)(C), 

respectively. Cross-commodity hedges are 

permitted under 17 CFR 1.3(z)(2)(iv). Compare with 

paragraphs (3)(iii) and (4)(i), respectively, of the 

definition of bona fide hedging positions in 

proposed § 150.1, discussed above. 

968See sections (4)(iii), (4)(iv), and (5), 

respectively, of the definition of bona fide hedging 

positions in § 150.1, discussed above. 

969Further, advance filing may serve to reduce 

the burden on a person who exceeds position limits 

and who may then otherwise be issued a special 

call to determine whether the underlying 

requirements for the exemption have been met. If 

the Commission were to reject such an exemption, 

such a person would have already violated position 

limits. 

970Proposed 150.7(d)(2) would require additional 

information for cross hedges, for reasons discussed 

above. 

971CL–IECAssn–59679 at 11. 

972CL–NGFA–60941 at 7–8. 

973 Id. 

974CL–APGA–59722 at 10. 

975CL–EDF–59961 at 6. 

unsold anticipated production, as well 

as anticipatory cross-commodity hedges 

of such requirements or production.967

The revised § 150.1 definition expands 

the list of enumerated anticipatory bona 

fide hedging positions to include hedges 

of anticipated royalties and hedges of 

anticipated services contract payments 

or receipts, as well as anticipatory crosscommodity hedges of such contracts.968

As discussed above, § 1.48 has long 

required special reporting for hedges of 

unfilled anticipated requirements and 

hedges of unsold anticipated production 

because the Commission remains 

concerned about distinguishing between 

anticipatory reduction of risk and 

speculation. Such concerns apply 

equally to any position undertaken to 

reduce the risk of anticipated 

transactions. Hence, the Commission 

proposed to extend the special reporting 

requirements in proposed § 150.7 for all 

types of enumerated anticipatory hedges 

that appear in the definition of bona fide 

hedging positions in proposed § 150.1. 

The Commission proposed to add a 

new series ’04 reporting form, Form 704, 

to effectuate these additional and 

updated reporting requirements for 

anticipatory hedges. Persons wishing to 

avail themselves of an exemption for 

any of the anticipatory hedging 

transactions enumerated in the updated 

definition of bona fide hedging in 

§ 150.1 are required to file an initial 

statement on Form 704 with the 

Commission at least ten days in advance 

of the date that such positions would be 

in excess of limits established in 

proposed § 150.2. Advance notice of a 

trader’s intended maximum position in 

commodity derivative contracts to offset 

anticipatory risks allows the 

Commission to review a proposed 

position before a trader exceeds the 

position limits and, thereby, allows the 

Commission to prevent excessive 

speculation in the event that a trader 

were to misconstrue the purpose of 

these limited exemptions.969 The 

trader’s initial statement on Form 704 

provides a detailed description of the 

person’s anticipated activity (i.e., 

unfilled anticipated requirements, 

unsold anticipated production, etc.).970

Under proposed § 150.7(b), the 

Commission may reject all or a portion 

of the position as not meeting the 

requirements for bona fide hedging 

positions under proposed § 150.1. To 

support this determination, proposed 

§ 150.7(c) would allow the Commission 

to request additional specific 

information concerning the anticipated 

transaction to be hedged. Otherwise, 

Form 704 filings that conform to the 

requirements set forth in § 150.7 would 

become effective ten days after 

submission. As proposed, § 150.7(e) 

would require an anticipatory hedger to 

file a supplemental report on Form 704 

whenever the anticipatory hedging 

needs increase beyond that in its most 

recent filing. 

As proposed, § 150.7(f) would add a 

requirement for any person who files an 

initial statement on Form 704 to provide 

annual updates that detail the person’s 

actual cash market activities related to 

the anticipated exemption. With an eye 

towards distinguishing bona fide 

hedging of anticipatory risks from 

speculation, annual reporting of actual 

cash market activities and estimates of 

remaining unused anticipated 

exemptions beyond the past year would 

enable the Commission to verify 

whether the person’s anticipated cash 

market transactions closely track that 

person’s real cash market activities. In 

addition, § 150.7(g) would enable the 

Commission to review and compare the 

actual cash activities and the remaining 

unused anticipated hedge transactions 

by requiring monthly reporting on Form 

204. Absent monthly filing, the 

Commission would need to issue a 

special call to determine why a person’s 

commodity derivative contract position 

is, for example, larger than the pro rata 

balance of her annually reported 

anticipated production. 

As is the case under current § 1.48, 

§ 150.7(h) requires that a trader’s 

maximum sales and purchases must not 

exceed the lesser of the approved 

exemption amount or the trader’s 

current actual anticipated transaction. 

For purposes of simplicity, the special 

reporting requirements for anticipatory 

hedges are located within the 

Commission’s position limits regime in 

part 150, and alongside the 

Commission’s updated definition of 

bona fide hedging positions in § 150.1. 

Thus, the Commission is proposing to 

delete the reporting requirements for 

anticipatory hedges in current § 1.48 

because that section would be 

duplicative. 

Comments Received: One commenter 

asserted that the reporting requirements 

for anticipatory hedges of an operational 

or commercial risk comprising an 

initial, supplementary and annual 

report are unduly burdensome. The 

commenter recommended that the 

Commission require either an initial and 

annual report or an initial and 

supplementary report.971

Another commenter suggested 

deleting the Form 704 because it 

believes that no matter how extensive 

the Commission makes reporting 

requirements, the Commission will still 

need to request additional information 

on a case-by-case basis to ensure hedge 

transactions are legitimate.972 The 

commenter suggested that the 

Commission should be able to achieve 

its goal of obtaining enough information 

to determine whether to request 

additional information using the Form 

204 along with currently collected data 

sources and so the additional burden of 

the new series ’04 reports outweighs the 

benefit to the Commission.973

Several commenters remarked on the 

cost associated with the proposed Form 

704. One commenter stated that the 

additional reporting requirements, 

including new Form 704 to replace the 

reporting requirements under current 

rule 1.48, and annual and monthly 

reporting requirements under proposed 

rules 150.7(f) and 150.7(g) ‘‘will impose 

significant additional regulatory and 

compliance burdens on commercials 

and believes that the Commission 

should consider alternatives, including 

targeted special calls when 

appropriate.’’ 974 Another commenter 

stated the reporting requirements for the 

series 04 forms is overly burdensome 

and would impose a substantial cost to 

market participants because while the 

proposal would require the Commission 

to respond fairly quickly, it does not 

provide an indication of whether the 

Commission will deem the requirement 

accepted if the Commission doesn’t 

respond within a time frame. The 

commenter is concerned that a market 

participant may have to refuse business 

if it does not receive an approved 

exemption in advance of a 

transaction.975 A third commenter 

stated that Form 704 is ‘‘commercially 

impracticable and unduly burdensome’’ 

because it would require filers to 


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976CL–EEI–EPSA–60925 at 9. 

977CL–FIA–59595 at 39. 

978CL–FIA–59595 at 39. 

979See December 2013 Position Limits Proposal, 

78 FR at 75746. 

980See the December 2013 Position Limits 

Proposal, 78 FR at 75746: ‘‘Under proposed 

§ 150.7(b), the Commission may reject all or a 

portion of the position as not meeting the 

requirements for bona fide hedging positions under 

§ 150.1. . . . Otherwise, Form 704 filings that 

conform to the requirements set forth in proposed 

§ 150.7 would become effective ten days after 

submission.’’ 

‘‘analyze each transaction to see if it fits 

into an enumerated hedge category.’’ 

The commenter is concerned that such 

‘‘piecemeal review’’ would require a 

legal memorandum and the 

development of new software to track 

positions and, since the Commission 

proposed that Form 704 to be used in 

proposed § 150.11, the burden 

associated with the form has 

increased.976

One commenter highlighted 

discrepancies between the instructions 

for Form 704 and the data on the sample 

Form 704. The commenter noted that 

instructions for column five request the 

‘‘Cash commodity same as (S) or crosshedged (C–H) with Core Reference 

Futures Contract (CFRC)’’ while the 

sample Form 704 lists ‘‘CL–NYMEX’’ as 

the information reported in that column. 

The commenter also noted that Form 

704 has eleven columns, while the 

sample Form 704 contains only ten 

columns, omitting a column for ‘‘Core 

Referenced Futures contract 

(CRFC).’’ 977

The commenter also requested that 

the Commission clarify instructions for 

column six of proposed Form 704 to 

permit a reasonable estimate of 

anticipated production (or other 

anticipatory hedge) based on 

commercial experience, in the event the 

market participant does not have three 

years of data related to the anticipated 

hedge, for example, of anticipated 

production of a newly developed 

well.978

Commission Reproposal: As 

discussed in the December 2013 

Position Limits Proposal, the 

Commission remains concerned about 

distinguishing between anticipatory 

reduction of risk and speculation.979

Therefore, the Commission is again 

proposing the requirement to file Form 

704 for anticipatory hedges. The 

Commission notes that most of the 

information required on Form 704 is 

currently required under § 1.48, and that 

such information is not found in any 

other Commission data source, 

including Form 204. 

The Commission is proposing several 

changes to § 150.7 in order to make the 

requirements for Form 704 clearer and 

more concise. For example, the 

Commission is adopting the 

commenter’s suggestion to require the 

initial statement and annual update but 

eliminate the supplemental filing as 

proposed in § 150.7(e). Current § 1.48 

contains a requirement for supplemental 

filings similar to proposed § 150.7(e), 

but unlike current § 1.48, the proposed 

rules also require monthly reporting on 

Form 204 and annual updates to the 

initial statement. After considering the 

commenter’s concerns, the Commission 

believe the monthly reporting on Form 

204 and annual updates on Form 704 

will provide sufficient updates to the 

initial statement and is deleting the 

supplemental filing provision in 

proposed § 150.7(e) to reduce the 

burden on filers as suggested by the 

commenter. 

In addition, the Commission is 

combining the list of required 

information on Form 704 into one 

section, since such information is 

almost identical for the initial statement 

and the required annual updates. In this 

Reproposal, two nearly identical lists of 

information have been combined into 

one list in § 150.7(d). This 

reorganization is intended to make 

compliance with § 150.7, including the 

filing of Form 704, simpler and easier to 

understand for market participants. 

Changes have been made throughout 

part 19 and part 150 to conform to the 

deletion of the required supplemental 

filing and the reorganization of § 150.7. 

In particular, the Commission altered 

§ 19.01(a)(4) to reflect the deletion of the 

supplemental update and to clarify that 

persons required to file series ’04 

reports under § 19.00(a)(1)(iv) must file 

only Form 204 as required in § 150.7(e). 

Finally, the sample Form 704 found 

in Appendix A to part 19 has also been 

updated to reflect the combination of 

the initial statement and annual update 

into one section. Specifically, on 

proposed Form 704 had two sections: 

Section A required information 

regarding the initial statement and 

supplemental updates and Section B 

was required for annual updates. Due to 

the above-mentioned changes, Section B 

has been deleted and Section A has 

been re-labeled as requiring information 

regarding both the initial statement and 

the annual update. In order to 

differentiate between a firm’s initial 

statement and its annual updates 

regarding the same, the Commission has 

added a check-box field that requires 

traders to identify whether they are 

filing Form 704 to submit an initial 

statement or to file the required annual 

update. The Commission believes the 

addition of this field poses no 

significant additional burden; rather, the 

Commission believes the changes to the 

form, as discussed above, reduce burden 

to a far greater extent than a minor 

addition of a check box adds burden. 

In response to the commenter who 

suggested the Commission consider 

target special calls and other 

alternatives to the annual and monthly 

filings, the Commission believes these 

filings are critical to the Commission’s 

Surveillance program. Anticipatory 

hedges, because they are by definition 

forward-looking, require additional 

detail regarding the firm’s commercial 

practices in order to ensure that a firm 

is not using the provisions in proposed 

§ 150.7 to evade position limits. In 

contrast, special calls are backwardlooking and would not provide the 

Commission’s Surveillance program 

with the information needed to prevent 

markets from being susceptible to 

excessive speculation. However, the 

Commission expects the new filing 

requirements to be an improvement over 

current practice under § 1.48 because as 

facts and circumstances change, 

Surveillance will have a more timely 

understanding of the market 

participant’s hedging needs. 

The Commission notes in response to 

the commenter that Form 704 is filed in 

anticipation of risk to be assumed at a 

future date; market participants will 

need to provide a detailed description of 

anticipated activity but there is no 

requirement to analyze individual 

transactions or submit a memorandum. 

The Commission also notes that 

concerns regarding a firm having to 

decline business, because an exemption 

has not been approved, are 

unwarranted. Series ’04 reports (other 

than the initial statement of Form 704) 

are self-effectuating and do not require 

Commission notification to become 

effective. With respect to Form 704, the 

Commission explained in the December 

2013 Position Limits Proposal that if the 

Commission does not notify a market 

participant within the timeframe 

indicated in § 150.7(b), the filing 

becomes effective automatically.980

The commenter is correct in noting 

that there is an error on the Sample 

Form 704 such that column five (‘‘Core 

Referenced Futures Contract (CRFC)’’) 

was inadvertently omitted from the 

Sample Form provided in the proposed 

rules. The Commission is amending the 

Sample Form 704 in the reproposed 

rules to ensure it accurately reflects the 

requirements of the Form 704 as 

described in § 150.7(d). Further, the 

Commission is deleting the condition 

that requires the specified operating 


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96812 Federal Register / Vol. 81, No. 251 / Friday, December 30, 2016 / Proposed Rules 

981See generally 2016 Supplemental Position 

Limits Proposal, 81 FR at 38464–82; the 

Commission incorporates herein its explanation of 

its proposed adoption of §§ 150.9, 150.10 and 

150.11. Under the proposal, exchanges would be 

able to: (i) Recognize certain non-enumerated bona 

fide hedging positions, i.e., positions that are not 

enumerated by the Commission’s rules (pursuant to 

proposed § 150.9); (ii) grant exemptions to position 

limits for certain spread positions (pursuant to 

proposed § 150.10); and (iii) recognize certain 

enumerated anticipatory bona fide hedging 

positions (pursuant to proposed § 150.11). 

982 2016 Supplemental Position Limits Proposal, 

81 FR at 38464. 

983 Id. at 38465. The Commission noted that CFTC 

§ 1.3(ee) defines SRO to mean a DCM, SEF, or 

registered futures association (such as the National 

Futures Association), and also pointed out that 

under the Commission’s regulations, self-regulatory 

organizations have certain delineated regulatory 

responsibilities, which are carried out under 

Commission oversight and which are subject to 

Commission review. Id. 

984 Id. The Commission stated that it ‘‘views as 

instructive’’ three examples of case law addressing 

grants of authority by an agency (the Securities and 

Exchange Commission, the ‘SEC’) to a selfregulatory organization (‘SRO’) (in the SEC cases 

the SRO was NASD, now FINRA), providing insight 

into the factors addressed by the court regarding 

oversight of an SRO; 

(i) In 1952, the Second Circuit reviewed an SEC 

order that failed to set aside a penalty fixed by 

NASD suspending the defendant broker-dealer from 

membership. Citing Sunshine Anthracite Coal Co. 

v. Adkins, 310 U.S. 381 (1940), the Second Circuit 

found that, in light of the statutory provisions 

vesting the SEC with power to approve or 

disapprove NASD’s rules according to reasonably 

fixed statutory standards, and the fact that NASD 

disciplinary actions are subject to SEC review, there 

was ‘no merit in the contention that the Maloney 

Act unconstitutionally delegates power to the 

NASD.’ R.H. Johnson v. Securities and Exchange 

Commission, 198 F. 2d 690, 695 (2d Cir. 1952). 

(ii) In 1977, the Third Circuit, in Todd & Co. v. 

Securities and Exchange Commission (‘Todd’), 557 

F.2d 1008 (3rd Cir. 1977), likewise concluded that 

the Act did not unconstitutionally delegate 

legislative power to a private institution. The Todd 

court articulated critical factors that kept the 

Maloney Act within constitutional bounds. First, 

the SEC had the power, according to reasonably 

fixed statutory standards, to approve or disapprove 

NASD’s rules before they could go into effect. 

Second, all NASD judgments of rule violations or 

penalty assessments were subject to SEC review. 

Third, all NASD adjudications were subject to a de 

novo (non-deferential) standard of review by the 

SEC, which could be aided by additional evidence, 

if necessary. Id. at 1012. Based on these factors, the 

court found that ‘[NASD’s] rules and its 

disciplinary actions were subject to full review by 

the SEC, a wholly public body, which must base its 

decision on its own findings’ and thus that the 

statutory scheme was constitutional. Id. at 1012–13. 

See also First Jersey Securities v. Bergen, 605 F.2d 

690 (1979), applying the same three-part test 

delineated in Todd, and then upholding a statutory 

narrowing of the Todd test. 

(iii) In 1982, the Ninth Circuit considered the 

constitutionality of Congress’ delegation to NASD 

in Sorrel v. Securities and Exchange Commission, 

679 F. 2d 1323 (9th Cir. 1982). Sorrel followed R.H. 

Johnson, Todd and First Jersey in holding that 

because the SEC reviews NASD rules according to 

reasonably fixed standards, and the SEC can review 

any NASD disciplinary action, the Maloney Act 

does not impermissibly delegate power to NASD.’’ 

985 2016 Supplemental Position Limits Proposal, 

81 FR at 38465. 

period may not exceed one year for 

agricultural commodities, as end-users 

in certain agricultural commodities may 

hedge their positions several years out 

along the curve. 

The Commission notes, in response to 

the commenter’s concern regarding 

column 6 of Form 704, that the 

requirement to file the past three years 

of annual production is also in current 

§ 1.48. Understanding the recent history 

of a firm’s production is necessary to 

ensure the requested anticipated 

hedging amount is reasonable. However, 

the Commission notes that it may 

permit a reasonable, supported estimate 

of anticipated production for less than 

three years of annual production data, 

in the Commission’s discretion, if a 

market participant does not have three 

years of data. The Commission is 

amending the form instructions to 

clarify that Commission staff could 

determine that such an estimate is 

reasonable and so would be accepted. 

Finally, the Commission notes that 

several references to other provisions 

within part 150 contained in 

§§ 150.7(b), 150.7(d), and 150.7(h) were 

incorrectly cited in the December 2013 

Position Limits Proposal; the 

Commission is revising these 

paragraphs to ensure all references are 

up-to-date and correct. 

2. Delegation 

Proposed Rule: In § 150.7(i), the 

Commission proposed to delegate to the 

Division of Market Oversight director or 

staff the authority: To provide notice to 

a firm who has filed Form 704 that they 

do not meet the requirements for bona 

fide hedging; to request additional or 

updated information under § 150.7(c); 

and to request under § 150.7(d)(2) 

information concerning the basis for and 

derivation of conversion factors used in 

computing the position information 

provided in Form 704. 

Comments Received: The Commission 

received no comments on the proposed 

delegation of authority under § 150.7. 

Commission Reproposal: The 

Commission is reproposing § 150.7(i), as 

originally proposed. 

G. § 150.9—Process for Recognition of 

Positions as Non-Enumerated Bona Fide 

Hedging Positions 

1. Overview of Proposed Rules Related 

to Recognition of Bona Fide Hedging 

Positions and Granting of Spread 

Exemptions 

In the 2016 Supplemental Position 

Limits Proposal, the Commission noted 

that it was proposing three sets of 

Commission rules under which an 

exchange could take action to recognize 

certain bona fide hedging positions and 

to grant certain spread exemptions, with 

regard to both exchange-set and federal 

position limits.981 The Commission 

pointed out that in each case, the 

proposed rules would establish a formal 

CFTC review process that would permit 

the Commission to revoke all such 

exchange actions. 

As the Commission observed at that 

time, its authority to permit certain 

exchanges to recognize positions as 

bona fide hedging positions is found, in 

part, in CEA section 4a(c)(1), and under 

CEA section 8a(5), which provides that 

the Commission may make such rules 

as, in the judgment of the Commission, 

are reasonably necessary to effectuate 

any of the provisions or to accomplish 

any of the purposes of the CEA. CEA 

section 4a(c)(1) provides that no CFTC 

rule applies to ‘‘transaction or positions 

which are shown to be bona fide 

hedging transactions or positions,’’ as 

those terms are defined by Commission 

rule consistent with the purposes of the 

CEA.982 The Commission noted that 

‘‘shown to be’’ is passive voice, which 

could encompass either a position 

holder or an exchange being able to 

‘‘show’’ that a position is entitled to 

treatment as a bona fide hedging 

position, and does not specify that the 

Commission must determine in advance 

whether the position or transaction was 

shown to be bona fide. The Commission 

interpreted CEA section 4a(c)(1) to 

authorize the Commission to permit 

certain SROs (i.e., DCMs and SEFs, 

meeting certain criteria) to recognize 

positions as bona fide hedging positions 

for purposes of federal limits, subject to 

Commission review. 

The Commission observed that for 

decades, exchanges have operated as 

self-regulatory organizations, and 

pointed out further that these selfregulatory organizations have been 

charged with carrying out regulatory 

functions, including, since 2001, 

complying with core principles, and 

operate subject to the regulatory 

oversight of the Commission pursuant to 

the CEA as a whole, and more 

specifically, CEA sections 5 and 5h.983

In addition, the Commission pointed 

out that as self-regulatory organizations, 

exchanges do not act only as 

independent, private actors; 984 when 

the Act is read as a whole, as the 

Commission noted in 1981, ‘‘it is 

apparent that Congress envisioned 

cooperative efforts between the selfregulatory organizations and the 

Commission. Thus, the exchanges, as 

well as the Commission, have a 

continuing responsibility in this matter 

under the Act.’’ 985 The Commission 


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986 Id. at 38466. 

987The Commission stated that ‘‘In connection 

with recognition of bona fide hedging positions, the 

Commission notes that the statute is silent or 

ambiguous with respect to the specific issue— 

whether the CFTC may authorize SROs to recognize 

positions as bona fide hedging positions. CEA 

section 4a(c) provides that no Commission rule 

establishing federal position limits applies to 

positions which are shown to be bona fide hedging 

positions, as such term shall be defined by the 

CFTC. As noted above, the ‘shown to be’ phrase is 

passive voice, which could encompass either a 

position holder or an exchange being able to 

‘‘show’’ that a position is entitled to treatment as 

a bona fide hedge, and does not specify that the 

Commission must be the party determining in 

advance whether the position or transaction was 

shown to be bona fide; the Commission interprets 

that provision to permit certain SROs (i.e., DCMs 

and SEFs, meeting certain criteria) to recognize 

positions as bona fide hedges for purposes of 

federal limits when done so within a regime where 

the Commission can review and modify or overturn 

such determinations. Under the 2016 Position 

Limits Supplemental Proposal, an SRO’s 

recognition is tentative, because the Commission 

would reserve the power to review the recognition, 

subject to the reasonably fixed statutory standards 

in CEA section 4a(c)(2) (directing the CFTC to 

define the term bona fide hedging position). An 

SRO’s recognition would also be constrained by the 

SRO’s rules, which would be subject to CFTC 

review under the proposal. The SROs are parties 

that are subject to Commission authority, their rules 

are subject to Commission review and their actions 

are subject to Commission de novo review under 

the proposal—SRO rules and actions may be 

changed by the Commission at any time.’’ Id. 

988As noted above, under the Commission’s 

regulations, SROs have certain delineated 

regulatory responsibilities, which are carried out 

under Commission oversight and which are subject 

to Commission review. See also 2016 Position 

Limits Supplemental Proposal, n. 126 (describing 

reviews of DCMs carried out by the Commission). 989See CEA section 5c(c), 7 U.S.C. 7a–2(a) 

(providing Commission with authority to review 

rules and rule amendments of registered entities, 

including DCMs). 990As previously noted, Congress has required in 

CEA section 4a(c) that the Commission, within 

specific parameters, define what constitutes a bona 

fide hedging position for the purpose of 

implementing federal position limits on physical 

commodity derivatives, including, as previously 

stated, the inclusion in new section 4a(c)(2) of a 

directive to narrow the bona fide hedging definition 

for physical commodity positions from that 

currently in Commission regulation § 1.3(z). See 

2016 Supplemental Position Limits Proposal, nn. 32 

and 105 and accompanying text; see also December 

2013 Positions Limits Proposal at 75705. In 

response to that mandate, the Commission 

proposed in its December 2013 Position Limits 

Proposal to add a definition of bona fide hedging 

position in § 150.1, to replace the definition in 

current § 1.3(z). See 78 FR at 75706, 75823. 

For the avoidance of doubt, the Commission is 

still reviewing comments received on these 

provisions. The Commission is proposing to finalize 

the general definition of bona fide hedging position 

based on the standards of CEA section 4a(c), and 

may further define the bona fide hedging position 

definition consistent with those standards. 

991See generally the discussion of proposed 

§ 150.9(d) and the requirements regarding the 

review of applications by the Commission in the 

2016 Position Limits Supplemental Proposal. The 

Commission noted that exchange participation is 

voluntary, not mandatory and that exchanges could 

elect not to administer the process. Market 

participants could still request a staff interpretive 

letter under § 140.99 or seek exemptive relief under 

CEA section 4a(a)(7), per the December 2013 

Position Limits Proposal. The process does not 

protect exchanges or applicants from charges of 

violations of applicable sections of the CEA or other 

Commission regulations. For instance, a market 

participant’s compliance with position limits or an 

exemption thereto would not confer any type of safe 

harbor or good faith defense to a claim that he had 

engaged in an attempted manipulation, a perfected 

manipulation or deceptive conduct; see the 

discussion of § 150.6 (Ongoing application of the 

Act and Commission regulations) as proposed in 

the December 2013 Position Limits Proposal, 78 FR 

at 75746–7. 

992See the general discussion of the 

Commission’s review process proposed in 

§ 150.9(d); see also the requirement for a weekly 

report, proposed in § 150.9(c), which would support 

the Commission’s surveillance program by 

facilitating the tracking of non-enumerated bona 

fide hedging positions recognized by exchanges, 

keeping the Commission informed of the manner in 

which an exchange is administering its procedures 

for recognizing such non-enumerated bona fide 

hedging positions. 

noted that its approach to its oversight 

of its SROs was subsequently ratified by 

Congress in 1982, when it gave the 

CFTC authority to enforce exchange set 

limits. Further, the Commission 

observed that as it stated in 2010, ‘‘since 

1982, the Act’s framework explicitly 

anticipates the concurrent application of 

Commission and exchange-set 

speculative position limits. The 

Commission further noted that the 

‘concurrent application of limits is 

particularly consistent with an 

exchange’s close knowledge of trading 

activity on that facility and the 

Commission’s greater capacity for 

monitoring trading and implementing 

remedial measures across 

interconnected commodity futures and 

option markets.’ ’’ 986

The Commission also noted that 

under its proposal, it would retain the 

power to approve or disapprove the 

rules of exchanges, under standards set 

out pursuant to the CEA, and to review 

an exchange’s compliance with those 

rules.987 Moreover, the Commission 

observed that it was not diluting its 

ability to recognize or not recognize 

bona fide hedging positions or to grant 

or not grant spread exemptions, as it 

reserved to itself the ability to review 

any exchange action, and to review any 

application by a market participant to 

an exchange, whether prior to or after 

disposition of such application by an 

exchange. 

2. Proposed § 150.9—General 

Proposed Rule: In light of DCM 

experience in granting non-enumerated 

bona fide hedging position exemptions 

to exchange-set position limits for 

futures contracts, and after 

consideration of comments 

recommending exchange review of nonenumerated bona fide hedging position 

requests, the Commission proposed to 

permit exchanges to recognize nonenumerated bona fide hedging positions 

with respect to the proposed federal 

speculative position limits. Under 

proposed § 150.9, an exchange, as an 

SRO 988 that is under Commission 

oversight and whose rules are subject to 

Commission review,989 could establish 

rules under which the exchange could 

recognize as non-enumerated bona fide 

hedging positions, positions that meet 

the general definition of bona fide 

hedging position in proposed § 150.1, 

which implements the statutory 

directive in CEA section 4a(c) for the 

general definition of bona fide hedging 

positions in physical commodities.990

The exchange’s recognition would be 

subject to review by the Commission. 

Exchange recognition of a position as a 

non-enumerated bona fide hedging 

position would allow the market 

participant to exceed the federal 

position limit to the extent that it relied 

upon the exchange’s recognition unless 

and until such time that the 

Commission notified the market 

participant to the contrary.991 The 

Commission could issue such a 

notification in accordance with the 

proposed review procedures. That is, if 

a party were to hold positions pursuant 

to a non-enumerated bona fide hedging 

position recognition granted by the 

exchange, such positions would not be 

subject to federal position limits, unless 

or until the Commission were to 

determine that such non-enumerated 

bona fide hedging position recognition 

was inconsistent with the CEA or CFTC 

regulations thereunder. Under this 

framework, the Commission would 

continue to exercise its authority in this 

regard by reviewing an exchange’s 

determination and verifying whether the 

facts and circumstances in respect of a 

derivative position satisfy the 

requirements of the general definition of 

bona fide hedging position proposed in 

§ 150.1.992 If the Commission 

determined that the exchange-granted 

recognition was inconsistent with 

section 4a(c) of the Act and the 

Commission’s general definition of bona 

fide hedging position in § 150.1 and so 

notified a market participant relying on 

such recognition, the market participant 

would be required to reduce the 

derivative position or otherwise come 

into compliance with position limits 

within a commercially reasonable 

amount of time. 

The Commission noted its belief that 

permitting exchanges to so recognize 

non-enumerated bona fide hedging 

positions is consistent with its statutory 


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96814 Federal Register / Vol. 81, No. 251 / Friday, December 30, 2016 / Proposed Rules 

993CEA section 4a(c)(1), 7 U.S.C. 6a(c)(1). See 

also 2016 Position Limits Supplemental Proposal, 

n. 65. 

994Rulebooks for some DCMs can be found in the 

links to their associated documents on the 

Commission’s Web site at http://sirt.cftc.gov/SIRT/ 

SIRT.aspx?Topic=TradingOrganizations. 

995The Commission based this view on its long 

experience overseeing DCMs and their compliance 

with the requirements of CEA section 5 and part 38 

of the Commission’s regulations, 17 CFR part 38. As 

the Commission noted in the 2016 Supplemental 

Position Limits Proposal, under part 38, a DCM 

must comply, on an initial and ongoing basis, with 

twenty-three Core Principles established in section 

5(d) of the CEA, 7 U.S.C. 7(d), and part 38 of the 

CFTC’s regulations and with the implementing 

regulations under part 38. The Division of Market 

Oversight’s Market Compliance Section conducts 

regular reviews of each DCM’s ongoing compliance 

with core principles through the self-regulatory 

programs operated by the exchange in order to 

enforce its rules, prevent market manipulation and 

customer and market abuses, and ensure the 

recording and safe storage of trade information. 

These reviews are known as rule enforcement 

reviews (‘‘RERs’’). Some periodic RERs examine a 

DCM’s market surveillance program for compliance 

with Core Principle 4, Monitoring of Trading, and 

Core Principle 5, Position Limitations or 

Accountability. On some occasions, these two types 

of RERs may be combined in a single RER. Market 

Compliance can also conduct horizontal RERs of 

the compliance of multiple exchanges in regard to 

particular core principles. In conducting an RER, 

the Division of Market Oversight (DMO) staff 

examines trading and compliance activities at the 

exchange in question over an extended time period 

selected by DMO, typically the twelve months 

immediately preceding the start of the review. Staff 

conducts extensive review of documents and 

systems used by the exchange in carrying out its 

self-regulatory responsibilities; interviews 

compliance officials and staff of the exchange; and 

prepares a detailed written report of findings. In 

nearly all cases, the RER report is made available 

to the public and posted on CFTC.gov. See 

materials regarding RERs of DCMs at http://

www.cftc.gov/IndustryOversight/ 

TradingOrganizations/DCMs/dcmruleenf on the 

Commission’s Web site. Recent RERs conducted by 

DMO covering DCM Core Principle 5 and 

exemptions from position limits have included the 

Minneapolis Grain Exchange, Inc. (‘‘MGEX’’) (June 

5, 2015), ICE Futures U.S. (July 22, 2014), the 

Chicago Mercantile Exchange (‘‘CME’’) and the 

Chicago Board of Trade (‘‘CBOT’’) (July 26, 2013), 

and the New York Mercantile Exchange (May 19, 

2008). While DMO may sometimes identify 

deficiencies or make recommendations for 

improvements, it is the Commission’s view that it 

should be permissible for DCMs to process 

applications for exchange recognition of positions 

as non-enumerated bona fide hedging positions. 

Consistent with the fifteen SEF core principles 

established in section 5h(f) of the CEA, 7 U.S.C. 7b– 

3(f), and with the implementing regulations under 

part 37, 17 CFR part 37, the Commission will 

perform similar RERs for SEFs. The Commission’s 

preliminary view is that it should be permissible for 

SEFs to process applications as well, after obtaining 

the requisite experience administering exchange-set 

position limits discussed below. See 2016 

Supplemental Position Limits Proposal, 81 FR at 

38469, n. 126 and accompanying text. 

996Since the enactment of the Dodd-Frank Act, 

Commissioners, CFTC staff, and public officials 

have expressed repeatedly and publicly that 

Commission resources have not kept pace with the 

CFTC’s expanded jurisdiction and increased 

responsibilities. The Commission anticipates there 

may be hundreds of applications for nonenumerated bona fide hedging positions. This is 

based on the number of exemptions currently 

processed by DCMs. For example, under the 

existing process, during the period from June 15, 

2011 to June 15, 2012, the Market Surveillance 

Department of ICE Futures U.S. received 142 

exemption applications, 121 of which related to 

bona fide hedging position requests, while 21 

related to arbitrage or cash-and-carry requests; 92 

new exemptions were granted. Rule Enforcement 

review of ICE Futures U.S., July 22, 2014, p. 40. 

Also under the existing process, during the period 

from November 1, 2010 to October 31, 2011, the 

Market Surveillance Group from the CME Market 

Regulation Department took action on and 

approved 420 exemption applications for products 

traded on CME and CBOT, including 114 new 

exemptive applications, 295 applications for 

renewal, 10 applications for increased levels, and 

one temporary exemption on an inter-commodity 

spread. Rule Enforcement Review of the Chicago 

Mercantile Exchange and the Chicago Board of 

Trade, July 26, 2013, p. 54. These statistics are now 

a few years old, and it is possible that the number 

of applications under the processes outlined in this 

proposal will increase relative to the number of 

applications described in the RERs. The CFTC 

would need to shift substantial resources, to the 

detriment of other oversight activities, to process so 

many requests and applications and has 

determined, as described below, to permit 

exchanges to process applications initially. The 

Commission anticipates it will regularly, as 

practicable, check a sample of the exemptions 

granted, including in cases where the facts warrant 

special attention, retrospectively as described 

below, including through RERs. 

997One commenter specifically requested that the 

Commission streamline duplicative processes. CL– 

AGA–60382 at 12 (stating that ‘‘AGA . . . urges the 

Commission to ensure that hedge exemption 

requests and any hedge reporting do not require 

duplicative filings at both the exchanges and the 

Commission, and therefore recommends revising 

the rules to streamline the process by providing that 

an applicant need only apply to and report to the 

exchanges, while the Commission could receive any 

necessary data and applications by coordinating 

data flow between the exchanges and the 

Commission.’’). See also CL–Working Group–60396 

(explaining that ‘‘To avoid employing duplicative 

efforts, the Commission should simply rely on 

DCMs to administer bona fide hedge exemptions 

from federal speculative position limits as they 

carry out their core duties to ensure orderly 

markets.’’). 

998One commenter expressed the view that Class 

III milk should not be subject to the prohibition on 

holding cross commodity hedge positions in the 

spot month or during the last five days, because it 

is a cash settled contract. CL–DFA–60927 at 5. The 

Commission is addressing Class III milk separately. 

999CL–NMPF–60956 at 2; CL–ISDA–60931 at 6– 

7; CL–API–60939 at 4; CL–NFP–60942 at 6–8; and 

CL–IECAssn–60949 at 3–4. 

1000CL–CME–60926 at 7; CL–NGFA–60941 at 3. 

1001CL–NFP–60942 at 6–8. 

obligation to set and enforce position 

limits on physical commodity contracts, 

because the Commission would be 

retaining its authority to determine 

ultimately whether any non-enumerated 

bona fide hedging positions so 

recognized is in fact a bona fide hedging 

position. The Commission’s authority to 

set position limits does not extend to 

any position that is shown to be a bona 

fide hedging position.993 Further, most, 

if not all, DCMs already have a 

framework and application process to 

recognize non-enumerated positions, for 

purposes of exchange-set limits, as 

within the meaning of the general bona 

fide hedging definition in § 1.3(z)(1).994

The Commission has a long history of 

overseeing the performance of the DCMs 

in granting exemptions under current 

exchange rules regarding exchange-set 

position limits 995 and believed that it 

would be efficient and in the best 

interest of the markets, in light of 

current resource constraints,996 to rely 

on the exchanges to initially process 

applications for recognition of positions 

as non-enumerated bona fide hedging 

positions. In addition, because many 

market participants are familiar with 

current DCM practices regarding bona 

fide hedging positions, permitting DCMs 

to build on current practice may reduce 

the burden on market participants. 

Moreover, the Commission believed that 

the process outlined in the 2016 

Position Limits Supplemental Proposal 

should reduce duplicative efforts 

because market participants seeking 

recognition of a non-enumerated bona 

fide hedging position would be able to 

file one application for relief, only to an 

exchange, rather than to both an 

exchange with respect to exchange-set 

limits and to the Commission with 

respect to federal limits.997

Comments Received 

Exchange Authority Under the Proposal 

The Commission received some 

comments on its 2016 Supplemental 

Position Limits Proposal that addressed 

concerns only marginally responsive to 

that proposal; the Commission will 

address those comments in connection 

with the relevant provisions.998

Several commenters supported the 

Commission’s proposal to allow 

exchanges to recognize non-enumerated 

bona fide hedge positions with respect 

to federal speculative position limits; 999

on the other hand, some commenters 

expressed views against any 

Commission involvement in the 

exchange-administered exemption 

process. That is, according to those 

commenters, exchanges should be given 

full discretion or greater leeway to 

manage an exemption process without 

Commission interference.1000 In 

addition, a commenter requested that 

the Commission provide additional 

regulatory certainty for end-users, 

including that the Commission should 

simply expand the DCM’s current 

authority to grant bona fide hedge 

exemptions and maintain the 

Commission’s current oversight role in 

respect of DCM processes and rules 

under the DCM Core Principles.1001

Similarly, some commenters 

expressed the view that there could be 

circumstances where multiple 


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1002CL–EEI–EPSA–60925 at 9 (noting also that 

‘‘unlike a hedge exemption, the exchanges are not 

granting a firm specific quantity of bona fide 

hedging contracts but, rather, are validating the 

bona fide nature of a hedge transaction’’); CL– 

COPE–60932 at 8–9 (recommending that ‘‘[t]he 

Supplemental NOPR should be revised to permit 

the DCM to generically recognize a non-enumerated 

bona fide hedge in cases where multiple 

commercial firms have sought a non-enumerated 

bona fide hedge for a similar risk, based upon 

similar circumstances.’’). 

1003CL–Better Markets–60928 at 3–5; CL–Public 

Citizen–60940 at 3; CL–PMAA–NEFI–60952 at 2; 

CL–AFR–60953 at 2–3; CL–RER1–60961 at 1. 

1004CL–Public Citizen–60940 at 3; CL–PMAA– 

NEFI–60952 at 2; CL–RER2–60962 at 1; CL–AFR– 

60953 at 2–3; CL–RER1–60961 at 1; CL–PMAA– 

NEFI–60952 at 2; CL–RER2–60962 at 1; CL–Better 

Markets–60928 at 3–5; CL–Public Citizen–60940 at 

1–2; CL–AFR–60953 at 3–4. 

1005CL–IATP–60951 at 2. 

1006CL–IATP–60951 at 6. 

1007CL–NCFC–60930 at 5. 

1008See supra section G.1. (discussing the 

Commission’s authority to adopt § 150.9); see also 

discussion regarding adoption of § 150.9(d). 

1009As observed above, the Second Circuit found 

in Sunshine Anthracite Coal Co. v. Adkins, that in 

light of statutory provisions vesting the SEC with 

power to approve or disapprove NASD’s rules 

according to reasonably fixed statutory standards, 

and the fact that NASD disciplinary actions are 

subject to SEC review, there was ‘‘no merit in the 

contention that the Maloney Act unconstitutionally 

delegates power to the NASD.’’ R.H. Johnson v. 

Securities and Exchange Commission, 198 F. 2d 

690, 695 (2d Cir. 1952). See supra discussion under 

preamble section G.1; see also preamble discussion 

regarding the adoption of § 150.9(d). 

commercial firms face similar risks and 

require recognition of positions as nonenumerated bona fide hedges for the 

same purpose, and there should be a 

method for a generic recognition of nonenumerated bona fide hedge positions 

for commercial firms meeting satisfy 

specified facts and circumstances, 

allowing an exchange to announce 

generic recognition of non-enumerated 

bona fide hedges for hedgers that satisfy 

certain facts and circumstances; to allow 

exchange to announce generic 

recognition for hedgers that certain 

specified facts.1002

Others did not support providing 

exchanges with such authority. Instead, 

those commenters asserted that only the 

Commission can appropriately and 

comprehensively administer 

exemptions to federal limits,1003 or cited 

concerns with respect to conflicts of 

interest that could arise between forprofit exchanges and their exemptionseeking customers.1004 In the 

alternative, several of these commenters 

recommended that the Commission 

make any final non-enumerated bona 

fide hedging position determinations, or 

that exchanges have a limited advisory 

role with respect to granting 

exemptions. One commenter expressed 

the view that it is concerned that the 

Commission’s constrained resources 

will prevent the Commission from 

effectively overseeing self-regulatory 

organizations’ recognition of bona fide 

hedging position exemptions. The 

commenter suggested that the 

Commission at least provide guidance 

regarding what is the Commission’s 

authority in the event that an exchangemanaged position accountability level 

fails in numerous contracts to prevent 

speculation, or raises other 

concerns.1005 Further to this point, the 

commenter expressed the view that it 

was concerned that granting exemptions 

from position limits for swaps that are 

traded by high frequency trading 

strategies will exacerbate price volatility 

to the detriment of commercial hedgers 

by increasing momentum or rumor 

trading and the costs of hedging in such 

a price volatile environment. The 

commenter believes that this will 

impact the Commission’s ability to 

review and oversee exchange 

exemptions, especially if the 

Commission does not have access to 

open interest swap data and the intraday high frequency trading data to 

determine whether such exchangegranted exemption is economically 

appropriate.1006

Implementation Timeline 

Regarding implementation of final 

regulations, one commenter requested 

that the CFTC provide a sufficient 

phase-in period for exchanges to review 

non-enumerated hedges ahead of 

implementation because it is hard to 

discern the number of current positions 

that will not be considered bona fide 

hedging positions in the proposed rule 

unless granted a non-enumerated bona 

fide hedging position e exemption from 

an exchange.1007

Commission Reproposal Regarding 

§ 150.9 

As explained further below, in this 

Reproposal, the Commission is adopting 

certain amendments to the proposed 

§ 150.9 and providing certain 

clarifications. In response to various 

general comments and 

recommendations for the nonenumerated bona fide hedging position 

process, the Commission provides the 

following responses. 

Exchange Authority Under Reproposed 

§ 150.9 

In response to comments that the 

Commission should give exchanges 

greater leeway or discretion for 

purposes of federal position limits in 

the exemption process and expand 

DCM’s current authority to grant bona 

fide hedge exemptions, the Commission 

believes, as noted above, that it would 

be an illegal delegation to give full 

discretion to exchanges to recognize 

positions or transactions as bona fide 

hedging positions, for purposes of 

federal position limits, without 

reasonably fixed statutory standards 

(such as the requirement that exchanges 

use the Commission’s bona fide hedging 

position definition, which incorporates 

the standards of CEA section 4a(c)), and 

with no ability for the Commission to 

make a de novo review.1008 Instead, as 

observed above, the Commission 

believes it has the authority to provide 

exchanges with the ability to do so 

pursuant to reasonably fixed statutory 

standards and subject to CFTC de novo 

review.1009

Similarly, regarding requests to 

provide exchanges with a method for a 

generic recognition of a non-enumerated 

bona fide hedging position that allows 

an exchange to announce generic 

recognition of non-enumerated bona 

fide hedging positions for hedgers that 

satisfy certain facts and circumstances, 

the Commission notes that, as discussed 

above, it would be an illegal delegation 

of Commission authority to give full 

discretion to exchanges to recognize 

positions or transactions as enumerated 

bona fide hedging positions without 

reasonably fixed statutory standards, 

and without review by the Commission, 

for purposes of federal position limits. 

Instead, the Commission points out that 

any exchange can petition the 

Commission under § 13.2 for 

recognition of a typical position as an 

enumerated bona fide hedging position 

if the exchange believes there is a fact 

pattern that is so certain as to not 

require a facts and circumstances 

review. 

In this light, the Commission is 

reproposing a consistent approach, 

subject to amendments described below, 

for processing recognitions of bona fide 

hedging positions for purposes of 

federal position limits (i.e., a standard 

process that the Commission, exchanges 

and market participants know and 

understand). As was noted in the 2016 

Position Limits Proposal, the 

Commission believes that the consistent 

approach under reproposed § 150.9 

should increase administrative certainty 

for applicants seeking recognition of 

non-enumerated bona fide hedging 

positions in the form of reduced 

application-production time by market 

participants and reduced response time 

by exchanges and reduce duplicative 

efforts because applicants would be 

saved the expense of applying to both 

an exchange for relief from exchange-set 


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1010See, e.g., 2016 Position Limits Proposal at 

38470, 38488. 

1011See § 150.9(a)(1). 

1012See discussion under Proposed Compliance 

Date, above; see also § 150.2(e)(1). 

1013 DCMs currently process applications for 

exemptions from exchange-set position limits for 

non-enumerated bona fide hedging positions and 

enumerated anticipatory bona fide hedges, as well 

as for exemptions from exchange-set position limits 

for spread positions, pursuant to CFMA-era 

regulatory guidance. See 2016 Supplemental 

Position Limits Proposal, n. 102, and accompanying 

text. This practice continues because, among other 

things, the Commission has not finalized the rules 

proposed in the December 2013 Position Limits 

Proposal. 

As noted above and as explained in the December 

2013 Position Limits Proposal, while current 

§ 150.5 regarding exchange-set position limits predates the CFMA ‘‘the CFMA core principles regime 

concerning position limitations or accountability 

for exchanges had the effect of undercutting the 

mandatory rules promulgated by the Commission in 

§ 150.5. Since the CFMA amended the CEA in 2000, 

the Commission has retained § 150.5, but only as 

guidance on, and acceptable practice for, 

compliance with DCM core principle 5.’’ December 

2013 Position Limits Proposal, 78 FR at 75754. 

The DCM application processes for bona fide 

hedging position exemptions from exchange-set 

position limits generally reference or incorporate 

the general definition of bona fide hedging position 

contained in current § 1.3(z)(1), and the 

Commission believes the exchange processes for 

approving non-enumerated bona fide hedging 

position applications are at least to some degree 

informed by the Commission process outlined in 

current § 1.47. 

1014 If the Commission becomes concerned about 

an exchange’s general processing of nonenumerated bona fide hedging position 

applications, the Commission may review such 

processes pursuant to a periodic rule enforcement 

review or a request for information pursuant to 

§ 37.5. Separately, under proposed § 150.9(d), the 

proposal provides that the Commission may review 

a DCM’s determinations in the case of any specific 

non-enumerated bona fide hedging position 

application. 

position limits and to the Commission 

for relief from federal limits.1010

The Commission, however, clarifies 

that exchanges can recognize strategies 

as non-enumerated bona fide hedging 

positions for purposes of federal 

position limits (including those that the 

Commission has not enumerated) so 

long as a facts-and-circumstances 

review leads the exchange to believe 

that such strategies meet the definition 

of bona fide hedging position. Further, 

regarding comments that exchanges 

should not have authority to grant 

exemptions, the Commission disagrees 

and believes the exchange’s experience 

administering position limits to its 

actively traded contract, and the 

Commission’s de novo review of 

exchange determinations that positions 

are bona fide hedging positions 

(afterwards) are adequate to guard 

against or remedy any conflicts of 

interest. The Commission points out 

that it has had a long history of 

cooperative enforcement of position 

limits with DCMs and, in addition notes 

that when recognizing non-enumerated 

bona fide hedging positions for 

purposes of federal limits, exchanges are 

required to use the Commission’s bona 

fide hedging position definition.1011

As to the concerns that allowing bona 

fide hedging position determinations for 

swap positions that are traded by high 

frequency trading strategies will 

exacerbate price volatility to the 

detriment of commercial hedgers and 

impact the Commission’s ability to 

review and oversee exchange 

determinations (especially if the 

Commission does not have access to 

open interest swap data and the intraday high frequency trading data to 

determine whether such exchangegranted determination is economically 

appropriate), the Commission notes that 

it does have access to open interest 

swap data, trade data and order data. 

The Commission views its access to 

open interest swap data, trade data and 

order data as well as its ability under 

§ 150.9 to review all exchange 

recognitions as sufficient to allow it to 

carry out its responsibilities under the 

Act. 

General Reproposal Under § 150.9 

Regarding implementation timing, the 

Commission is proposing to implement 

a delayed compliance date after 

publication of a final rule, as discussed 

above.1012

3. Proposed § 150.9(a)—Requirements 

for a Designated Contract Market or 

Swap Execution Facility To Recognize 

Non-Enumerated Bona Fide Hedging 

Positions 

a. Proposed § 150.9(a)(1) 

Proposed Rule 

The Commission contemplated in 

proposed § 150.9(a)(1) that exchanges 

may voluntarily elect to process nonenumerated bona fide hedging position 

applications by filing new rules or rule 

amendments with the Commission 

pursuant to part 40 of the Commission’s 

regulations. The Commission 

anticipated that, consistent with current 

practice, most exchanges will selfcertify such new rules or rule 

amendments pursuant to § 40.6. The 

Commission expected that the selfcertification process should be a low 

burden for exchanges, especially for 

those that already recognize nonenumerated positions meeting the 

general definition of bona fide hedging 

position in § 1.3(z)(1).1013 The 

Commission explained its view that 

allowing DCMs to continue to follow 

current practice, and extend that 

practice to exchange recognition of nonenumerated bona fide hedging positions 

for purposes of the federal position 

limits, would permit the Commission to 

more effectively allocate its limited 

resources to oversight of the exchanges’ 

actions.1014

Proposed § 150.9(a)(1) provided that 

exchange rules must incorporate the 

general definition of bona fide hedging 

position in § 150.1. It also provided that, 

with respect to a commodity derivative 

position for which an exchange elects to 

process non-enumerated bona fide 

hedging position applications, (i) the 

position must be in a commodity 

derivative contract that is a referenced 

contract; (ii) the exchange must list such 

commodity derivative contract for 

trading; (iii) such commodity derivative 

contract must be actively traded on such 

exchange; (iv) such exchange must have 

established position limits for such 

commodity derivative contract; and (v) 

such exchange must have at least one 

year of experience administering 

exchange-set position limits for such 

commodity derivative contract. The 

requirement for one year of experience 

was intended as a proxy for a minimum 

level of expertise gained in monitoring 

futures or swaps trading in a particular 

physical commodity. 

The Commission believed that the 

exchange non-enumerated bona fide 

hedging position process should be 

limited only to those exchanges that 

have at least one year of experience 

overseeing exchange-set position limits 

in an actively traded referenced contract 

in a particular commodity because an 

individual exchange may not be familiar 

enough with the specific needs and 

differing practices of the commercial 

participants in those markets for which 

the exchange does not list any actively 

traded referenced contract in a 

particular commodity. Thus, if a 

referenced contract is not actively 

traded on an exchange that elects to 

process non-enumerated bona fide 

hedging position applications for 

positions in such referenced contract, 

that exchange might not be incentivized 

to protect or manage the relevant 

commodity market, and its interests 

might not be aligned with the policy 

objectives of the Commission as 

expressed in CEA section 4a. The 

Commission expected that an individual 

exchange will describe how it will 

determine whether a particular listed 

referenced contract is actively traded in 

its rule submission, based on its 

familiarity with the specific needs and 


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1015For example, a DCM (‘‘DCM A’’) may list a 

commodity derivative contract (‘‘KX,’’ where ‘‘K’’ 

refers to contract and ‘‘X’’ refers to the commodity) 

that is a referenced contract, actively traded, and 

DCM A has the requisite experience and expertise 

in administering position limits in that one contract 

KX. DCM A can therefore recognize nonenumerated bona fide hedging positions in contract 

KX. But DCM A is not limited to recognition of just 

that one contract KX–DCM A can also recognize any 

other contract that falls within the meaning of 

referenced contract for commodity X. So a market 

participant could, for example, apply to DCM A for 

recognition of a position in any contract that falls 

within the meaning of referenced contract for 

commodity X. However, that market participant 

would still need to seek separate recognition from 

each exchange where it seeks an exemption from 

that other exchange’s limit for a commodity 

derivative contract in the same commodity X. 

1016This is consistent with the Commission’s 

interpretation in the December 2013 Position Limits 

Proposal that CEA section 4a(c)(2)(b) is a direction 

from Congress to narrow the scope of what 

constitutes a bona fide hedge in the context of index 

trading activities. ‘‘Financial products are not 

substitutes for positions taken or to be taken in a 

physical marketing channel. Thus, the offset of 

financial risks from financial products is 

inconsistent with the proposed definition of bona 

fide hedging for physical commodities.’’ December 

2013 Position Limits Proposal, 78 FR at 75740. See 

also the discussion of the temporary substitute test 

in the December 2013 Position Limits Proposal, 78 

FR at 75708–9. 

1017CL–ICE–60929 at 12; CL–Working Group– 

60947 at 6. 

1018CL–AMG–60946 at 6–7. 

1019CL–CCI–60935 at 5. 

1020CL–FIA–60937 at 4. 

1021CL–ICE–60929 at 7; CL–Working Group– 

60947 at 14. 

1022CL–ICE–60929 at 9. 

1023CL–ICE–60929 at 22; CL–NCGA–NGSA– 

60919 at 13; CL–CME–60926 at 6 and 8; CL–API– 

60939 at 3; CL–FIA–60937 at 3 and 12; CL–Working 

Group–60947 at 7–9; CL–NCC–ACSA–60972 at 2; 

CL–CMC–60950 at 9–11; CL–ISDA–60931 at 3 and 

10; CL–CCI–60935 at 8–9; CL–MGEX–60936 at 11; 

CL–FIA–60937 at 10, 11; CL–MGEX–60936 at 11. 

1024CL–CCI–60935 at 3–4; CL–CME–60926 at 13; 

CL–FIA–60937 at 9; CL–CMC–60950 at 3; CL– 

Working Group–60947 at 10; CL–IECAssn–60949 at 

12–13. 

1025CL–CMC–60950 at 3. 

differing practices of the commercial 

participants in the relevant market.1015

The Commission was also mindful 

that some market participants, such as 

commercial end users in some 

circumstances, may not be required to 

trade on an exchange, but may 

nevertheless desire to have a particular 

derivative position recognized as a nonenumerated bona fide hedging position. 

The Commission noted its belief that 

commercial end users should be able to 

avail themselves of an exchange’s nonenumerated bona fide hedging position 

application process in lieu of requesting 

a staff interpretive letter under § 140.99 

or seeking CEA section 4a(a)(7) 

exemptive relief. This is because the 

Commission believed that exchanges 

that list particular referenced contracts 

would have enough information about 

the markets in which such contracts 

trade and would be sufficiently familiar 

with the specific needs and differing 

practices of the commercial participants 

in such markets in order to 

knowledgeably recognize nonenumerated bona fide hedging positions 

for derivatives positions in commodity 

derivative contracts included within a 

particular referenced contract. The 

Commission also viewed this to be 

consistent with the efficient allocation 

of Commission resources. 

Consistent with the restrictions 

regarding the offset of risks arising from 

a swap position in CEA section 

4a(c)(2)(B), proposed § 150.9(a)(1) 

would not permit an exchange to 

recognize a non-enumerated bona fide 

hedging position involving a commodity 

index contract and one or more 

referenced contracts. That is, an 

exchange may not recognize a nonenumerated bona fide hedging position 

where a bona fide hedging position 

could not be recognized for a pass 

through swap offset of a commodity 

index contract.1016

Comments on Proposed § 150.9(a)(1) 

Requirement That Exchanges Recognize 

Non-Enumerated Bona Fide Hedging 

Positions Consistent With the General 

Bona Fide Hedging Definition 

In connection with the requirement 

under § 150.9 to apply the bona fide 

hedging definition to recognitions, two 

commenters requested that the 

Commission specifically allow 

exchanges to recognize anticipatory 

merchandising as a non-enumerated 

bona fide hedging positions should the 

facts and circumstances warrant 

including those rejected strategies 

[transactions or positions that fail to 

meet the ‘change in value’ requirement 

or the ‘economically appropriate 

test’].1017

Another commenter expressed the 

view that the Commission should 

extend the process proposed in the 2016 

Supplemental Position Limits Proposal 

to include risk management 

exemptions.1018 The commenter 

acknowledged but disagrees with the 

Commission’s view that such risk 

management exemptions would not be 

allowed under the statutory standards 

for a bona fide hedging position, and 

suggests that the Commission could use 

CEA section 4a(a)(7) authority to 

provide exemptions for risk 

management positions. 

A commenter recommended that the 

rules clarify that the Exchanges may 

recognize and grant exemptions on the 

basis of a strategy, or hedging need, or 

a combination of strategies or hedging 

requirements associated with managing 

an ongoing business.1019

Separately, one commenter 

recommended that ‘‘the Commission 

should confirm that exchanges may 

continue to adopt their own rules for 

exemptions from speculative position 

limits for futures contracts that are 

subject to DCM limits, but not to federal 

limits,’’ 1020 while two others stated that 

the Commission should confirm that the 

2016 Supplemental Position Limits 

Proposal’s ‘‘prescriptive procedures’’ 

will not apply to exemptions involving 

exchange-set limits lower than 

federally-set levels, or where the 

exchanges set the limits themselves.1021

Requests for Recognition of NonEnumerated Bona Fide Hedging 

Positions in the Spot Month 

A commenter expressed the view that 

the Commission should not 

‘‘categorically prohibit exchanges from 

granting non-enumerated and 

anticipatory hedge exemptions, as 

appropriate, during the spot month’’ 

and reminded the Commission that 

orderly trading requirements remain 

applicable to all positions, as provided 

under the bona fide hedging position 

definition. The commenter further 

expressed the view that the statutory 

definition of bona fide hedging position 

allows for such recognition during the 

spot month and that a ‘‘one-size-fits-all’’ 

prohibition will ‘‘unnecessarily restrict 

commercially reasonable hedging 

activity during the spot month.’’ 1022

Several commenters were generally 

against the application of the five-day 

rule to non-enumerated bona fide 

hedging position exemptions, and 

recommended that the Commission 

authorize the exchanges to grant nonenumerated hedge and spread 

exemptions during the last five days of 

trading or the spot period, and other 

alternatives and proposed regulation 

text.1023

Standards Exchanges Must Meet To 

Provide Recognitions 

Several commenters recommended 

that the Commission not adopt the 

proposed ‘‘active trading’’ and ‘‘one year 

experience’’ requirements regarding a 

DCM’s qualification to administer 

exemptions from federal position 

limits.1024 One commenter requested 

removal of the ‘‘actively traded’’ 

requirement, expressing concerns that, 

based on its understanding, the 

requirement would impose an ‘‘absolute 

prohibition’’ on exchange-administered 

exemptions for new contracts of at least 

one year.1025 Similarly, a commenter 

stated that the standard ‘‘would 

arbitrarily limit competition and operate 


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1026CL–IECAssn–60949 at 12–13. 1027CL–CME–60926 at 14. 1028CL–IECAssn–60949 at 13. 1029CL–IECAssn–60949 at 11–12. 1030 Id. at 12. 1031CL–CME–60926 at 11–12. 

1032See the 2016 Supplemental Position Limits 

Proposal, 81 FR at 38469–71 (providing further 

explanation of proposed § 150.9(a)(1)). 

1033 December 2013 Position Limits Proposal, 78 

FR at 75719. 

1034Similarly, as noted above, reproposed 

§ 150.5(a)(2)(i) provides that any exchange may 

grant exemptions from any speculative position 

limits it sets under paragraph § 150.5(a)(1), 

provided that such exemptions conform to the 

requirements specified in § 150.3, and provided 

further that any exemptions to exchange-set limits 

not conforming to § 150.3 are capped at the level 

of the applicable federal limit in § 150.2. 

1035See the discussion regarding the five-day rule 

in connection with the definition of bona fide 

hedging position and in the discussion of 150.9 

(Process for recognition of positions as nonenumerated bona fide hedging positions). 

1036See § 150.1 definition of bona fide hedging 

position sections (2)(ii)(A), (3)(iii), (4), and (5) 

(Other enumerated hedging position). To provide 

greater clarity as to which bona fide hedging 

positions the five-day rule applies, the reproposed 

rules reorganize the definition. 

1037 In addition, reproposed § 150.5(a)(2)(ii) 

(Application for exemption) permits exchanges to 

adopt rules that allow a trader to file an application 

for an enumerated bona fide hedging exemption 

within five business days after the trader assumed 

the position that exceeded a position limit, and 

adopted a similar modification to 150.5(b)(5)(i). 

as a bar to the establishment of new 

exchanges and new contracts.’’ 1026

In the alternative, one commenter 

argues that one year of experience in 

administering position limits in similar 

contracts within a particular ‘‘asset 

class’’ would be a more reasonable 

requirement.1027 In addition, a 

commenter expressed the view that the 

Commission should not define ‘‘actively 

traded’’ in terms of minimum monthly 

volume.1028

Previously Granted Hedge Exemptions 

One commenter expressed the view 

that since the exchanges have been 

working with commercial end user for 

several decades and currently have a 

process under § 1.3(z) that may contain 

specific scenarios that work well and 

are not listed in the 2016 Position 

Limits Proposal, the Commission should 

deem every currently recognized hedge 

strategy by any exchange as a nonenumerated bona fide hedging position 

which would eliminate disruption and 

encourage the autonomy of the 

exchanges.1029

The commenter also expressed the 

view that, with respect to the status of 

previously exchange-recognized nonenumerated bona fide hedging positions 

for which such exchange no longer 

provides an annual review, the nonenumerated bona fide hedging positions 

should remain a non-enumerated bona 

fide hedging position and the 

participants utilizing that strategy 

should have ample notice that the 

exchange will no longer provide the 

annual review in order to allow time for 

the individual entity to apply to the 

CFTC directly for a non-enumerated 

bona fide hedging position 

exemption.1030

Recognition of OTC Positions as Bona 

Fide Hedges 

Another commenter requested 

Commission clarification regarding an 

exchange’s obligation with respect to 

recognizing and monitoring nonenumerated bona fide hedging position 

determinations for OTC positions. The 

commenter cited to preamble language 

to support the possibility of an 

obligation, but argued that the text of 

proposed § 150.9 does not mention or 

contemplate such requests for OTC 

positions. The commenter also 

questioned whether such recognition is 

feasible given the exchanges’ lack of 

visibility into OTC markets.1031

Commission Reproposal Regarding 

§ 150.9(a)(1) 1032

The Commission is reproposing the 

rule, as originally proposed, subject to 

the amendments described below. 

Requirement That Exchanges Recognize 

Non-Enumerated Bona Fide Hedging 

Positions Consistent With the General 

Bona Fide Hedging Position Definition 

Regarding comments that the 

Commission should permit the 

recognition of anticipatory 

merchandising as non-enumerated bona 

fide hedging strategies, as noted above, 

while exchanges’ recognition of nonenumerated bona fide hedging positions 

must be consistent with the 

Commission’s bona fide hedging 

position definition, the Commission 

agrees that exchanges should, in each 

case, make a facts-and-circumstances 

determination as to whether to 

recognize an anticipatory hedge as a 

non-enumerated bona fide hedging 

position, consistent with the 

Commission’s recognition ‘‘that there 

can be a gradation of probabilities that 

an anticipated transaction will 

occur.’’ 1033

In response to the request that the 

Commission expand the proposed bona 

fide hedging position recognition 

process to include risk management 

exemptions, the Commission notes that 

this suggestion is contrary to the intent 

of Congress (to narrow the bona fide 

hedging position definition to preclude 

commodity index hedging, a.k.a. risk 

management exemptions). 

Regarding comments requesting 

clarification on exchange authority to 

recognize as bona fide hedging positions 

multiple hedging strategies, the 

Commission clarifies that a single 

application to an exchange can specify 

and apply to multiple hedging strategies 

or needs. 

As to comments requesting 

clarification regarding whether the 

proposed application process applies to 

exchange-set limits, the Commission 

notes that the requirements of 

reproposed § 150.9(a) addresses 

processes for recognition of bona fide 

hedge positions for purposes of federal 

limits and not exemption processes 

such as those exchanges currently 

implement and oversee for any 

exchange-set limits. In addition, such 

processes for exchange-set limits that 

are lower than the federal limit could 

differ as long as the exemption provided 

by the exchange is capped at the level 

of the applicable federal limit in 

§ 150.2.1034

Requests for Recognition of NonEnumerated Bona Fide Hedging 

Positions in the Spot Month 

The Commission considered the 

recommendations that the Commission: 

Allow exchanges to recognize a position 

as a bona fide hedging position for up 

to a five-day retroactive period in 

circumstances where market 

participants need to exceed limits to 

address a sudden and unforeseen 

hedging need; specifically authorize 

exchanges to recognize positions as 

bona fide hedging positions and grant 

spread exemptions during the last five 

days of trading or less, and/or delegate 

to the exchanges for their consideration 

the decision whether to apply the fiveday rule to a particular contract after 

their evaluation of the particular facts 

and circumstances. As the Commission 

clarified above, the reproposed rules do 

not apply the prudential condition of 

the five-day rule to non-enumerated 

hedging positions other than to pass 

through swap offsets.1035 Therefore, as 

reproposed, the five-day rule would 

only apply to certain positions (passthrough swap offsets, anticipatory and 

cross-commodity hedges).1036 However, 

to provide exchanges with flexibility, in 

regards to exchange process under 

§ 150.9, the Commission will allow 

exchanges to waive the five-day rule on 

a case-by-case basis.1037 As the 

Commission noted above, it expects that 

exchanges will carefully consider 

whether allowing retroactive 

recognition of a positions as a nonenumerated bona fide hedge would, as 

raised by one commenter, diminish the 

overall integrity of the process. In 


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1038 2016 Supplemental Position Limits Proposal, 

81 FR at 38471. 

1039Regarding the comment that the Commission 

should not define ‘‘actively traded,’’ the 

Commission concurs, and notes that, as proposed 

in the 2016 Supplemental Position Limits Proposal, 

this interpretation will be left to the exchanges’ 

reasonable discretion. 

1040For example, the Commission reviews the 

experience of chief compliance officers when 

reviewing SEF applications. See § 37.1501(b)(2) 

(‘‘Qualifications of chief compliance officer. The 

individual designated to serve as chief compliance 

officer shall have the background and skills 

appropriate for fulfilling the responsibilities of the 

position.’’). 

1041As stated above, § 150.3(f) provides (1) 

recognition of the offset of the risk of a pre-existing 

financial instrument as bona fide using a derivative 

position, including a deferred derivative contract 

month entered after the effective date of a final rule, 

provided a nearby derivative contract month is 

liquidated (such recognition will not extend such 

relief to an increase in positions after the effective 

date of a limit); (2) possible application of 

previously granted exemptions to pre-existing 

financial instruments that are within the scope of 

existing § 1.47 exemptions, rather than only to preexisting swaps; and (3) recognition of exchangegranted non-enumerated exemptions in non-legacy 

commodity derivatives outside of the spot month 

(consistent with the Commission’s recognition of 

risk management exemptions outside of the spot 

month), provided such exemptions are granted 

prior to the compliance date of a final rule, and 

apply only to pre-existing financial instruments as 

of the effective date of a final rule. These last two 

were proposed to reduce the potential for market 

disruption, since a market intermediary would 

continue to be able to offset risks of pre-effectivedate financial instruments, pursuant to previouslygranted federal or exchange risk management 

exemptions. See supra discussion of the 

Commission’s reproposed definition for bona fide 

hedging position; see also the discussion regarding 

the reproposed § 150.3(f). In response to the 

comment requesting that the Commission use its 

authority under CEA section 4a(a)(7) to provide 

exemptions for risk management positions, as noted 

above, that appears contrary to Congressional intent 

to narrow the definition of a bona fide hedging 

position. 

addition, the Commission also points 

out that exchanges should carefully 

consider whether to adopt in those rules 

the two safeguards noted by 

commenters: (i) Requiring market 

participants making use of the 

retroactive application to demonstrate 

that the applied-for hedge was required 

to address a sudden and unforeseen 

hedging need; and (ii) providing that if 

the emergency hedge recognition was 

not granted, exchange rules would 

continue to require the applicant to 

unwind its position in an orderly 

manner and also would deem the 

applicant to have been in violation for 

any period in which its position 

exceeded the applicable limits. 

Standards Exchanges Must Meet To 

Provide Recognitions 

Regarding comments on the ‘‘active 

trading’’ and ‘‘one year of experience’’ 

requirements under proposed 

§ 150.9(a)(1)(v), as noted in the 2016 

Supplemental Position Limits Proposal 

preamble 1038 and above, the 

Commission is not persuaded that an 

exchange with no active trading and no 

experience would have their interests 

aligned with the Commission’s policy 

objectives in CEA section 4a. However, 

it is clear from the comments that some 

interpreted the requirement as a 

narrower standard than intended. 

The Commission is, therefore, 

amending § 150.9(a)(1)(v) to clarify that 

the active one-year of experience 

requirement can be met by any contract 

listed in the particular referenced 

contract.1039 As such, the Commission 

is reproposing § 150.9(a)(1)(v) to provide 

that the exchange has at least one year 

of experience and expertise 

administering position limits for ‘‘a 

particular commodity’’ rather than for 

‘‘such commodity derivative contract.’’ 

Further, in response to concerns that the 

standard would limit competition and 

operate as a bar to the establishment of 

new exchanges and new contracts, the 

Commission notes that experience 

manifests in the people carrying out 

surveillance in a commodity rather than 

in an institutional structure. An 

exchange’s experience could be 

demonstrated through the relevant 

experience of the surveillance staff 

regarding the particular commodity. In 

fact, the Commission has historically 

reviewed the experience and 

qualifications of exchange regulatory 

divisions when considering whether to 

designate a new exchange as a contract 

market or to recognize a facility as a 

SEF; as such exchanges are new, staff 

experience has clearly been gained at 

other exchanges.1040

In addition, regarding the 

Commission’s authority to adopt this 

standard, the Commission notes that 

CEA section 4a(c) provides that the 

Commission ‘‘shall’’ define what 

constitutes a bona fide hedging 

transaction or position. In light of this 

responsibility, the Commission believes 

it is important that exchanges 

authorized to recognize non-enumerated 

bona fide hedging positions have 

experience (as indicated by their one 

year of experience regulating a 

particular contract) and interests (as 

indicated by their actively traded 

contract) that are aligned with the 

Commission’s interests. The commenter 

provides no alternatives to the one-year 

experience in the actively traded 

contract as proxies for an exchange’s 

interests being aligned with that of the 

Commission. 

The Commission clarifies, however, 

that an exchange can petition the 

Commission, pursuant to § 140.99, for a 

waiver of the one-year experience 

requirement if such exchange believes 

that their experience and interests are 

aligned with the Commission’s interests 

with respect to recognizing nonenumerated bona fide hedging 

positions. 

Previously Granted Hedge Exemptions 

With respect to comments regarding 

currently recognized exchange-granted 

non-enumerated bona fide hedging 

position exemptions, as noted above, 

the Commission believes the statutory 

directive to define bona fide hedging 

position narrows the current § 1.3(z)(1) 

definition. As a result, currently 

recognized bona fide hedging strategies 

may not meet the new narrower bona 

fide hedging position standards. While 

certain strategies may not meet the 

definition of bona fide hedging position 

reproposed in this rulemaking, to 

reduce the potential for market 

disruption by forced liquidations, the 

Commission proposes, as discussed 

above, to clarify and expand the relief 

in § 150.3(f) (previously granted 

exemptions) to grandfather previously 

granted risk-management strategies 

applicable to previously established 

derivative positions in commodity 

index contract.1041

Regarding comments that exchanges 

should be required to provide additional 

notice or phase-out time for any bona 

fide hedging position recognitions that 

may expire, the Commission notes that, 

under reproposed § 150.5, exchanges 

may issue recognition determinations 

for one year only. As such a market 

participant is provided a one-year notice 

for the potential expiration of the 

recognition of their position as a nonenumerated bona fide hedging position, 

and may seek recognition of the position 

from another (or the same) DCM, or 

from the CFTC directly prior to the 

expiration of the one-year period. The 

Commission is not proposing to 

authorize exchanges to provide an 

unlimited recognition of positions as 

non-enumerated bona fide hedging 

positions, and is not proposing to 

require exchanges to provide further 

notice to market participants prior to the 

expiration of previous determinations. 

Recognition of OTC Positions as Bona 

Fide Hedging Positions 

Regarding comments requesting a 

clarification with respect to OTC 

positions, the Commission clarifies that 

exchanges do not have an obligation to 

monitor for compliance with OTC-only 

positions. 


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96820 Federal Register / Vol. 81, No. 251 / Friday, December 30, 2016 / Proposed Rules 

1042 17 CFR 1.3(z)(1). 

1043 7 U.S.C. 6a(c). The Commission noted that it 

could, under the proposal, review determinations 

made by a particular exchange, for example, that 

recognizes an unusually large number of bona fide 

hedging positions, relative to those of other 

exchanges. 

1044See § 1.47(b)(1), 17 CFR 1.47(b)(1), requiring 

a description of the futures positions and the 

offsetting cash positions. 

1045See § 1.47(b)(4), 17 CFR 1.47(b)(4), requiring 

the maximum size of gross futures positions which 

will be acquired during the following year. 

1046See §§ 1.47(b)(6), 1.48(b)(1)(i) and (2)(i), 17 

CFR 1.47(b)(6), 1.48(b)(1)(i) and 2(i), requiring three 

years of history of production or usage. 

1047Although many commenters have requested 

that the Commission retain the pre-Dodd Frank Act 

standard contained in current § 1.3(z), 17 CFR 

1.3(z), there is explicit and implicit support in the 

comments on the December 2013 Position Limits 

Proposal for pegging what applicants must 

demonstrate to the current statutory provision as 

amended by the Dodd-Frank Act. One commenter 

requested that the Commission ‘‘publicly clarify 

that hedge positions are bona fide when they satisfy 

the hedge definition codified by Congress in section 

4a(c)(2) of the Act, as added by the Dodd-Frank 

Act.’’ CL–CME–59718 at 46. Another commenter 

supported a ‘‘process for Commission approval of 

a ‘non-enumerated’ hedge that . . . complies with 

the statutory definition of the term ‘bona fide 

hedge.’ ’’ CL–NGSA–59673 at 2. CEA section 

4a(c)(2) contains standards for positions that 

constitute bona fide hedging positions. The 

Commission expects that exchanges would consider 

the Commission’s relevant regulations and 

interpretations, when determining whether a 

position satisfies the requirements of CEA section 

4a(c)(2). However, exchanges may confront novel 

facts and circumstances with respect to a particular 

applicant’s position, dissimilar to facts and 

circumstances previously considered by the 

Commission. In these cases, an exchange may 

request assistance from the Commission; see the 

discussion of proposed § 150.9(a)(8) in the 2016 

Position Limits Supplemental Proposal. 

1048See § 1.47(b)(2), 17 CFR 1.47(b)(2), requiring 

detailed information to demonstrate that the futures 

positions are economically appropriate to the 

reduction of risk in the conduct and management 

of a commercial enterprise. See also § 1.47(b)(3), 17 

CFR 1.47(b)(3), requiring, upon request, such other 

information necessary to enable the Commission to 

determine whether a particular futures position 

meets the requirements of the general definition of 

bona fide hedging. Under current application 

processes, market participants provide similar 

information to DCMs, make various representations 

required by DCMs and agree to certain terms 

imposed by DCMs with respect to exemptions 

granted. The Commission has recognized that DCMs 

already consider any information they deem 

relevant to requests for exemptions from position 

limits. See, e.g., Rule Enforcement Review of ICE 

Futures U.S., July 22, 2014, p. 41. 

1049CEA section 5(d)(5)(A), 7 U.S.C. 7(d)(5)(A); 

§ 38.300, 17 CFR 38.300. The Commission 

proposed, consistent with previous Commission 

determinations, a preliminary finding that 

speculative position limits are necessary in the 

December 2013 Position Limits Proposal. December 

2013 Position Limits Proposal, 78 FR at 75685. 

1050CEA Section 5h(f)(6)(A), 7 U.S.C. 7b– 

3(f)(6)(A); § 38.300, 17 CFR 38.300. 

b. Proposed § 150.9(a)(2); § 150.9(a)(3); 

and § 150.9(a)(4)—Application Process 

Proposed Rules. As proposed, 

§ 150.9(a)(2) would permit an exchange 

to establish a less expansive application 

process for non-enumerated bona fide 

hedging positions previously recognized 

and published on such exchange’s Web 

site than for non-enumerated bona fide 

hedging positions based on novel facts 

and circumstances. This is because the 

Commission believed that some lesser 

degree of scrutiny may be adequate for 

applications involving recurring fact 

patterns, so long as the applicants are 

similarly situated. However, the 

Commission understood that DCMs 

currently use a single-track application 

process to recognize non-enumerated 

positions, for purposes of exchange 

limits, as within the meaning of the 

general bona fide hedging position 

definition in § 1.3(z)(1).1042 The 

Commission did not know whether any 

exchange would elect to establish a 

separate application process for nonenumerated bona fide hedging positions 

based on novel versus non-novel facts 

and circumstances, or what the salient 

differences between the two processes 

might be, or whether a dual-track 

application process might be more 

likely to produce inaccurate results, e.g., 

inappropriate recognition of positions 

that are not bona fide hedging positions 

within the parameters set forth by 

Congress in CEA section 4a(c).1043 In 

proposing to permit separate application 

processes for novel and non-novel nonenumerated bona fide hedging 

positions, the Commission sought to 

provide flexibility for exchanges, but 

will insist on fair and open access for 

market participants to seek recognition 

of compliant positions as nonenumerated bona fide hedging 

positions. 

The Commission believed that there is 

a core set of information and materials 

necessary to enable an exchange to 

determine, and the Commission to 

verify, whether the facts and 

circumstances attendant to a position 

satisfy the requirements of CEA section 

4a(c). Accordingly, the Commission 

proposed to require in § 150.9(a)(3)(i), 

(iii) and (iv) that all applicants submit 

certain factual statements and 

representations. Proposed 

§ 150.9(a)(3)(i) required a description of 

the position in the commodity 

derivative contract for which the 

application is submitted and the 

offsetting cash positions.1044 Proposed 

§ 150.9(a)(3)(iii) required a statement 

concerning the maximum size of all 

gross positions in derivative contracts to 

be acquired during the year after the 

application is submitted.1045 Proposed 

§ 150.9(a)(3)(iv) required detailed 

information regarding the applicant’s 

activity in the cash markets for the 

commodity underlying the position for 

which the application is submitted 

during the past three years.1046 These 

proposed application requirements are 

similar to existing requirements for 

recognition under current § 1.48 of a 

non-enumerated bona fide hedge. 

The Commission also proposed to 

require in § 150.9(a)(3)(ii) and (v) that 

all applicants submit detailed 

information to demonstrate why the 

position satisfies the requirements of 

CEA section 4a(c) 1047 and any other 

information necessary to enable the 

exchange to determine, and the 

Commission to verify, whether it is 

appropriate to recognize such a position 

as a non-enumerated bona fide 

hedge.1048 The Commission anticipated 

that such detailed information may 

include both a factual and legal analysis 

indicating why recognition is justified 

for such applicant’s position. The 

Commission expected that if the 

materials submitted in response to 

proposed § 150.9(a)(3)(ii) are relatively 

comprehensive, requests for additional 

information pursuant to proposed 

§ 150.9(a)(3)(v) would be relatively 

infrequent. Nevertheless, the 

Commission believed that it is 

important to include the requirement in 

proposed § 150.9(a)(3)(v) that applicants 

submit any other information necessary 

to enable the exchange to determine, 

and the Commission to verify, that it is 

appropriate to recognize a position as a 

non-enumerated bona fide hedging 

position so that DCMs can protect and 

manage their markets. 

Under the proposal, the Commission 

would permit an exchange to recognize 

a smaller than requested position for 

purposes of exchange-set limits. For 

instance, an exchange might recognize a 

smaller than requested position that 

otherwise satisfies the requirements of 

CEA section 4a(c) if the exchange 

determines that recognizing a larger 

position would be disruptive to the 

exchange’s markets. This is consistent 

with current exchange practice. This is 

also consistent with DCM and SEF core 

principles. DCM core principle 5(A) 

provides that, ‘‘[t]o reduce the potential 

threat of market manipulation or 

congestion (especially during trading 

during the delivery month), the board of 

trade shall adopt for each contract of the 

board of trade, as is necessary and 

appropriate, position limitations or 

position accountability for 

speculators.’’ 1049 SEF core principle 

6(A) contains a similar provision.1050

By requiring in proposed § 150.9(a)(3) 

that all applicants submit a core set of 

information and materials, the 

Commission anticipated that all 

exchanges would develop similar nonVerDate Sep<11>2014 23:37 Dec 29, 2016 Jkt 241001 PO 00000 Frm 00118 Fmt 4701 Sfmt 4702 E:\FR\FM\30DEP2.SGM 30DEP2

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1051See, e.g., statement of Ron Oppenheimer on 

behalf of the Working Group (supporting an annual 

non-enumerated bona fide hedge application), 

statement of Erik Haas, Director, Market Regulation, 

ICE Futures U.S. (describing the DCM’s annual 

exemption review process), and statement of Tom 

LaSala, Chief Regulatory Officer, CME Group 

(envisioning market participants applying for nonenumerated bona fide hedge on a yearly basis), 

transcript of the EEMAC open meeting, July 29, 

2015, at 40, 53, and 58, available at http://

www.cftc.gov/idc/groups/public/@aboutcftc/ 

documents/file/emactranscript072915.pdf. 

1052See, e.g., statement of Ron Oppenheimer on 

behalf of the Working Group (noting that exchanges 

retain the ability to revoke an exemption if market 

circumstances warrant), transcript of the EEMAC 

open meeting, July 29, 2015, at 57, available at 

http://www.cftc.gov/idc/groups/public/@aboutcftc/ 

documents/file/emactranscript072915.pdf. 

1053As noted above, the 2016 Supplemental 

Position Limits Proposal did not impair the ability 

of any market participant to request an 

interpretation under § 140.99 for recognition of a 

position as a bona fide hedging position if an 

exchange rejects their recognition application or 

revokes recognition previously issued. See 2016 

Position Limits Supplemental Proposal, n. 78 and 

accompanying text. 

1054CL–IECAssn–60949 at 14. 

1055CL–ETP–60915 at 1; CL–MGEX–60936 at 5– 

6. 

1056CL–EDF–60944 at 1–3. 

1057CL–NCGA–NGSA–60919 at 9. 

1058CL–NCGA–NGSA–60919 at 10; CL–EEI– 

EPSA–60925 at 4; CL–ICE–60929 at 8; 16, CL– 

COPE–60932 at 9; CL–CCI–60935 at 7; CL–COPE– 

60932 at 9; CL–FIA–60937 at 3; 12, CL–AGA–60943 

at 6; CL–AMG–60946 at 3–4; CL–Working Group– 

60947 at 11; CL–NCGA–NGSA–60919 at 10; CL– 

CCI–60935 at 7; CL–CME–60926 at 9; CL–FIA– 

60937 at 3, 12; CL–Working Group–60947 at 11 

(footnotes omitted); and CL–ICE–60929 at 8, 16 

(noting that in many cases exchanges already have 

access to this data, or can easily obtain it). 

1059CL–NCGA–NGSA–60919 at 10; CL–CCI– 

60935 at 7; CL–CME–60926 at 9; CL–Working 

Group–60947 at 11 (footnotes omitted); CL–FIA– 

60937 at 3, 12; CL–Working Group–60947 at 11; 

CL–NCGA–NGSA–60919 at 10; CL–CCI–60935 at 7; 

CL–CME–60926 at 9; CL–AGA–60943 at 6; and CL– 

AMG–60946 at 3–4 (recommending that exchanges 

have authority to, but not be required to, collect up 

to 3 years of data). 

1060CL–CME–60926 at 9. See also CL–AMG– 

60946 at 4 (requesting a clarification that that this 

demonstration (of how the position meets the 

definition of a bona fide hedging position does not 

require submission of legal opinion from counsel 

which would be ‘‘unduly burdensome’’ for market 

participants). 

enumerated bona fide hedging position 

application processes. However, the 

Commission intended that exchanges 

have sufficient discretion to 

accommodate the needs of their market 

participants. The Commission also 

intended to promote fair and open 

access for market participants to obtain 

recognition of compliant derivative 

positions as non-enumerated bona fide 

hedges. 

Proposed § 150.9(a)(4) set forth certain 

timing requirements that an exchange 

must include in its rules for the nonenumerated bona fide hedge application 

process. A person intending to rely on 

an exchange’s recognition of a position 

as a non-enumerated bona fide hedging 

position would be required to submit an 

application in advance and to reapply at 

least on an annual basis. This is 

consistent with commenters’ views and 

DCMs’ current annual exemption review 

process.1051 Proposed § 150.9(a)(4) 

would require an exchange to notify an 

applicant in a timely manner whether 

the position was recognized as a nonenumerated bona fide hedging position 

or rejected, including the reasons for 

any rejection.1052 On the other hand, 

and consistent with the status quo, 

proposed § 150.9(a)(4) would allow the 

exchange to revoke, at any time, any 

recognition previously issued pursuant 

to proposed § 150.9 if the exchange 

determined the recognition is no longer 

in accord with section 4a(c) of the 

Act.1053

The Commission did not propose to 

prescribe time-limited periods (e.g., a 

specific number of days) for submission 

or review of non-enumerated bona fide 

hedge applications. The Commission 

proposed only to require that an 

applicant must have received 

recognition for a non-enumerated bona 

fide hedging position before such 

applicant exceeds any limit then in 

effect, and that the exchange administer 

the process, and the various steps in the 

process, in a timely manner. This means 

that an exchange must, in a timely 

manner, notify an applicant if a 

submission is incomplete, determine 

whether a position is a non-enumerated 

bona fide hedging position, and notify 

an applicant whether a position will be 

recognized, or the application rejected. 

The Commission anticipated that rules 

of an exchange may nevertheless set 

deadlines for various parts of the 

application process. The Commission 

does not believe that reasonable 

deadlines or minimum review periods 

are inconsistent with the general 

principle of timely administration of the 

application process. An exchange could 

also establish different deadlines for a 

dual-track application process. The 

Commission believed that the 

individual exchanges themselves are in 

the best position to evaluate how 

quickly each can administer the 

application process, in order best to 

accommodate the needs of market 

participants. In addition to review of an 

exchange’s timeline when it submits its 

rules for its application process under 

part 40, the Commission would review 

the exchange’s timeliness in the context 

of a rule enforcement review. 

Comments Received 

One commenter expressed the view 

that it does not support different 

application processes for novel and nonnovel hedges.1054

Two commenters expressed the view 

that the 2016 Supplemental Position 

Limits Proposal should be revised to 

eliminate, to the maximum extent 

possible, the ‘‘overly prescriptive rules’’ 

governing what exchanges must collect 

from non-enumerated bona fide hedging 

position applicants and instead give the 

exchanges more discretion and 

flexibility to fashion non-enumerated 

bona fide hedging position rules that are 

more closely aligned with current hedge 

approval processes.1055 Conversely, 

another commenter recommended that 

the Commission require a standardized 

and harmonized process across all 

participating exchanges for nonenumerated bona fide hedging position 

applications.1056

One commenter recommended that 

the Commission, to the greatest extent 

possible, allow the exchanges to 

administer exemptions for nonenumerated bona fide hedging 

positions, enumerated bona fide 

hedging positions, and spread positions 

in the same manner as they have been 

to date.1057

Several commenters recommended 

that the Commission not require 

exchanges to demand and collect three 

years of cash market information in 

order to process an entity’s application 

for a non-enumerated bona fide hedging 

exemption. According to the 

commenters, it would be burdensome 

on both the applicant and the exchange, 

as well as unnecessary and not 

authorized by the CEA.1058 As an 

alternative, commenters cited practices 

currently authorized for, and practiced 

by, the exchanges, and that typically 

only require applicants to provide such 

data from the preceding year, though the 

market participant requesting the hedge 

exemption must stand ready to provide 

further supporting documentation for 

the requested exemption on request.1059

One commenter expressed the view 

that exchanges do not need the 

‘‘detailed information’’ that the 2016 

Supplemental Position Limits Proposal 

requires of market participants seeking 

an exchange-administered hedge 

exemption. The commenter believes 

that requiring an exemption applicant to 

perform its own legal and economic 

analysis would be cost prohibitive and 

impractical. Further, the commenter 

asserted that it is unclear whether an 

exchange could still grant an exemption 

even if it disagrees with an applicant’s 

analysis.1060

Some commenters requested 

clarification regarding the proposed 

§ 150.9(a)(3) requirement with respect to 


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1061CL–CCI–60935 at 6–7; and (CL–Working 

Group–60947 at 10). 

1062CL–FIA–60937 at 4, 13. 

1063CL–ISDA–60931 at 6–7. 

1064See, e.g., CL–NCGA–NGSA–60919 at 10–11; 

CL–EEI–EPSA–60925 at 4; CL–ICE–60929 at 11; 

CL–ISDA–60931 at 13; CL–FIA–60937 at 13; CL– 

Working Group–60947 at 13–14; and CL–CME– 

60926 at 12. 

1065See 2016 Position Limits Supplemental 

Proposal for the discussion regarding the five-day 

rule in connection with the definition of bona fide 

hedging position and in the discussion of § 150.5 

(Exchange-set speculative position limits). 

1066See § 150.1 definition of bona fide hedging 

position sections (2)(ii)(A), (3)(iii), (4), and (5) 

(Other enumerated hedging position). As noted 

above, to provide greater clarity as to which bona 

fide hedge positions the five-day rule applies, the 

reproposed rules reorganize the definition. 

the compilation of gross positions for 

every commodity derivative contact that 

the applicant holds, and whether the 

proposed regulations are intended to 

apply to an applicant’s maximum size of 

all gross positions for each and every 

commodity derivative contract the 

applicant holds (as opposed to the 

maximum gross positions in the 

commodity derivative contract(s) for 

which the exemption is sought).1061 In 

addition, one commenter suggested that 

‘‘the Commission should clarify that an 

application for a non-enumerated hedge 

or spread exemption only must include 

derivative positions related to the 

requested exemption.’’ 1062

One commenter expressed the view 

that it is concerned regarding how 

exchanges should coordinate the 

granting of exemptions with respect to 

contracts on the same underlying 

commodities that trade on different 

exchanges, and requests guidance from 

the Commission on that matter.1063

In connection with proposed 

§ 150.9(a)(4), several commenters 

expressed the view that the Commission 

should allow exchanges to recognize an 

enumerated or non-enumerated bona 

fide hedging position exemption 

retroactively in circumstances where 

market participants need to exceed 

limits to address a sudden and 

unforeseen hedging need.1064

Commission Reproposal 

The Commission has determined to 

repropose the rule, largely as originally 

proposed, except that the Commission 

has revised the regulatory text to: (i) 

Clarify what the statement must address 

under § 150.9(a)(3)(iii) and 

150.9(a)(3)(iv); and (ii) require only one 

year of history rather than three years in 

§ 150.9(a)(3)(iv), each as described 

further below. 

Regarding comments that the 

Commission should not have different 

application processes for novel vs. nonnovel products, (pursuant to proposed 

§ 150.9(a)(2)) the Commission is 

clarifying that exchanges are authorized 

but not required to have a different 

application process for novel and nonnovel hedge applications. Further, 

§ 150.9 does not prevent industry from 

working together to adopt a universal 

application for novel and non-novel 

hedges. 

Regarding comments on current 

exchange processes for administering 

exemptions, and comments regarding 

the information required in the 

application process, reproposed § 150.9 

would require that exchanges collect a 

minimum amount of information, and 

exchanges would have discretion to 

require additional information. That is, 

§ 150.9 provides parameters for a basic 

application and processing process for 

the recognition of non-enumerated bona 

fide hedging positions; the parameters 

allow exchanges flexibility, while also 

facilitating Commission review. Also, 

the Commission reiterates that 

reproposed § 150.9 addresses federal 

limits and not exchange exemption 

processes, such as those exchanges 

currently implement and oversee for 

any exchange-set limits. Such processes 

for exchange-set limits that are lower 

than the federal limit could differ as 

long as the exemption provided by the 

exchange is capped at the level of the 

applicable federal limit in § 150.2. 

Regarding concerns that 

§ 150.9(a)(3)(ii), as proposed, required 

an application to include a legal opinion 

or analysis for exchange recognition of 

a position as a non-enumerated bona 

fide hedging position, the Commission 

clarifies that the regulation does not 

require applicants to obtain a legal 

opinion or analysis. Rather, under 

§ 150.9(a)(3), it is the exchange’s duty to 

make a determination regarding whether 

a contract meets the application 

requirements; it may ask for additional 

information than the minimum required 

if it determines that further information 

is necessary to make its determination. 

To further clarify this point, the 

Commission is proposing the following 

change to § 150.9(a)(3)(ii) to provide that 

the exchange require at a minimum 

‘‘information to demonstrate why the 

position satisfies the requirements of 

section 4a(c) of the Act and the general 

definition of bona fide hedging position 

in § 150.1,’’ rather than ‘‘detailed 

information.’’ The same change is also 

being proposed for § 150.9(a)(3(iv) for 

the same reasons. 

Regarding interpreting 

§ 150.9(a)(3)(iii) as requiring the 

inclusion in a non-enumerated bona 

fide hedging position application of a 

statement regarding the maximum gross 

positions to be acquired by the 

applicant during the year after the 

application is submitted, the 

Commission clarifies that the provision 

requires only information related to the 

contract for which the application is 

submitted; consequently, the 

Commission is reproposing 

§ 150.9(a)(3)(iii) to require a ‘‘statement 

concerning the maximum size of all 

gross positions in derivative contracts 

for which the application is submitted.’’ 

The Commission further clarifies that 

the statement should be based on a good 

faith estimate. 

In addition, the Commission notes 

that the minimum information to be 

required by the exchange under 

§ 150.9(a)(3)(iii), would be for the gross 

position for the following year, since the 

applicant will need to reapply each year 

for exchange recognition of its position 

as a bona fide hedging position. 

With respect to the condition that 

exchanges require applicants to provide 

three years of data supporting their 

application, the Commission is 

reproposing § 150.9(a)(3)(iv) to require 

only one year of data. 

Regarding commenter concerns about 

whether or how exchanges should 

coordinate in granting exemptions 

consistently across exchanges, the 

reproposed rules would allow each 

exchange to use their own expertise to 

decide which positions should be 

recognized as bona fide hedging 

positions and what limit levels to 

impose for their venue. The 

Commission notes that it serves in an 

oversight role to monitor exchange 

determinations and position limits 

across exchanges. The Reproposal does 

not require exchanges to coordinate 

with respect to making such 

determinations; however, neither does 

reproposed § 150.9 prohibit 

coordination. 

Regarding application of the five-day 

rule to non-enumerated bona fide 

hedging positions, as the Commission 

discussed above, the Reproposal does 

not apply the prudential condition of 

the five-day rule to non-enumerated 

bona fide hedging positions. As 

discussed in connection with the 

definition of bona fide hedging position 

and in the context of § 150.5(a),1065 the 

five-day rule would only apply to 

certain positions (pass-through swap 

offsets, anticipatory and crosscommodity hedges).1066 However, in 

regards to exchange processes under 

§ 150.9 (and § 150.10, and § 150.11), the 

Commission is allowing exchanges to 

waive the five-day rule on a case-bycase basis. 

Regarding exchanges’ authority to 

retroactively recognize positions as bona 


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1067Current § 1.47 requires a filing in advance for 

Commission recognition of a position as a nonenumerated bona fide hedging position. 

1068See 2016 Position Limits Supplemental 

Proposal discussion regarding proposed § 150.5. 

1069See 2016 Position Limits Supplemental 

Proposal, nn. 121–123 and accompanying text; see 

also the 2016 Position Limits Supplemental 

Proposal discussion of proposed § 150.9(d), review 

of applications by the Commission. Exchange 

recognition of a position as a non-enumerated bona 

fide hedging position would allow the market 

participant to exceed the federal position limit until 

such time that the Commission notified the market 

participant to the contrary, pursuant to the 

proposed review procedure that the exchange 

action was dismissed. That is, if a party were to 

hold positions pursuant to a non-enumerated bona 

fide hedging position recognition granted by the 

exchange, such positions would not be subject to 

federal position limits, unless or until the 

Commission were to determine that such nonenumerated bona fide hedging position recognition 

is inconsistent with the CEA or CFTC regulations 

thereunder. Under this framework, the Commission 

would continue to exercise its authority in this 

regard by reviewing an exchange’s determination 

and verifying whether the facts and circumstances 

in respect of a derivative position satisfy the 

requirements of the Commission’s general 

definition of bona fide hedging position in § 150.1. 

If the Commission determines that the exchangegranted recognition is inconsistent with section 

4a(c) of the Act and the Commission’s general 

definition of bona fide hedging position in § 150.1, 

a market participant would be required to reduce 

the derivative position or otherwise come into 

compliance with position limits within a 

commercially reasonable amount of time. 

1070 7 U.S.C. 6a(3)(B). 

1071CL–IECAssn–60949 at 13; CL–NMPF–60956 

at 2; CL–NCFC–60930 at 4–5; CL–ICE–60929 at 22; 

CL–ICE–60929 at 22; and CL–FIA–60937 at 18, 19. 

1072See, e.g., CL–FIA–60937 at 15; CL–CMC– 

60950 at 12–13; CL–CCI–60935 at 7–8; CL–NCGA– 

NGSA–60919 at 12–13; CL–MGEX–60936 at 6; CL– 

ISDA–60931 at 10; CL–NGFA–60941 at 4; CL– 

Working Group–60947 at 12 (footnotes omitted); 

CL–AMG–60946 at 4–5; CL–CCI–60935 at 7–8; CL– 

AGA–60943 at 6; CL–CMC–60950 at 12–13; and 

CL–NCGA–NGSA–60919 at 12–13 (expressing the 

view that, reporting of positions for nonenumerated bona fide hedges should mirror the 

mechanism for reporting EBFHs recognized by 

exchanges that utilize the process where reports of 

such positions are made to the Commission with an 

identical copy to be filed with the applicable 

exchange(s). See also CL–MGEX–60936 at 5–6 

(requesting that reporting and recordkeeping 

requirements be removed or at least reduced unless 

there is a demonstrated need for them and b) only 

exemptions granted in excess of federal limits 

should require reporting to the Commission.); and 

CL–AGA–60943 at 7 (commenting that ‘‘because 

Exchanges may, at any time, request records of 

hedgers’ cash market and derivative positions or 

other details and explanations concerning the 

commercial risks being hedged, any Exchange 

surveillance function can be met by exchange data 

inquiries, rather than by an affirmative reporting 

obligation by a commercial hedger.’’). 

1073CL–NFP–60942 at 6–8); and CL–FIA–60937 at 

4, 15. 

1074CL–CME–60926 at 10. 

fide hedging positions, reproposed 

§ 150.9(a)(5) would require an applicant 

to receive exchange recognition in 

advance of the date that a position 

would otherwise be in excess of a 

position limit. Thus, the Reproposal 

would not permit retroactive 

recognition of a non-enumerated bona 

fide hedging position. The Commission 

preliminarily does not believe that it 

should authorize an exchange to 

recognize a non-enumerated bona fide 

hedging position retroactively, as this 

may diminish the ability of the 

Commission to review timely such an 

exchange determination, potentially 

diminishing the utility of position limits 

in preventing unwarranted price 

fluctuations.1067 By way of contrast with 

regard to enumerated bona fide hedging 

positions, the Commission expects that 

exchanges will carefully consider 

whether allowing retroactive 

recognition of an enumerated bona fide 

hedging exemption, under reproposed 

§ 150.5, would, as noted by one 

commenter, diminish the overall 

integrity of the process. And the 

exchanges should also consider whether 

to adopt in those rules the two 

safeguards noted: (i) Requiring market 

participants making use of the 

retroactive application to demonstrate 

that the applied-for hedge was required 

to address a sudden and unforeseen 

hedging need; and (ii) providing that if 

the emergency hedge recognition was 

not granted, exchange rules would 

continue to require the applicant to 

unwind its position in an orderly 

manner and also would deem the 

applicant to have been in violation for 

any period in which its position 

exceeded the applicable limits.1068

c. Proposed 150.9(a)(5) and Commission 

Reproposal 

Proposed § 150.9(a)(5) made it clear 

that the position will be deemed to be 

recognized as a non-enumerated bona 

fide hedging position when an exchange 

recognizes it; proposed § 150.9(d) 

provided the process through which the 

exchange’s recognition would be subject 

to review by the Commission.1069 As 

noted above, DCMs currently exercise 

discretion with regard to exchange-set 

limits to approve exemptions meeting 

the general definition of bona fide 

hedging position. The Commission 

works cooperatively with DCMs to 

enforce compliance with exchange-set 

speculative position limits. In the 2016 

Position Limits Supplemental Proposal, 

the Commission believed that a 

continuation of this cooperative process, 

and an extension to the proposed 

federal position limits, would be 

consistent with the policy objectives in 

CEA section 4a(3)(B).1070 The 

Commission is reproposing 

§ 150.9(a)(5), as originally proposed. 

d. Proposed § 150.9(a)(6) 

Proposed Rule: Proposed § 150.9(a)(6) 

required exchanges that elect to process 

non-enumerated bona fide hedging 

position applications to promulgate 

reporting rules for applicants who own, 

hold or control positions recognized as 

non-enumerated bona fide hedging 

positions. The Commission expected 

that the exchanges would promulgate 

enhanced reporting rules in order to 

obtain sufficient information to conduct 

an adequate surveillance program to 

detect and potentially deter excessively 

large positions that may disrupt the 

price discovery process. At a minimum, 

these rules should require applicants to 

report when an non-enumerated bona 

fide hedging position has been 

established, and to update and maintain 

the accuracy of such reports. These 

rules should also elicit information from 

applicants that will assist exchanges in 

complying with proposed § 150.9(c) 

regarding exchange reports to the 

Commission. 

Comments Received: Several 

commenters did not support a 

Commission requirement for additional 

filings with respect to non-enumerated 

bona fide hedging positions to be held 

in the five day/spot month period.1071

Commenters also requested that the 

Commission remove the proposed 

requirement that an exchange must 

adopt enhanced reporting rules for 

market participants that rely on 

exchange recognitions of positions as 

non-enumerated bona fide hedging 

positions.1072 Generally, commenters 

suggested that any additional reporting 

requirements be kept simple, 

streamlined and minimally 

burdensome.1073 One commenter 

expressed the view that the Commission 

should clarify certain aspects relating to 

the mechanics and content of proposed 

reporting requirements for those seeking 

an exchange-administered hedge 

exemption.1074

Commission Reproposal: The 

Commission has determined to amend 

and clarify the proposal as follows. 

First, the Commission clarifies that it 

does not require additional filings under 

§ 150.9(a)(6); rather, it is in the 

exchanges’ discretion to determine 

whether there is a reporting requirement 

for a non-enumerated bona fide hedging 

position. Consequently, the Commission 

is amending the regulation text to clarify 

that exchanges are authorized to, rather 

than required to, determine whether to 

require enhanced reporting, providing 

only that exchanges that determine to 

process non-enumerated bona fide 

hedging position applications shall have 

rules, submitted to the Commission 

under part 40, that require applicants 

‘‘to file reports pertaining to the use of 


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1075See, e.g., CL–ICE–60929 at 23; CL–NCGA– 

NGSA–60919 at 14 (footnote omitted); CL–DFA– 

60927 at 6; CL–NCFC–60930 at 5; CL–IATP–60951 

at 6; CL–EEI–EPSA–60925 at 9; CL–COPE–60932 at 

9; CL–DFA–60927 at 6; and CL–NCFC–60930 at 5. 

1076CL–NCGA–NGSA–60919 at 14 (footnote 

omitted). 

1077CL–CME–60926 at 11. 

1078Under proposed § 150.9(a)(8), if the exchange 

determines to request that the Commission consider 

the application, the exchange must, under proposed 

§ 150.9(a)(4)(v)(C), notify an applicant in a timely 

manner that the exchange has requested that the 

Commission review the application. This provision 

provides the exchanges with the ability to request 

Commission review early in the review process, 

rather than requiring the exchanges to process the 

request, make a determination and only then begin 

the process of Commission review provided for 

under proposed § 150.9(d). The Commission noted 

that although most of its reviews would occur after 

the exchange makes its determination, the 

Commission could, as provided for in proposed 

§ 150.9(d)(1), initiate its review, in its discretion, at 

any time. 

1079Novel facts and circumstances may present 

particularly complex issues that could benefit from 

extended consideration, given the Commission’s 

current resource constraints. 

1080 17 CFR 1.47. 

1081 Id. Proposed § 150.10(b) and § 150.11(b) 

contain substantially similar recordkeeping 

requirements regarding spread exemptions and 

anticipatory hedge exemptions. 

1082Requirements regarding the keeping and 

inspection of all books and records required to be 

kept by the Act or the Commission’s regulations are 

found at § 1.31, 17 CFR 1.31. DCMs and SEFs are 

already required to maintain records of their 

business activities in accordance with the 

requirements of § 1.31 and 17 CFR 38.951. See 2016 

Supplemental Position Limits Proposal, 81 FR at 

38474 (providing a more comprehensive discussion 

of proposed § 150.9(b)). 

any such exemption that has been 

granted in the manner, form, and 

frequency, as determined by the 

designated contract market or swap 

execution facility.’’ 

e. Proposed 150.9(a)(7)—Transparency 

to Market Participants 

Proposed Rule: Proposed § 150.9(a)(7) 

required an exchange to publish on its 

Web site, no less frequently than 

quarterly, a description of each new 

type of derivative position that it 

recognizes as a non-enumerated bona 

fide hedge. The Commission envisioned 

that each description would be an 

executive summary. The 2016 Position 

Limits Supplemental Proposal required 

that the description include a summary 

describing the type of derivative 

position and an explanation of why it 

qualifies as a non-enumerated bona fide 

hedging position. The Commission 

believed that the exchanges are in the 

best position when quickly crafting 

these descriptions to accommodate an 

applicant’s desire for trading anonymity 

while promoting fair and open access 

for market participants to information 

regarding which positions might be 

recognized as non-enumerated bona fide 

hedging positions. The Commission 

proposed to spot check these summaries 

pursuant to proposed § 150.9(e). 

i. Comments Received 

Several commenters proposed that the 

Commission clarify or confirm that 

exchanges are not required to divulge 

confidential information (such as trade 

secrets, intellectual property, the market 

participant’s identity or position) when 

providing the summary description of 

non-enumerated bona fide hedge 

positions.1075 One commenter requested 

‘‘that the Commission explicitly provide 

in Rule 150.9(a)(7) that the summaries 

must be published ‘in a manner that 

preserves the anonymity of the 

applicant’ and provide additional 

guidance regarding the types of 

sensitive items that should be omitted 

from any summary, such as the size of 

the position(s) taken or to be taken by 

the applicant or the delivery point(s) or 

other information that might identify 

the applicant.’’ 1076 Another commenter 

expressed the view that an exchange 

should not be required to disclose its 

own internal analyses when explaining 

its decision to grant an exemption for a 

derivative position recognized as a nonenumerated bona fide hedging 

position.1077

Commission Reproposal: While the 

Commission is reproposing the rule, as 

originally proposed, it clarifies that that 

any data published pursuant to 

§ 150.9(a)(7) should not disclose the 

identity of, or confidential information 

about, the applicant. Rather, any 

published summaries are expected to be 

general (generic facts and 

circumstances) and not include detail 

that would disclose trade secrets or 

intellectual property. 

f. Proposed § 150.9(a)(8) and 

Commission Reproposal 

Under proposed § 150.9(a)(8), an 

exchange could elect to request the 

Commission review a non-enumerated 

bona fide hedging position application 

that raises novel or complex issues 

using the process set forth in proposed 

§ 150.9(d).1078 If an exchange makes a 

request pursuant to proposed 

§ 150.9(a)(8), the Commission, as would 

be the case for an exchange, would not 

be bound by a time limitation. This is 

because the Commission proposed only 

that non-enumerated bona fide hedging 

position applications be processed in a 

timely manner.1079 Essentially, this 

proposed provision largely preserved 

the Commission’s review process under 

current § 1.47,1080 except that a market 

participant first seeks recognition of a 

non-enumerated bona fide hedging 

position from an exchange. 

The Commission is reproposing 

§ 150.9(a)(8), as originally proposed. 

4. Proposed § 150.9(b)—Recordkeeping 

Requirements 

Proposed Rule: Proposed § 150.9(b) 

outlined the recordkeeping 

requirements for exchanges that elected 

to process non-enumerated bona fide 

hedging position applications under 

proposed § 150.9(a).1081 The proposal 

required that exchanges maintain 

complete books and records of all 

activities relating to the processing and 

disposition of applications in a manner 

consistent with the Commission’s 

existing general regulations regarding 

recordkeeping.1082 In consideration of 

the fact that DCMs currently recognize 

non-enumerated bona fide hedging 

positions which must be updated 

annually and that the proposal would 

require annual updates, the Commission 

proposed that exchanges keep books 

and records until the termination, 

maturity, or expiration date of any 

recognition of a non-enumerated bona 

fide hedging position and for a period 

of five years after such date. The 

Commission stated that five years 

should provide an adequate time period 

for Commission reviews, whether that 

be a review of an exchange’s rule 

enforcement or a review of a market 

participant’s representations. 

Exchanges would be required to store 

and produce records pursuant to current 

§ 1.31 of the Commission’s regulations, 

and would be subject to requests for 

information pursuant to other 

applicable Commission regulations 

including, for example, § 38.5. 

Consistent with current § 1.31, the 

Commission clarified its expectation 

that the records would be readily 

accessible until the termination, 

maturity, or expiration date of the 

recognition and during the first two 

years of the subsequent five year period. 

In addition, the Commission did not 

intend in proposed § 150.9(b)(1) to 

create any new obligation for an 

exchange to record conversations with 

applicants, which includes their 

representatives; however, the 

Commission expected that an exchange 

would preserve any written or 

electronic notes of verbal interactions 

with such parties. 

Finally, the Commission emphasized 

that parties who avail themselves of 

exemptions under § 150.3(a), as 

proposed in the 2016 Supplemental 

Position Limits Proposal, would be 

subject to the recordkeeping 

requirements of § 150.3(g), as well as 


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1083The Commission pointed out that in the 

December 2013 Position Limits Proposal, persons 

claiming exemptions under proposed § 150.3 must 

still ‘‘maintain complete books and records 

concerning all details of their related cash, forward, 

futures, options and swap positions and 

transactions. Furthermore, such persons must make 

such books and records available to the 

Commission upon request under proposed 

§ 150.3(h), which would preserve the ‘special call’ 

rule set forth in current 17 CFR 150.3(b).’’ 78 FR 

75741 (footnote omitted). 

1084See 2016 Supplemental Position Limits 

Proposal, 81 FR at 38474. 

1085 Id. 

1086The Commission noted that an exchange 

could determine to recognize all, or a portion, of the 

commodity derivative position in respect of which 

an application for recognition had been submitted, 

as a non-enumerated bona fide hedging position, 

provided that such determination was made in 

accordance with the requirements of proposed 

§ 150.9 and was consistent with the Act and the 

Commission’s regulations. Id. 

1087Under the proposal, an exchange could 

determine to recognize all, or a portion, of the 

commodity derivative position in respect of which 

an application for recognition has been submitted, 

as an non-enumerated bona fide hedge, for different 

contract months or different types of limits (e.g., a 

separate limit level for the spot month). See 2016 

Supplemental Position Limits Proposal, 81 FR at 

38474. 

1088The Commission stated that the exchange’s 

assignment of a unique identifier to each of the nonenumerated bona fide hedge applications that the 

exchange received, and, separately, the exchange’s 

assignment of a unique identifier to each type of 

commodity derivative position that the exchange 

recognized as a non-enumerated bona fide hedge, 

would assist the Commission’s tracking process. 

Accordingly, the Commission suggested that, as a 

‘‘best practice,’’ the exchange’s procedures for 

processing non-enumerated bona fide hedge 

applications contemplate the assignment of such 

unique identifiers. The Commission noted that 

under proposed § 150.9(c)(1)(i), an exchange that 

assigned such unique identifiers would be required 

to include the identifiers in the exchange’s weekly 

report to the Commission. 

1089For example, as proposed, for each derivative 

position recognized by the exchange as a nonenumerated bona fide hedge, or any revocation or 

modification of such recognition, the report would 

include a concise summary of the applicant’s 

activity in the cash markets for the commodity 

underlying the position. 

1090As proposed, the timeframe within which an 

applicant would be required to report to the 

exchange would be established by the exchange in 

its rules, as appropriate and in accordance with 

proposed § 150.9(a)(6). The Commission also 

pointed out that an exchange could decide to 

require such reports from its participants more 

frequently than monthly. 

1091As proposed, under § 150.9(f)(1)(ii), the 

Commission would delegate to the Director of the 

Commission’s Division of Market Oversight, or such 

other employee or employees as the Director 

designated from time to time, the authority to 

provide instructions regarding the submission to 

the Commission of information required to be 

reported by an exchange pursuant to proposed 

§ 150.9(c). See 2016 Supplemental Position Limits 

Proposal, 81 FR at 38475. 

requests from the Commission for 

additional information under § 150.3(h), 

as each was proposed in the December 

2013 Position Limits Proposal. The 

Commission noted that it might request 

additional information, for example, in 

connection with review of an 

application.1083

Commission Reproposal: The 

Commission did not receive comments 

on § 150.9(b) (nor on § 150.10(b) or 

§ 150.11(b)), and is reproposing 

§ 150.9(b), as originally proposed, for 

the reasons explained in the 2016 

Supplemental Position Limits 

Proposal.1084

5. Proposed § 150.9(c)—Exchange 

Reporting 

Proposed Rule: Proposed § 150.9(c)(1) 

required an exchange that elected to 

process non-enumerated bona fide 

hedge applications to submit a weekly 

report to the Commission.1085 The 

proposed report would provide 

information regarding each commodity 

derivative position recognized by the 

exchange as a non-enumerated bona fide 

hedging position during the course of 

the week. Information provided in the 

report would include the identity of the 

applicant seeking such an exemption, 

the maximum size of the derivative 

position that was recognized by the 

exchange as a non-enumerated bona fide 

hedging position,1086 and, to the extent 

that the exchange determined to limit 

the size of such bona fide hedging 

position under the exchange’s own 

speculative position limits program, the 

size of any limit established by the 

exchange. 

The Commission envisioned that the 

proposed report would specify the 

maximum size and/or size limitations 

by contract month and/or type of limit 

(e.g., spot month, single month, or allmonths-combined), as applicable.1087

The proposed report would also provide 

information regarding any revocation of, 

or modification to the terms and 

conditions of, a prior determination by 

the exchange to recognize a commodity 

derivative position as a non-enumerated 

bona fide hedge. In addition, the report 

would include any summary of a type 

of recognized non-enumerated bona fide 

hedge that was, during the course of the 

week, published or revised on the 

exchange’s Web site pursuant to 

proposed § 150.9(a)(7). 

The Commission noted that the 

proposed weekly report would support 

its surveillance program by facilitating 

the tracking of non-enumerated bona 

fide hedges recognized by 

exchanges,1088 keeping the Commission 

informed of the manner in which an 

exchange was administering its 

procedures for recognizing such 

positions. For example, the report 

would make available to the 

Commission, on a regular basis, the 

summaries of types of recognized nonenumerated bona fide hedges that an 

exchange posts to its Web site pursuant 

to proposed § 150.9(a)(7). This would 

facilitate any review by the Commission 

of such summaries, pursuant to 

proposed § 150.9(e), and would help to 

ensure, if the Commission determines 

that revisions to a summary are 

necessary, that such revisions were 

carried out in a timely manner by the 

exchange. 

The Commission noted that in certain 

instances, information included in the 

proposed weekly report could prompt 

the Commission to request records 

required to be maintained by an 

exchange pursuant to proposed 

§ 150.9(b).1089 The 2016 Supplemental 

Position Limit Proposal clarified that it 

was the Commission’s expectation that 

the summary would focus on the facts 

and circumstances upon which an 

exchange based its determination to 

recognize a commodity derivative 

position as a non-enumerated bona fide 

hedging position, or to revoke or modify 

such recognition. The Commission also 

noted that it might decide, in light of the 

information provided in the summary, 

or any other information included in the 

proposed weekly report regarding the 

position, that it should request the 

exchange’s complete record of the 

application for recognition of the 

position as an non-enumerated bona 

fide hedge—in order to determine, for 

example, whether the application 

presents novel or complex issues that 

merit additional analysis pursuant to 

proposed § 150.9(d)(2), or to evaluate 

whether the disposition of the 

application by the exchange was 

consistent with section 4a(c) of the Act 

and the general definition of bona fide 

hedging position in § 150.1. 

In addition, proposed 150.9(c)(2) 

required an exchange to submit to the 

Commission any report made to the 

exchange by an applicant, pursuant to 

proposed § 150.9(a)(6), that notified the 

exchange that the applicant owned or 

controlled a commodity derivative 

position that the exchange had 

recognized as an non-enumerated bona 

fide hedging position, at least 

monthly,1090 unless otherwise 

instructed by the Commission.1091 The 

exchange’s submission of these reports 

would notify the Commission that an 

applicant had taken a commodity 

derivative position recognized by the 

exchange as a non-enumerated bona fide 

hedging position, and would also show 

the applicant’s offsetting positions in 

the cash markets. Requiring an exchange 

to submit these reports to the 

Commission would therefore support 


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1092The delegation proposed in § 150.9(f)(1)(ii) 

would also, in connection with proposed 

§ 150.9(c)(3), delegate to the Director of the 

Commission’s Division of Market Oversight, or such 

other employee or employees as the Director 

designated from time to time, the authority: (i) To 

provide instructions for the proposed submissions; 

and (ii) to specify on the Forms and Submissions 

page at www.cftc.gov the manner for submitting to 

the Commission information required to be reported 

by an exchange pursuant to proposed § 150.9(c), 

and to determine the format, coding structure and 

electronic data transmission procedures for 

submitting such information. See 2016 

Supplemental Position Limits Proposal, 81 FR at 

38475. 

1093For purposes of proposed § 150.9(c)(2), the 

timeframe set forth in proposed § 150.9(c)(3)(iii) 

would be calculated from the date of a exchange’s 

submission to the Commission, and not from the 

date of an applicant’s report to the exchange. 

1094CL–AMG–60946 at 3; CL–CME–60926 at 11; 

CL–ICE–60929 at 8–9 and 16; and CL–CMC–60950 

at 13–14. 

1095CL–CME–60926 at 11. 

1096CL–ICE–60929 at 8–9 and 16. 

1097As reproposed, § 150.9(c)(2) also provides 

that instead of submitting any such reports 

monthly, the Commission could otherwise instruct 

the exchange otherwise. 

1098See 2016 Supplemental Position Limits 

Proposal, 81 FR at 38475–76. As the proposal noted, 

the Commission agreed with the comment of one 

participant at the June 19, 2014 Roundtable on 

Position Limits, who said that if the Commission 

were to permit exchanges to administer a process 

for non-enumerated bona fide hedging positions, 

the Commission should continue to do ‘‘a certain 

amount of de novo analysis and review.’’ Id. 

The Commission noted that, under the proposal, 

the SRO’s recognition was tentative, because the 

Commission would reserve the power to review the 

recognition, subject to the reasonably fixed 

statutory standards in CEA section 4a(c)(2) 

(directing the CFTC to define the term bona fide 

hedging position) that are incorporated into the 

Commission’s proposed general definition of bona 

fide hedging position in § 150.1. The SRO’s 

recognition would also be constrained by the SRO’s 

rules, which would be subject to CFTC review 

under the proposal. The Commission pointed out 

that SROs are parties subject to Commission 

authority, their rules are subject to Commission 

review and their actions are subject to Commission 

de novo review under the proposal—SRO rules and 

actions may be changed by the Commission at any 

time. In addition, the Commission noted that under 

the proposal, the exchange was required to make its 

determination consistent with both CEA section 

4a(c) and the Commission’s general definition of 

bona fide hedging position in § 150.1. Further, the 

Commission noted that CEA section 4a(c)(1) 

requires a position to be shown to be bona fide as 

defined by the Commission. 

1099The Commission noted a commercially 

reasonable time period as necessary to exit the 

market in an orderly manner, generally, ‘‘would be 

less than one business day.’’ 2016 Supplemental 

Position Limits Proposal, 81 FR at 38476, n. 168 

(citing the December 2013 Position Limits Proposal, 

78 FR at 75713). 

the Commission’s surveillance program, 

by facilitating the tracking of nonenumerated bona fide hedging positions 

recognized by the exchange, and 

helping the Commission to ensure that 

an applicant’s activities conform to the 

terms of recognition that the exchange 

had established. 

Proposed § 150.9(c)(3)(i) and (ii) 

would require an exchange, unless 

instructed otherwise by the 

Commission, to submit weekly reports 

under proposed § 150.9(c)(1), and 

applicant reports under proposed 

§ 150.9(c)(2). Proposed § 150.9(c)(3)(i) 

and (ii) contemplated that, in order to 

facilitate the processing of such reports, 

and the analysis of the information 

contained therein, the Commission 

would establish reporting and 

transmission standards, and that it may 

require reports to be submitted to the 

Commission using an electronic data 

format, coding structure and electronic 

data transmission procedures approved 

in writing by the Commission, as 

specified on the Forms and Submissions 

page at www.cftc.gov.1092 Proposed 

§ 150.9(c)(3)(iii) would require such 

reports to be submitted to the 

Commission no later than 9:00 a.m. 

Eastern time on the third business day 

following the report date, unless the 

exchange was otherwise instructed by 

the Commission.1093

Comments Received: Several 

commenters expressed views against the 

§ 150.9(c) reporting requirements, or 

requested that the Commission reduce 

or alter the reporting requirements for 

exchanges.1094 One commenter 

requested that the Commission clarify 

that proposed weekly reporting 

requirements for exchanges only require 

reporting of the ‘‘most essential 

information’’ regarding exchangeadministered hedge exemptions.1095 As 

an alternative to the entire proposed 

exchange-administered exemption 

reporting requirements, one commenter 

proposed that exchanges provide a 

weekly report to the Commission 

summarizing newly approved hedge 

exemptions.1096

Commission Reproposal: The 

Commission is reproposing the rule, 

largely as originally proposed, except 

that the Commission has revised 

§§ 150.9(c)(1)(i) and 150.9(c)(2) for 

purposes of clarification. In regards to 

§ 150.9(c)(1)(i), the Commission is 

clarifying that the reports required 

under (c)(1)(i) are those for each 

commodity derivatives position that had 

been recognized that week and for any 

revocation or modification of a 

previously granted recognition. As to 

§ 150.9(c)(2), in response to 

commenters, the Commission clarifies 

that exchanges are authorized under 

§ 150.9(c)(2), but are not required, to 

determine whether to incorporate 

additional reporting requirements in 

connection with its recognition of nonenumerated bona fide hedging 

positions. If an exchange does 

determine to require additional 

reporting, § 150.9(c)(2) requires that the 

exchange submit reports no less 

frequently than monthly.1097 In 

addition, the Commission believes the 

weekly reporting requires only the most 

essential information regarding 

exchange-administered exemptions. 

6. Proposed § 150.9(d)—Review of 

Applications by the Commission 

Proposed Rule: Proposed § 150.9(d) 

provided for Commission review of 

applications to ensure that the processes 

administered by the exchange, as well 

as the results of such processes, were 

consistent with the requirements of 

section 4a(c) of the Act and the 

Commission’s regulations 

thereunder.1098 The Commission 

proposed to review records required to 

be maintained by an exchange pursuant 

to proposed § 150.9(b); however, under 

the proposal the Commission could 

request additional information under 

proposed § 150.9(d)(1)(ii) if, for 

example, the Commission found 

additional information was needed for 

its own review. 

Under the proposal, the Commission 

could decide to review a pending 

application prior to disposition by an 

exchange, but anticipated that it would 

most likely wait to review applications 

until after some action has already been 

taken by an exchange. As proposed, 

§ 150.9(d)(2) and (3) would require the 

Commission to notify the exchange and 

applicable applicant that they had 10 

business days from the date of the 

request to provide any supplemental 

information. The Commission noted 

that this approach provided the 

exchanges and the particular market 

participant with an opportunity to 

respond to any issues raised by the 

Commission. 

During the period of any Commission 

review of an application, an applicant 

could continue to rely upon any 

recognition previously granted by the 

exchange. If the Commission 

determined that remediation was 

necessary, the Commission would 

provide for a commercially reasonable 

amount of time for the market 

participant to comply with limits after 

announcement of the Commission’s 

decision under proposed 

§ 150.9(d)(4).1099 In determining a time, 

the Commission could consider factors 

such as current market conditions and 

the protection of price discovery in the 

market. Proposed § 150.10(d) and 

§ 150.11(d) contain substantially similar 

requirements regarding review of 

applications by the Commission of 


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1100CL–CMC–60950 at 14; CL–NFP–60942 at 6– 

8; CL–DFA–60927 at 1–2; CL–ICE–60929 at 5–8; 

CL–ISDA–60931 at 6–7; CL–AGA–60943 at 7; CL– 

FIA–60937 at 2, 6, 7; CL–COPE–60932 at 7; CL– 

COPE–60932 at 7–8; CL–EEI–EPSA–60925 at 10–11; 

CL–RER2–60962 at 1; CL–Public Citizen–60940 at 

2; and CL–MGEX–60936 at 7. See also CL–FIA– 

60937 at 7, 8; CL–COPE–60932 at 7; CL–NGFA– 

60941 at 3; CL–ICE–60929 at 18; CL–API–60939 at 

4; CL–EEI–EPSA–60925 at 10–11; CL–IECAssn– 

60949 at 9–10 (recommending for an appeals 

process and/or notice and public comment feature 

for the Commission review process); CL–FIA–60937 

at 7, 8 (recommending that market participants have 

continued reliance on any overturned exemption 

for one year after the overturn or modification); CL– 

NGFA–60941 at 3 (suggesting that a vote by the full 

Commission should be required on the ‘‘weighty 

decision’’ to invalidate a hedge exemption after 

thorough analysis and careful consideration); and 

CL–MGEX–60936 at 7 (expressing concerns that 

there is legal uncertainty and lack of clarity in how 

the non-enumerated bona fide hedging position 

process will work). 

1101CL–AFIA–60955 at 2. 

1102CL–MGEX–60936 at 7–8. 

1103CL–FIA–60937 at 3; CL–ICE–60929 at 18; CL– 

API–60939 at 4; and CL–API–60939 at 1. See also 

CL–API–60939 at 1 (requesting that, if the 

Commission conducts a review of an exchange 

granted non-enumerated bona fide hedging position 

exemption, then the Commission should limit the 

time period to 180 days to issue a decision to 

overturn an exemption); CL–AGA–60943 at 8 

(suggesting that the Commission ‘‘should adopt a 

rule that follows its current approach under CFTC 

Rule 1.47); CL–IECAssn–60949 at 11–12 

(recommending a reasonable time period to unwind 

positions for which an exemption has been 

overturned would help to allow the market to 

operate smoothly); and CL–FIA–60937 at 7 (noting 

that the Commission should ‘‘require an exchange 

to post a general description of a non-enumerated 

hedge, spread, or anticipatory hedge exemption on 

its Web site within 30 days of granting the 

exemption,’’ and thereafter, ‘‘the Commission 

should have 180 days to decide whether to review 

and overturn or modify an exemption posted on an 

exchange’s Web site.’’). 

1104See, e.g., CL–API–60939 at 4; CL–FIA–60937 

at 3, 8; CL–MGEX–60936 at 7–8; CL–ISDA–60931 

at 7; CL–NGFA–60941 at 3; CL–NFP–60942 at 8; 

CL–AGA–60943 at 2; CL–AGA–60943 at 7; CL– 

AMG–60946 at 5; CL–ICE–60929 at 18; CL–CMC– 

60950 at 11; CL–NCGA–NGSA–60919 at 13; CL– 

EEI–EPSA–60925 at 10; and CL–ISDA–60931 at 7. 

See also CL–FIA–60937 at 3, 8 (recommending the 

Commission consider ‘‘(1) the size of, and risks 

associated with, the participant’s cash and related 

derivative positions; (2) the risks created by the 

need to reduce what will become an un-hedged 

cash market exposure; and (3) the availability of 

sufficient liquidity to enable the market participant 

to reduce the hedging and the underlying positions 

without incurring losses solely as a result of being 

forced to liquidate the hedge within a constrained 

timeframe.’’). 

1105CL–COPE–60932 at 7; CL–EEI–EPSA–60925 

at 11; and CL–COPE–60932 at 7. 

1106CL–Public Citizen–60940 at 2; and CL–RER2– 

60962 at 1. 

1107See also 2016 Supplemental Position Limits 

Proposal, 81 FR at38464–66 (discussing the 

Commission’s authority to permit certain exchanges 

to recognize positions as bona fide hedging 

positions for purposes of federal limits, as well as 

the careful provisions proposed in § 150.9 to do so 

within the limitations on its authority). 

1108See 2016 Supplemental Position Limits 

Proposal, 81 FR at 38465, n. 83. The 

recommendation might also unduly constrain 

agency resources. 

1109See Black’s Law Dictionary 837 (10th ed. 

2014) (defining ‘‘hearing de novo’’ as ‘‘[a] reviewing 

court’s decision of a matter anew, giving no 

deference to a lower court’s findings. A new hearing 

of a matter, conducted as if the original hearing had 

not taken place.’’). 

spread exemptions and anticipatory 

hedge exemptions. 

Comments Received: Several 

commenters were concerned about the 

Commission review process and/or 

provided suggestions on how the 

Commission should modify or limit its 

authority to review exchange-granted 

exemptions.1100

One commenter requested that the 

Commission define in more detail, in 

the final rule, how this review process 

will work.1101 Another commenter 

recommended that exemptions granted 

by an exchange be given deference by 

the Commission upon subsequent 

review, with reversal occurring only 

when there is evidence of negligence or 

abuse, or when it may lead to market 

disruption.1102 Four commenters 

suggested that the Commission limit the 

time available for it to review a nonenumerated bona fide hedging position 

exemption granted by an exchange in an 

effort to provide regulatory certainty to 

entities relying on that exemption.1103

Fourteen commenters expressed the 

view that a ‘‘commercially reasonable’’ 

amount of time for an entity to unwind 

its position should not be limited to one 

business day or less. Instead, these 

commenters advocated that the 

Commission or the exchange should 

determine how long an entity has to 

unwind a position given the facts and 

circumstances of each situation.1104

Three commenters expressed the view 

that when the Commission reviews and 

affirms a non-enumerated bona fide 

hedging position determination, such a 

determination should result in a new 

enumerated bona fide hedging 

position.1105

Some commenters opined that the 

Commission should instead explicitly 

require Commission review and 

approval of all hedge exemption 

requests received by an exchange.1106

These commenters believe that the 

Commission should always make the 

final decision regarding whether to 

grant a particular hedge exemption. 

Commission Reproposal: After 

carefully considering the comments 

received, the Commission is 

reproposing § 150.9(d), as originally 

proposed. The Commission believes the 

proposed de novo review of exchangegranted non-enumerated bona fide 

hedging position exemptions is 

adequate to maintain proper exchange 

oversight and to verify that such 

exemptions provide fair and open 

access by all market participants. 

Further, the Commission notes that it 

must maintain de novo review on a 

case-by-case basis; otherwise, as 

discussed above, the exchange 

exemption process may be considered 

an illegal delegation of Commission 

authority to exchanges.1107

Regarding the recommendation that 

the Commission limit its available time 

to review exchange granted exemptions, 

this limitation may appear inconsistent 

with case law regarding authorizations 

for self-regulatory organizations to make 

determinations, subject to de novo 

agency review.1108 Regarding whether 

the Commission would expose 

exchanges to undue regulatory penalties 

or uncertainty for exemptions the 

Commission overturns, the Commission 

declines to speculate on any actions that 

it may take, beyond the notice to the 

applicant. Regarding giving entities a 

‘‘commercially reasonable’’ time for an 

entity to unwind their positions, the 

Commission has not proposed a fixed 

time period, but would consider the 

facts and circumstances of each 

situation. 

In response to comments that the 

Commission should create a new 

enumerated hedge for any nonenumerated bona fide hedging position 

determination the Commission reviews 

and affirms, the Commission clarifies 

that under the de novo review standard, 

no deference is provided to a prior 

determination; rather, the Commission 

will review as if no decision has been 

previously made. This is the same as a 

‘‘hearing de novo.’’ 1109 The 

Commission also notes that, as 

previously discussed, an exchange can 

petition under § 13.2 for Commission 

recognition of a generic position as an 

enumerated bona fide hedging position, 

and that market participants have the 

flexibility of two processes for 

recognition of a position as an 

enumerated bona fide hedging position: 

(i) Request an exemptive, no-action or 

interpretative letter under § 140.99; and/ 

or (ii) petition under § 13.2 for changes 

to Appendix B to part 150. 

The reproposed rule is confined to 

federal limits and does not interfere 

with existing exemption processes that 

exchanges currently implement and 

oversee with regard to exchange-set 

limits. Exchanges remain bound by the 

bona fide hedging position definition in 

this part for any recognition for 

purposes of federal limits. But, as noted 

above, in regards to reproposed 

§ 150.9(a), exchange processes for 

exchange-set limits that are lower than 

the federal limit could differ as long as 


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1110See 2016 Supplemental Position Limits 

Proposal, 81 FR at 38476. 

1111See 2016 Supplemental Position Limits 

Proposal, 81 FR at 38482. 

1112CL–Working Group–60947 at 22. 

1113 7 U.S.C. 6a(a)(1) (authorizing the Commission 

to exempt transactions normally known to the trade 

as ‘‘spreads’’). DCMs currently process applications 

the exemption provided by the 

exchange is capped at the level of the 

applicable federal limit in § 150.2. 

Regarding requests to revise the 

Commission’s review process (i.e., 

include an appeals process, provide 

notice and public comment opportunity, 

require a vote by the Commission to 

overturn an exchange-granted 

exemption, provide more detail on the 

review process), the Commission notes 

that it has not proposed to delegate 

authority to staff to overturn an 

exchange determination. 

7. Proposed § 150.9(e)—Review of 

summaries by the Commission 

Proposed Rule: In connection with 

proposed § 150.9(a)(7), for the 

Commission to rely on the expertise of 

the exchanges to summarize and post 

executive summaries of non-enumerated 

bona fide hedging positions to their 

respective Web sites, the Commission 

proposed, in § 150.9(e), to review such 

executive summaries to ensure the 

summaries provided adequate 

disclosure to market participants of the 

potential availability of relief from 

speculative position limits. The 

Commission stated that it believed an 

adequate disclosure would include 

generic facts and circumstances 

sufficient to alert similarly situated 

market participants to the possibility of 

receiving recognition of a nonenumerated bona fide hedging position. 

Such market participants could then use 

that information to help evaluate 

whether to apply for recognition of a 

non-enumerated bona fide hedging 

position. Thus, the Commission noted, 

adequate disclosure should help ensure 

fair and open access to the application 

process. Due to resource constraints, the 

Commission pointed out that it might 

not be able to preclear each summary, 

so it proposed to spot check executive 

summaries after the fact. 

Commission Reproposal 

The Commission did not receive 

comments on § 150.9(e) (nor on 

§ 150.10(e)), and is reproposing 

§ 150.9(e), as originally proposed, for 

the reasons explained in the 2016 

Supplemental Position Limits 

Proposal.1110

8. Proposed § 150.9(f)—Delegation of 

Authority 

Proposed Rule 

The Commission proposed to delegate 

certain of its authorities under proposed 

§ 150.9 (and § 150.10 and § 150.11), to 

the Director of the Commission’s 

Division of Market Oversight, or such 

other employee or employees as the 

Director designated from time to time. 

In § 150.9(f), the Commission proposed 

to delegate, until it ordered otherwise, 

to the Director of the Division of Market 

Oversight or such other employee or 

employees as the Director designated 

from time to time, the authorities under 

certain parts of §§ 150.9(a); 150.9(c); 

150.9(d); and 150.9(e). As noted, similar 

delegations were contained in proposed 

§ 150.10(f) and § 150.11(e) for spread 

exemptions and enumerated 

anticipatory hedge exemptions, 

respectively. 

Proposed § 150.9(f)(1)(i), 

§ 150.10(f)(1)(i) and § 150.11(e)(1)(i) 

delegated the Commission’s authority to 

the Division of Market Oversight to 

provide instructions regarding the 

submission of information required to 

be reported to the Commission by an 

exchange, and to specify the manner 

and determine the format, coding 

structure, and electronic data 

transmission procedures for submitting 

such information. Proposed 

§ 150.9(f)(1)(v) and § 150.10(f)(1)(v) 

delegated the Commission’s review 

authority under proposed § 150.9(e) and 

§ 150.10(e), respectively, to DMO with 

respect to summaries of types of 

recognized non-enumerated bona fide 

hedging positions, and types of spread 

exemptions, that were required to be 

posted on an exchange’s Web site 

pursuant to proposed § 150.9(a)(7) and 

§ 150.10(a)(7), respectively. 

Proposed § 150.9(f)(1)(i), 

§ 150.10(f)(1)(i) and § 150.11(e)(1)(i) 

delegated the Commission’s authority to 

the Division of Market Oversight to 

agree to or reject a request by an 

exchange to consider an application for 

recognition of an non-enumerated bona 

fide hedging position or enumerated 

anticipatory bona fide hedging position, 

or an application for a spread 

exemption. Proposed § 150.9(f)(1)(iii), 

§ 150.10(f)(1)(iii) and § 150.11(e)(1)(iii) 

delegated the Commission’s authority to 

review any application for recognition 

of a non-enumerated bona fide hedging 

position or enumerated anticipatory 

bona fide hedging position, or 

application for a spread exemption, and 

all records required to be maintained by 

an exchange in connection with such 

application. Proposed § 150.9(f)(1)(iii), 

§ 150.10(f)(1)(iii) and § 150.11(e)(1)(iii) 

also delegated the Commission’s 

authority to request such records, and to 

request additional information in 

connection with such application from 

the exchange or from the applicant. 

Proposed § 150.9(f)(1)(iv) and 

§ 150.10(f)(1)(iv) delegated the 

Commission’s authority, under 

proposed § 150.9(d)(2) and 

§ 150.10(d)(2), respectively, to 

determine that an application for 

recognition of an non-enumerated bona 

fide hedging position, or an application 

for a spread exemption, required 

additional analysis or review, and to 

provide notice to the exchange and the 

particular applicant that they had 10 

days to supplement such application. 

The Commission did not propose to 

delegate its authority under proposed 

§ 150.9(d)(3) or § 150.10(d)(3) to make a 

final determination as to the exchange’s 

disposition. The Commission stated that 

if an exchange’s disposition raised 

concerns regarding consistency with the 

Act or presents novel or complex issues, 

then the Commission should make the 

final determination, after taking into 

consideration any supplemental 

information provided by the exchange 

or the applicant.1111

Comments Received 

One commenter recommended that 

the Commission clarify the delegation 

provisions referenced in RFC 31 by 

expressly stating that ‘‘the Commission, 

not DMO, now and always will retain 

the ultimate authority to grant or deny 

Exemption applications.’’ 1112

Commission Reproposal 

The Commission is reproposing the 

delegation provisions, as originally 

proposed. With regard to the comment 

received, the Commission notes that, as 

provided in both proposed and 

reproposed § 150.9(f)(3), it retains the 

authority to make the final 

determination to grant or deny hedge 

exemption applications submitted 

pursuant to this rulemaking. However, 

the Commission also points out that any 

decisions of an existing Commission 

under this rulemaking cannot effectively 

bind a future commission, since such 

future Commission could amend or 

revoke such a rule. 

H. § 150.10—Process for Designated 

Contract Market or Swap Execution 

Facility Exemption From Position Limits 

for Certain Spread Positions 

1. Background 150.10 

In the 2016 Supplemental Position 

Limits Proposal, the Commission 

proposed to permit exchanges, by rule, 

to exempt from federal position limits 

certain spread transactions, as 

authorized by CEA section 4a(a)(1),1113


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for exemptions from exchange-set position limits 

for certain spread positions pursuant to CFMA-era 

regulatory parameters. See 2016 Supplemental 

Position Limits Proposal, 81 FR at 38467, n. 101. 

The Commission pointed out that, in current 

§ 150.3(a)(3), the Commission exempts spread 

positions ‘‘between single months of a futures 

contract and/or, on a futures-equivalent basis, 

options thereon, outside of the spread month, in the 

same crop year,’’ subject to certain limitations. 17 

CFR 150.3(a)(3). 

1114 7 U.S.C. 6a(a)(3)(B) and 7 U.S.C. 6a(c)(2)(B), 

respectively. 

1115CEA section 4a(a)(3)(B) also directs the 

Commission, in establishing position limits, to 

diminish, eliminate, or prevent excessive 

speculation; to deter and prevent market 

manipulation, squeezes, and corners; and to ensure 

that the price discovery function of the underlying 

market is not disrupted. 

1116 7 U.S.C. 6a(c)(2)(A). As explained in the 2016 

Supplemental Position Limits Proposal, 81 FR at 

38464, n. 66, CEA section 4a(c)(2) generally requires 

the Commission to define a bona fide hedging 

position as a position that in CEA section 

4a(c)(2)(A): Meets three tests (a position (1) is a 

substitute for activity in the physical marketing 

channel, (2) is economically appropriate to the 

reduction of risk, and (3) arises from the potential 

change in value of current or anticipated assets, 

liabilities or services); or, in CEA section 

4a(c)(2)(B), reduces the risk of a swap that was 

executed opposite a counterparty for which such 

swap would meet the three tests. 

1117Current § 150.5 applies as non-exclusive 

guidance and acceptable practices for compliance 

with DCM core principle 5. See December 2013 

Position Limits Proposal, 78 FR at 75750–2; see also 

2016 Supplemental Position Limits Proposal, 81 FR 

at 38477, n. 173. 

1118See December 2013 Position Limits Proposal, 

78 FR at 75736; see also 2016 Supplemental 

Position Limits Proposal, 81 FR at 38477. 

1119See, e.g., CL–CMC–59634 at 15; CL–Olam– 

59658 at 7; CL–CME–59718 at 69–71; CL–Citadel– 

59717 at 8, 9; CL–Armajaro–59729 at 2; and CL– 

ICEUS–59645 at 8–10. 

1120See CL–CMC–59634 at 15; CL–Olam–59658 

at 7; CL–CME–59718 at 71; CL–Armajaro–59729 at 

2; and CL–ICEUS–59645 at 8–10. 

1121See CL–Olam–59658 at 7; CL–CME–59718 at 

71; CL–ICEUS–59645 at 10. 

1122See 2016 Supplemental Position Limits 

Proposal, 81 FR at 38476–80. 

and in light of the provisions of CEA 

section 4a(a)(3)(B) and CEA section 

4a(c)(2)(B).1114 In particular, CEA 

section 4a(a)(1) provides the 

Commission with authority to exempt 

from position limits transactions 

normally known to the trade as 

‘‘spreads’’ or ‘‘straddles’’ or ‘‘arbitrage’’ 

or to fix limits for such transactions or 

positions different from limits fixed for 

other transactions or positions. The 

Commission noted that the Dodd-Frank 

Act amended the CEA by adding section 

4a(a)(3)(B), which now directs the 

Commission, in establishing position 

limits, to ensure, to the maximum extent 

practicable and in its discretion, 

‘‘sufficient market liquidity for bona 

fide hedgers.’’ 1115 The Commission also 

noted that the Dodd-Frank Act 

amendments to the CEA in section 

4a(c)(2)(B) limited the definition of a 

bona fide hedging position regarding 

positions (in addition to those included 

under CEA section 4a(c)(2)(A)) 1116

resulting from a swap that was executed 

opposite a counterparty for which the 

transaction would qualify as a bona fide 

hedging transaction, in the event the 

party to the swap is not itself using the 

swap as a bona fide hedging transaction. 

In this regard, the Commission 

interpreted this statutory definition to 

preclude spread exemptions for a swap 

position that was executed opposite a 

counterparty for which the transaction 

would not qualify as a bona fide 

hedging transaction. 

As noted in the 2016 Supplemental 

Position Limits Proposal, prior to the 

passage of the Dodd-Frank Act, the 

Commission exercised its exemptive 

authority pertaining to spread 

transactions in promulgating current 

§ 150.3. Current § 150.3 provides that 

the position limits set in § 150.2 may be 

exceeded to the extent such positions 

are spread or arbitrage positions 

between single months of a futures 

contract and/or, on a futures-equivalent 

basis, options thereon, outside of the 

spot month, in the same crop year; 

provided, however, that such spread or 

arbitrage positions, when combined 

with any other net positions in the 

single month, do not exceed the allmonths limit set forth in § 150.2. In 

addition, the Commission has permitted 

DCMs, in setting their own position 

limits under the terms of current 

§ 150.5(a), to exempt spread, straddle or 

arbitrage positions or to fix limits that 

apply to such positions that are different 

from limits fixed for other positions.1117

Under the December 2013 Position 

Limits Proposal, the exemption in 

current § 150.3(a)(3) for spread or 

arbitrage positions between single 

months of a futures contract or options 

thereon, outside the spot month would 

be deleted. As the Commission noted, 

the proposal would instead maintain the 

current practice in § 150.2 of setting 

single-month limits at the same levels as 

all-months limits, which would render 

the ‘‘spread’’ exemption 

unnecessary.1118 In particular, the 

spread exemption set forth in current 

§ 150.3(a)(3) permits a spread trader to 

exceed single month limits only to the 

extent of the all months limit. Because 

the Commission, in current § 150.2 and 

as proposed in the December 2013 

Position Limits Proposal, sets single 

month limits at the same level as all 

months limits, the existing spread 

exemption would no longer provide 

useful relief. 

The Commission also noted that the 

December 2013 Position Limits Proposal 

would codify guidance in proposed 

§ 150.5(a)(2)(ii) to allow an exchange to 

grant exemptions from exchange-set 

position limits for intramarket and 

intermarket spread positions (as those 

terms were defined in proposed § 150.1) 

involving commodity derivative 

contracts subject to the federal limits. 

To be eligible for the exemption in 

proposed § 150.5(a)(2)(ii), intermarket 

and intramarket spread positions, under 

the December 2013 Position Limits 

Proposal, would have to be outside of 

the spot month for physical delivery 

contracts, and intramarket spread 

positions could not exceed the federal 

all-months limit when combined with 

any other net positions in the single 

month. As proposed in the December 

2013 Position Limits Proposal, 

§ 150.5(a)(2)(iii) would require traders to 

apply to the exchange for any 

exemption, including spread 

exemptions, from its speculative 

position limit rules. 

Several commenters responding to the 

December 2013 Position Limits Proposal 

requested that the Commission provide 

a spread exemption to federal position 

limits.1119 Most of these commenters 

urged the Commission to recognize 

spread exemptions in the spot month as 

well as non-spot months.1120 Several of 

these commenters noted that the 

Commission’s proposal would permit 

exchanges to grant spread exemptions 

for exchange-set limits in commodity 

derivative contracts subject to federal 

limits, and recommended that the 

Commission establish a process for 

granting such spread exemptions for 

purposes of Federal limits.1121

In response to these comments, the 

Commission proposed in its 2016 

Supplemental Position Limits 

Proposal 1122 to permit exchanges to 

process and grant applications for 

spread exemptions from federal position 

limits. At that time, the Commission 

noted that most, if not all, DCMs already 

have rules in place to process and grant 

applications for spread exemptions from 

exchange-set position limits pursuant to 

part 38 of the Commission’s regulations 

(in particular, current §§ 38.300 and 

38.301) and current § 150.5. And, as 

noted above, the Commission pointed 

out that it has a long history of 

overseeing the performance of the DCMs 

in granting spread exemptions under 

current exchange rules regarding 

exchange-set position limits and 

believed that it would be efficient, and 

in the best interest of the markets, in 

light of current resource constraints, to 

rely on the exchanges to process 

applications for spread exemptions from 

federal position limits. In addition, the 


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1123 2016 Supplemental Position Limits Proposal, 

81 FR at 38477. 

1124See 2016 Supplemental Position Limits 

Proposal, 81 FR at 38464, n. 63, regarding 

Commission authority to recognize spreads under 

CEA section 4a(a)(1). Any action of the exchange to 

recognize a spread, pursuant to rules filed with the 

Commission, would be subject to review and 

revocation by the Commission. 

1125The Commission’s interprets CEA section 

4a(c)(2)(b) is a mandate from Congress to narrow the 

scope of what constitutes a bona fide hedging 

position in the context of index trading activities. 

‘‘Financial products are not substitutes for positions 

taken or to be taken in a physical marketing 

channel. Thus, the offset of financial risks from 

financial products is inconsistent with the proposed 

definition of bona fide hedging for physical 

commodities.’’ See 2016 Supplemental Position 

Limits Proposal, 81 FR at 38471; see also December 

2013 Position Limits Proposal, 78 FR at 75740. See 

also the discussion of the temporary substitute test. 

Id. at 75708–9. 

1126CL–NCGA–NGSA–60919 at 9 and CL– 

IECAssn–60949 at 3–4. 

1127See, e.g., CL–CCI–60935 at 3–4; CL–FIA– 

60937 at 3; CL–Working Group–60947 at 10; CL– 

IECAssn–60949 at 12–13; and CL–CME–60926 at 13 

(expressing that such qualification requirements 

could have the unintended consequences of (1) 

harming the ability of market participants to 

effectively manage their risk by preventing the 

Exchanges from recognizing an otherwise 

appropriate exemption from federal speculative 

position limits, and (2) stifling future innovation in 

the development of new commodity derivative 

products created to meet evolving market needs and 

demands). See also CL–FIA–60937 at 9 (citing the 

following example: ‘‘For example, CME’s New York 

Mercantile Exchange (‘‘NYMEX’’) recently listed the 

LOOP crude oil storage futures contract (LPS) and 

IFUS recently listed the world cotton futures 

contract (WCT). Assuming for purposes of 

illustration that both of these futures contracts were 

Referenced Contracts, under the Supplemental 

Proposal neither NYMEX nor IFUS would be 

permitted to grant non-enumerated hedge, spread, 

or anticipatory hedge exemptions during the first 

year of each contract’s existence notwithstanding 

the extensive experience of these exchanges in 

administering limits on positions in a variety of 

similar contracts.’’), CL–CME–60926 at 14 (arguing 

that one year of experience in administering 

position limits in similar contracts within a 

particular ‘‘asset class’’ would be a more reasonable 

requirement.), CL–FIA–60937 at 9 (expressing the 

view that ‘‘the CEA precludes the Commission from 

establishing limits that apply to ‘‘bona fide hedge 

positions,’’ and the ‘‘definition of bona fide hedging 

in CEA Section 4a(c)(2) does not include as relevant 

criteria whether an exchange contract is actively 

traded or an exchange has one year of prior 

experience administering limits on positions in that 

contract.’’ Thus, the CEA does not permit the one 

year prerequisite.) 

Commission stated that, because many 

market participants may be familiar 

with current DCM practices regarding 

spread exemptions, permitting DCMs to 

build on current practice may lower the 

burden on market participants and 

reduce duplicative filings at the 

exchanges and the Commission. The 

2016 Supplemental Position Limits 

Proposal noted that this plan would 

permit exchanges to provide market 

participants with spread exemptions, 

pursuant to exchange rules submitted to 

the Commission; however, the 

Commission also pointed out that it 

would retain the authority to review— 

and, if necessary, reverse—the 

exchanges’ actions.1123

Proposed § 150.10 and the public 

comments relevant to each proposed 

subsection are discussed below. 

2. Discussion 

As discussed in greater detail below, 

the Commission is reproposing § 150.10, 

largely as originally proposed. Some 

changes were made in response to 

concerns raised by commenters; other 

changes conform to changes made in 

§ 150.9 or § 150.11. Finally, several nonsubstantive changes were made in 

response to commenter questions to 

provide greater clarity. 

a. Proposed § 150.10(a)(1) 

Proposed Rule 

The Commission contemplated in 

proposed § 150.10(a)(1) that exchanges 

could voluntarily elect to process spread 

exemption applications, by filing new 

rules or rule amendments with the 

Commission pursuant to part 40 of the 

Commission’s regulations.1124 The 

process proposed under § 150.10(a) was 

substantially similar to that described 

above for proposed § 150.9(a). For 

example, proposed § 150.10(a)(1) 

provided that, with respect to a 

commodity derivative position for 

which an exchange elected to process 

spread exemption applications, (i) the 

exchange must list for trading at least 

one component of the spread or must 

list for trading at least one contract that 

is a referenced contract included in at 

least one component of the spread; and 

(ii) any such exchange contract must be 

actively traded and subject to position 

limits for at least one year on that 

exchange. As noted with respect to the 

process outlined above for proposed 

§ 150.9(a), the Commission expressed its 

belief that that an exchange should 

process spread exemptions only if it had 

at least one year of experience 

overseeing exchange-set position limits 

in an actively traded referenced contract 

that was in the same commodity as that 

of at least one component of the spread. 

The Commission stated that an 

exchange may not be familiar enough 

with the specific needs and differing 

practices of the participants in those 

markets for which an individual 

exchange did not list any actively traded 

referenced contract in a particular 

commodity. If a component of a spread 

was not actively traded on an exchange 

that elected to process spread 

exemption applications, such exchange 

might not be incentivized to protect or 

manage the relevant commodity market, 

and the interests of such exchange 

might not be aligned with the policy 

objectives of the Commission as 

expressed in CEA section 4a(a)(3)(B). 

The Commission expected that an 

individual exchange would describe 

how it would determine whether a 

particular component of a spread was 

actively traded in its rule submission, 

based on its familiarity with the specific 

needs and differing practices of the 

participants in the relevant market. 

Consistent with the restrictions 

regarding the offset of risks arising from 

a swap position in CEA section 

4a(c)(2)(B), proposed § 150.10(a)(1) 

would not permit an exchange to 

recognize a spread between a 

commodity index contract and one or 

more referenced contracts. That is, an 

exchange could not grant a spread 

exemption where a bona fide hedging 

position could not be recognized for a 

pass through swap offset of a 

commodity index contract.1125

The Commission noted that for intercommodity spreads in which different 

components of the spread were traded 

on different exchanges, the exemption 

granted by one exchange would be 

recognized by the Commission as an 

exemption from federal limits for the 

applicable referenced contract(s), but 

would not bind the exchange(s) that 

listed the other components of the 

spread to recognize the exemption for 

purposes of that other exchange(s)’ 

position limits. In such cases, a trader 

seeking such inter-commodity spread 

exemptions would need to apply 

separately for a spread exemption from 

each exchange-set position limit. 

Comments Received 

Two commenters recommended that 

the Commission should, to the greatest 

extent possible, allow the exchanges to 

administer exemptions for nonenumerated bona fide hedging 

positions, enumerated bona fide hedges, 

and spread positions in the same 

manner as they have been to date and 

allow exchanges to continue to 

independently evaluate exemption 

applications by relying on the 

exchange’s extensive knowledge of the 

markets.1126

Five commenters recommended that 

the Commission not adopt the ‘‘active 

trading’’ and ‘‘one year experience’’ 

requirements as proposed in the 

supplement regarding a DCM’s 

qualification to administer exemptions 

from federal position limits.1127 For a 

more detailed discussion please see 

§ 150.9(a)(1) above. 

Alternatively, several commenters 

expressed views against the 


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1128See, e.g., CL–Public Citizen–60940 at 3; CL– 

PMAA–NEFI–60952 at 2; CL–RER2–60962 at 1; CL– 

AFR–60953 at 2; CL–RER1–60961 at 1; CL–PMAA– 

NEFI–60952 at 2; CL–RER2–60962 at 1; CL–AFR– 

60953 at 2 and CL–Better Markets–60928 at 1–5. 

1129As noted above, according to the commenter, 

the qualification requirements would limit the 

number of exchanges that could grant exemptions 

to those that list the relevant referenced contract 

and manage position limits in that referenced 

contract based on the exchanges experience and 

knowledge of the underlying commodity market 

that referenced contract. 

1130As noted above, experience manifests in the 

people carrying out surveillance in a commodity 

rather than in an institutional structure. An 

exchange’s experience would be provided through 

the appropriate experience of the surveillance staff 

regarding the particular commodity. In fact, the 

Commission has historically reviewed the 

experience and qualifications of exchange 

regulatory divisions when considering whether to 

designate a new exchange as a contract market or 

to recognize a facility as a SEF; as such exchanges 

are new, staff experience has clearly been gained at 

other exchanges. 

1131CEA section 4a(a)(3)(B) provides that the 

Commission shall set limits ‘‘to the maximum 

extent practicable, in its discretion—to diminish, 

eliminate, or prevent excessive speculation as 

described under this section; to deter and prevent 

market manipulation, squeezes, and corners; to 

ensure sufficient market liquidity for bona fide 

hedgers; and to ensure that the price discovery 

function of the underlying market is not disrupted.’’ 

In addition, CEA section 4a(a)(7) authorizes the 

Commission to exempt any class of transaction from 

any requirement it may establish with respect to 

position limits. 

1132To avoid confusion, the Commission 

reiterates that experience manifests in the people 

carrying out surveillance in a commodity rather 

than in an institutional structure. An exchange’s 

experience would be provided through the 

appropriate experience of the surveillance staff 

regarding the particular commodity. 

1133As noted in the 2016 Supplemental Position 

Limits Proposal, the guidance is consistent with the 

statutory policy objectives for position limits on 

physical commodity derivatives in CEA section 

4a(a)(3)(B). See 2016 Supplemental Position Limits 

Proposal, 81 FR at 38464. The Commission 

interprets the CEA as providing it with the statutory 

authority to exempt spreads that are consistent with 

the other policy objectives for position limits, such 

as those in CEA section 4a(a)(3)(B). Id. 

Commission authorizing exchanges to 

grant hedge and spread exemptions, and 

cited concerns with respect to what they 

believe to be a conflict of interest that 

could arise between for-profit exchanges 

and their exemption-seeking customers. 

The commenters proposed, instead, that 

the Commission make any final hedge 

and spread exemption 

determinations.1128

Commission Reproposal 

The Commission is reproposing 

§ 150.10(a)(1), as originally proposed 

with one clarification explained below. 

In reproposing § 150.10(a)(1), the 

Commission provides a basic 

application process for exchanges that 

elect to process spread exemption 

applications to federal limits. This 

process allows exchanges flexibility 

while also facilitating the Commission’s 

review of exchange granted exemptions. 

The Commission notes that exchanges 

have authority to determine whether or 

not to apply the § 150.10(a)(1) process to 

spread exemptions from exchange-set 

limits that are lower than federal limits. 

Regarding the comment that the oneyear experience and active trading 

qualification requirements could harm 

the ability for market participants to 

effectively manage their risks because 

the qualification requirements would 

limit the number of exchanges that 

could grant exemptions,1129 the 

Commission clarifies that the one-year 

experience and active trading 

requirement can be met by any 

referenced contract in the particular 

commodity.1130 This feature allows a 

broader number of exchanges to grant 

spread exemptions. Furthermore, the 

Commission notes that an exchange 

with no active trading and or experience 

in any referenced contract in the 

particular commodity may not have 

their interests aligned with the CEA’s 

policy objectives for position limits, 

such as those in CEA section 

4a(a)(3)(B).1131

Finally, the Commission clarifies that 

an exchange can petition the 

Commission for a waiver of the one-year 

experience requirement pursuant to 

§ 140.99 of the Commission’s 

regulations if such exchange believes 

that their experience and interests are 

aligned with the Commission’s interests 

with respect to recognizing spread 

positions. 

Regarding comments that the 

Commission should be the sole 

authority to make a final hedge or 

spread exemption determination, or that 

the Exchange’s one-year of experience 

administering position limits to its 

actively traded contract and the 

Commission’s de novo review are 

inadequate, the Commission disagrees. 

The Commission believes the 

exchange’s one year of experience 

administering position limits to its 

actively traded contract,1132 and the 

Commission’s de novo review of granted 

exemptions (afterwards) are adequate to 

guard against or remedy any conflicts of 

interest. Also, the Commission notes 

that § 150.10(a)(4)(vi) requires 

exchanges should take into account 

whether granting a spread exemption in 

a physical commodity derivative would, 

to the maximum extent practicable, 

ensure sufficient market liquidity for 

bona fide hedgers, and not unduly 

reduce the effectiveness of position 

limits to: Diminish, eliminate, or 

prevent excessive speculation; deter and 

prevent market manipulation, squeezes, 

and corners; and ensure that the price 

discovery function of the underlying 

market is not disrupted.1133

b. Proposed § 150.10(a)(2) 

Proposed Rule 

Proposed § 150.10(a)(2) specifies a 

non-exclusive list of the type of spreads 

that an exchange might exempt from 

position limits, including calendar 

spreads; quality differential spreads; 

processing spreads (such as energy 

‘‘crack’’ or soybean ‘‘crush’’ spreads); 

and product or by-product differential 

spreads. The Commission pointed out 

that this list was not exhaustive, but 

reflected common types of spread 

activity that might enhance liquidity in 

commodity derivative markets, thereby 

facilitating the ability of bona-fide 

hedgers to put on and offset positions in 

those markets. For example, trading 

activity in many commodity derivative 

markets is concentrated in the nearby 

contract month, but a hedger might need 

to offset risk in deferred months where 

derivative trading activity may be less 

active. A calendar spread trader could 

provide such liquidity without exposing 

himself or herself to the price risk 

inherent in an outright position in a 

deferred month. Processing spreads can 

serve a similar function. For example, a 

soybean processor might seek to hedge 

his or her processing costs by entering 

into a ‘‘crush’’ spread, i.e., going long 

soybeans and short soybean meal and 

oil. A speculator could facilitate the 

hedger’s ability to do such a transaction 

by entering into a ‘‘reverse crush’’ 

spread (i.e., going short soybeans and 

long soybean meal and oil). Quality 

differential spreads, and product or byproduct differential spreads, may serve 

similar liquidity-enhancing functions 

when spreading a position in an actively 

traded commodity derivatives market 

such as CBOT Wheat against a position 

in another actively traded market, such 

as MGEX Wheat. 

The Commission anticipated that a 

spread exemption request might include 

spreads that were ‘‘legged in,’’ that is, 

carried out in two steps, or alternatively 

were ‘‘combination trades,’’ that is, all 

components of the spread were 

executed simultaneously. 

This proposal, the Commission 

observed, would not limit the granting 

of spread exemptions to positions 

outside the spot month, unlike the 

existing spread exemption provisions in 

current § 150.3(a)(3), or in 

§ 150.5(a)(2)(ii) as proposed in the 

December 2013 Position Limits 

Proposal. The proposal responded to 

specific requests of commenters to 

permit spread exemptions in the spot 

month. The Commission pointed out 


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1134CL–CME–59718 at 71. See also 2016 

Supplemental Position Limits Proposal, 81 FR at 

38478. 

1135CEA section 4a(a)(3)(B)(iii); 7 U.S.C. 

6a(a)(3)(B)(iii). See also the discussion of proposed 

§ 150.10(a)(3)(ii), below. 

1136See proposed § 150.10(a)(3)(ii). 

1137See proposed § 150.10(a)(4)(vi); see also 2016 

Supplemental Position Limits Proposal, 81 FR at 

38478. 

1138The Commission pointed out that it could, for 

example, revoke or confirm exchange-granted 

exemptions. 

1139See 2016 Supplemental Position Limits 

Proposal, 81 FR at 38478. 

1140CL–ICE–60929 at 24; CL–IECAssn–60949 at 

15; and CL–ADM–60934 at 6–7. 

1141CL–NCGA–ASA–60917 at 1–2; CL–CME– 

60926 at 3; CL–ICE–60929 at 9; and CL–AFIA– 

60955 at 2; CL–NGFA–60941 at 5–7; CL–ISDA– 

60931 at 10; CL–NCFC–60930 at 3–4; and CL– 

Working Group–60947 at 7–9. 

1142CL–CCI–60935 at 8–9. 

1143CL–Nodal–60948 at 3. 

1144CL–ADM–60934 at 8. 

1145CL–ICE–60929 at 25. 

1146CL–Working Group–60947 at 9–10 and CL– 

FIA–60937 at 14. 

1147CL–ICE–60929 at 11–12; CL–NCC–ACSA– 

60972 at 2; and CL–CMC–60950 at 11–12. 

that the CME, for example, 

recommended ‘‘the Commission 

reaffirm in DCMs the discretion to apply 

their knowledge of individual 

commodity markets and their 

judgement, as to whether allowing 

intermarket spread exemptions in the 

spot month for physical-delivery 

contracts is appropriate.’’ 1134

The Commission proposed to revise 

the December 2013 Position Limits 

Proposal in the manner described above 

because, as it noted in the 2016 

Supplemental Position Limits Proposal 

as well as in the examples above, 

permitting spread exemptions in the 

spot month may further one of the four 

policy objectives set forth in section 

4a(a)(3)(b) of the Act: To ensure 

sufficient market liquidity for bona fide 

hedgers.1135 This policy objective, the 

Commission observed, was incorporated 

into the proposal in its requirements 

that: (i) The applicant provide detailed 

information demonstrating why the 

spread position should be exempted 

from position limits, including how the 

exemption would further the purposes 

of CEA section 4a(a)(3)(B); 1136 and (ii) 

the exchange would determine whether 

the spread position (for which a market 

participant was seeking an exemption) 

would further the purposes of CEA 

section 4a(a)(3)(B).1137 Moreover, the 

Commission pointed out that it was 

retaining the ability to review the 

exchange rules as well as to review how 

an exchange enforces those rules.1138

The Commission also discussed that it 

was concerned, among other things, 

about protecting the price discovery 

process in the core referenced futures 

contracts, particularly as those contracts 

approach expiration. Accordingly, as an 

alternative, the Commission considered 

whether to prohibit an exchange from 

granting spread exemptions that would 

be applicable during the lesser of the 

last five days of trading or the time 

period for the spot month.1139

Comments Received 

Several commenters expressed the 

view that exchanges must be allowed to 

use their experience to determine 

whether to grant spread exemptions in 

the spot month—including within the 

last five days of trading. Commenters 

expressed the view that allowing 

exchanges to grant spread exemptions in 

the spot months/last five days would 

provide liquidity to the market and help 

convergence between cash and futures 

markets.1140

Eight commenters expressed the view 

that the Commission should not impose 

the five-day rule for spread positions in 

the expiring spot month contract.1141

The commenters argued that to impose 

the five-day rule would adversely affect 

liquidity in the futures market and 

impair convergence between cash and 

futures markets and thus the price 

discovery function of the futures 

market. The commenters also expressed 

the view that the Commission’s 

concerns about trading activity in the 

final days of an expiring futures contract 

can best be addressed by existing 

exchange and Commission surveillance 

programs and the Commission’s 

‘‘special call’’ authority to request 

information from market participants. 

One commenter expressed the view 

that the Commission should not apply 

the five-day rule to certain enumerated 

bona fide hedging positions under 

proposed § 150.1(3)–(4), crosscommodity hedges under proposed 

§ 150.1(5), or to non-enumerated bona 

fide hedge, or spread exemptions. 

Instead, the Commission should permit 

the Exchanges to determine the facts 

and circumstances where a market 

participant may be permitted to hold a 

physical-delivery referenced contract in 

the spot month as part of a position that 

is exempt from federal speculative 

position limits.1142

Another commenter expressed that it 

‘‘would support the applicability of the 

spread exemption through the end of 

the month, without limiting the 

exemption during the current month.’’ 

In that regard, the commenter (an 

exchange) noted that its ‘‘futures 

contracts on electricity settle to the 

independent, spot market overseen by 

the ISO/RTO markets.’’ The commenter 

argued that ‘‘since the settlement prices 

are determined in the ISO/RTO markets, 

trading during the last five days of the 

spot month has no impact on final 

settlement prices’’ on either the 

exchange or the ISO/RTO spot markets. 

The commenter noted that ‘‘bona fide 

hedgers rely on the ability to hold 

positions through the end of the current 

month, which has very low volume 

traded for monthly power contracts. 

Restrictions on spread exemptions 

during the last five days of trading may 

force market participants to exit their 

position during a period of lower 

liquidity—more than 99% of trading 

volume occurs outside the current (spot) 

month’’ on its exchange.1143

One commenter expressed that it is 

concerned that the new Form 504 would 

impose a series of reporting 

requirements to track and distinguish 

between types of hedge exemptions and 

requires reporting of all cash market 

holdings for each day of the spot month 

that would be difficult given the 

portfolio nature of commenter’s 

business and the fungibility of futures 

contracts and the underlying cash 

commodity. The commenter expressed 

the view that once a hedge exemption 

is granted under the supplemental, the 

reporting requirements should be 

similar to the reporting requirements for 

existing enumerated bona fide hedging 

position exemptions.1144

Another commenter expressed the 

view that it is not necessary to condition 

spread exemptions on additional filings 

to the exchange or the Commission.1145

Two commenters requested that the 

Commission clarify that the term 

‘‘spread position’’ includes all types of 

spreads and the list of spreads 

referenced in proposed § 150.10 is 

simply illustrative and not 

exhaustive.1146

Three commenters requested that the 

Commission continue to permit cash 

and carry exemptions, stating, among 

other reasons, such exemptions serve an 

economic purpose by helping to 

maintain an appropriate economic 

relationship between the nearby and the 

next successive delivery month.1147

Commission Reproposal 

The Commission is reproposing 

§ 150.10(a)(2), as originally proposed, 

and clarifying that the five-day rule does 

not apply to spreads. Because the 

Commission did not propose in the 

2016 Supplemental Position Limits 

Proposal to apply the five-day rule to 

‘‘spread positions’’, exchanges would 

have discretion to recognize such spread 

positions without regard to the five-day 

rule. The Commission cautions 

exchanges to carefully consider whether 


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1148Proposed § 150.10(a)(2) included the 

following list of spreads that a designated contract 

market or swap execution facility may approve 

under this section include: (i) Calendar spreads; (ii) 

Quality differential spreads; (iii) Processing 

spreads; and (iv) Product or by-product differential 

spreads. 

1149See 2016 Supplemental Position Limits 

Proposal, 81 FR at 38479, n. 192, and accompanying 

text (describing the DCM’s responsibility under its 

application process to make this determination in 

a timely manner). 

1150See ICE Futures U.S. Rule 6.29(e). 

1151Carrying charges include insurance, storage 

fees, and financing costs, as well as other costs such 

as aging discounts that are specific to individual 

commodities. The ICE Futures U.S. rules require an 

applicant to provide: (i) Its cost of carry; (ii) the 

minimum spread at which the applicant will enter 

into a straddle position and which would result in 

an profit for the applicant; and (iii) the quantity of 

stocks in exchange-licensed warehouses that it 

already owns. The applicant’s entire long position 

carried into the notice period must have been put 

on as a spread at a differential that covers the 

applicant’s cost of carry. See Rule Enforcement 

Review of ICE Futures U.S., July 22, 2014 (‘‘ICE 

Futures U.S. Rule Enforcement Review’’), at 44–45, 

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

TradingOrganizations/DCMs/dcmruleenf. See also 

2016 Supplemental Position Limits Proposal, 81 FR 

at 38479, n. 189. 

1152See 2016 Supplemental Position Limits 

Proposal, 81 FR at 38479. 

1153 ICE Futures U.S. Rule 6.29(e) (at the time of 

the target period of the ICE Futures U.S. Rule 

Enforcement Review (June 15, 2011 to June 15, 

2012), the cash-and-carry provision currently found 

in ICE Futures U.S. Rule 6.29(e) was found in ICE 

Futures U.S. Rule 6.27(e)). Further, under the 

exchange’s rules, additional conditions may also 

apply. 

to recognize a spread position in the last 

few days of trading in physical-delivery 

contracts. For a more detailed 

discussion please see § 150.9(a)(1) 

above. 

The Commission reiterates, as 

proposed and discussed in the 2016 

Supplemental Position Limit Proposal, 

that an exchange would not be 

permitted to recognize a spread between 

a commodity index contract and one or 

more referenced contracts. That is, an 

exchange may not grant a spread 

exemption where a bona fide hedging 

position could not be recognized for a 

pass-through swap offset of a 

commodity index contract. For a more 

detailed discussion please see 

§ 150.9(a)(1) above. 

In response to the comment regarding 

spread exemptions for electricity 

contracts, the Commission notes that 

electricity contracts are not referenced 

contracts that will be subject to federal 

limits at this time. Thus, exchanges may 

elect to process spread exemptions for 

exchange-set position limits for nonreferenced contracts. 

In response to the comments 

regarding the proposed spread 

exemption process imposing additional 

filing requirements on market 

participants relying on an exchangegranted spread exemption, the 

Commission clarifies that it is in the 

exchange’s discretion to determine 

whether there are additional reporting 

requirements for a spread exemption. 

For a more detailed discussion please 

see § 150.9(a)(1) above. 

In response to the comments received 

requesting clarification that the list of 

spreads in § 150.10(a)(2) 1148 is simply 

illustrative and not an exhaustive list of 

possible spread exemptions that may be 

granted by an exchange, the 

Commission acknowledges that the list 

of spreads in § 150.10(a)(2) is not an 

exhaustive list and that exchanges may 

grant other spread exemptions so long 

as they meet the requirements in 

§ 150.10(a)(1), (3), and (4)(vi). 

In response to the comments received 

that requested the Commission continue 

to permit ‘‘cash and carry’’ spread 

exemptions, the Commission has 

determined to allow exchanges to grant 

‘‘cash and carry’’ spread exemptions to 

exchange and federal limits so long as 

an exchange has suitable safeguards in 

place to require a market participant 

relying on such an exemption to reduce 

their position below the speculative 

limit in a timely manner once current 

market prices no longer permit entry 

into a full carry transaction. The 

Commission notes that the condition 

noted above is more stringent than how 

ICE Futures U.S. has conditioned 

market participants relying on a cashand–carry spread exemption. In that 

regard, ICE Futures U.S. has required a 

market participant to reduce their 

positions ‘‘before the price of the nearby 

contract month rises to a premium to 

the second (2nd) contract month.’’ 

c. Proposed § 150.10(a)(3) 

Proposed Rule 

Proposed § 150.10(a)(3) set forth a 

core set of information and materials 

that all applicants would be required to 

submit to enable an exchange to 

determine, and the Commission to 

verify, whether the facts and 

circumstances attendant to a spread 

position furthered the policy objectives 

of CEA section 4a(a)(3)(B). In particular, 

the applicant would be required to 

demonstrate, and the exchange to 

determine, that exempting the spread 

position from position limits would, to 

the maximum extent practicable, ensure 

sufficient market liquidity for bona fide 

hedgers, but not unduly reduce the 

effectiveness of position limits to: 

Diminish, eliminate or prevent 

excessive speculation; deter and prevent 

market manipulation, squeezes, and 

corners; and ensure that the price 

discovery function of the underlying 

market is not disrupted.1149

The proposal pointed out that one 

DCM, ICE Futures U.S., currently grants 

certain types of spread exemptions that 

the Commission was concerned may not 

be consistent with these policy 

objectives.1150 ICE Futures U.S. allows 

‘‘cash-and-carry’’ spread exemptions to 

exchange-set limits, which permit a 

market participant to hold a long 

position greater than the speculative 

limit in the spot month and an 

equivalent short position in the 

following month in order to guarantee a 

return that, at minimum, covers its 

carrying charges, such as the cost of 

financing, insuring, and storing the 

physical inventory until the next 

expiration.1151 Market participants are 

able to take physical delivery in the 

nearby month and redeliver the same 

product in a deferred month, often at a 

profit. The Commission noted that 

while market participants are permitted 

to re-deliver the physical commodity, 

they are under no obligation to do 

so.1152

ICE Futures U.S.’s rules condition the 

cash-and-carry spread exemption upon 

the applicant’s agreement that ‘‘before 

the price of the nearby contract month 

rises to a premium to the second (2nd) 

contract month, it will liquidate all long 

positions in the nearby contract 

month.’’ 1153 The Commission noted 

that it understood that ICE Futures U.S. 

required traders to provide information 

about their expected cost of carry, 

which was used by the exchange to 

determine the levels by which the trader 

has to reduce the position. Those exit 

points were then communicated to the 

applicant when the exchange responded 

to the trader’s spread exemption 

request. 

The 2016 Supplemental Position 

Limits Proposal considered whether to 

impose on the exchange a requirement 

to ensure that exit points in cash-andcarry spread exemptions would 

facilitate an orderly liquidation in the 

expiring futures contract. The 

Commission stated that it was 

concerned that a large demand for 

delivery on cash and carry positions 

might distort the price of the expiring 

futures upwards. This would 

particularly be a concern in those 

commodity markets where the cash spot 

price was discovered in the expiring 

futures contract. 

As the Commission noted, ICE 

Futures U.S. opined in a recent rule 

enforcement review that such 

exemptions are ‘‘beneficial for the 

market, particularly when there are 

plentiful warehouse stocks, which 


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1154 ICE Futures U.S. Rule Enforcement Review, 

at 45. 

1155See 2016 Supplemental Position Limits 

Proposal, 81 FR at 38479. 

1156CL–Working Group–60947 at 22. See also 

CL–ISDA–60931 at 1 (expressing that under the 

2016 Supplemental Position Limits Proposal, the 

exchange must certify that a spread exemption 

increases liquidity in order to grant it. The 

commenter expressed the view that the CEA 

requires limits that do not impair liquidity, as 

opposed to limits that specifically increase it. 

Furthermore, the commenter recommended that the 

Commission should remove this condition because 

the purpose of a spread exemption ‘‘is not to 

increase liquidity but rather to recognize the more 

limited speculative opportunity created by such 

positions.’’). 

1157CL–ICE–60929 at 8. See also CL–Nodal– 

60948 at 2–3 (expressing the view that ‘‘[t]he 

Proposed Rule is overly prescriptive as to the 

information that must be provided by the applicant, 

especially when the exchange may have superior 

information regarding intramarket spreads. Unlike 

intermarket spreads, the exchange, and not the 

applicant, is more likely to have direct information 

to determine whether an intramarket spread 

achieves the goals of CEA 4a(a)(3)(B). For example, 

[an exchange] has current deliverable supply 

analysis, spread and outright trading activity 

information, and market data from spot markets for 

the underlying physical commodities. In 

performing its pricing and surveillance functions, 

[an exchange] monitors position accumulation 

information that is not available to market 

participants as well as out-of-market pricing in real 

time.’’ The commenter requested that it be allowed 

to determine its application process, and the 

information it needs to achieve the policy objectives 

of CEA 4a(a)(3)(B), ‘‘for which the Commission has 

the authority to review the exchange’s rules and 

conclusions.’’) 

1158CL–Working Group–60947 at 10. See also 

CL–ISDA–60931 at 10 (expressing the view that the 

proposed rule 150.10(a)(3)(iii) requiring maximum 

size of all gross positions in derivative contracts is 

too broad and practically impossible as no market 

participant can predict trading activity for a year). 

typically is the only time when the 

opportunity exists to utilize the 

exemption,’’ maintaining that the 

exchange’s rules and procedures are 

effective in ensuring orderly 

liquidations.1154 The Commission 

observed that it remained concerned 

about these exemptions and their 

impact on the spot month price, and 

noted that it was still reviewing the 

effectiveness of the exchange’s cashand-carry spread exemptions and the 

procedure by which they were granted. 

As an alternative to providing 

exchanges with discretion to consider 

granting cash-and-carry spread 

exemptions, the Commission 

considered, in the 2016 Supplemental 

Position Limits Proposal, prohibiting 

cash-and-carry spread exemptions to 

position limits. In this regard, the 

Commission pointed out that it does not 

grant such exemptions to current federal 

position limits. As another alternative, 

the Commission considered permitting 

exchanges to grant cash-and-carry 

spread exemptions, but would require 

suitable safeguards be placed on such 

exemptions. For example, the 

Commission considered requiring that 

cash-and-carry spread exemptions be 

conditioned on a market participant 

reducing positions below speculative 

limit levels in a timely manner once 

current market prices no longer permit 

entry into a full carry transaction, rather 

than the less stringent condition of ICE 

Futures U.S. that a trader reduce 

positions ‘‘before the price of the nearby 

contract month rises to a premium to 

the second (2nd) contract month.’’ 1155

Comments Received 

One commenter expressed the view 

that an ‘‘exchange should not be 

required to determine whether liquidity 

will be increased if a particular Spread 

Exemption is granted before it is 

permitted to grant such Spread 

Exemption.’’ According to the 

commenter, ‘‘this requirement 

effectively would create an entirely new 

legal standard for spread exemptions 

and flip on its head the requirement 

under CEA section 4a(a)(3)(b)(iii), which 

states that, to the maximum extent 

practicable, in establishing speculative 

position limits the Commission in its 

discretion should ensure sufficient 

market liquidity for bona fide hedgers. 

CEA section 4a(a)(3)(b)(iii) does not 

require (and should not require) that, in 

granting an exemption from speculative 

position limits, the exemption must add 

to liquidity.’’ 1156

Two commenters requested that the 

proposed application requirements for 

market participants be revised to only 

require ‘‘such information as the 

relevant exchange deems necessary to 

determine if the requested exemption is 

consistent with the purposes of 

hedging.’’ Furthermore one commenter 

requested that the Commission confirm 

that the detailed procedures for 

exchange-granted exemptions for spread 

and anticipatory hedges are not 

applicable to exemptions granted by 

exchanges for positions below the 

federal level.1157

One commenter expressed the view 

that ‘‘if proposed Regulations 

150.9(a)(3)(iii) and 150.10(a)(3)(iii) 

indeed are intended to apply to an 

applicant’s maximum size of all gross 

positions for each and every commodity 

derivative contract the applicant holds 

(as opposed to the maximum gross 

positions in the commodity derivative 

contract(s) for which the exemption is 

sought), such requirements are 

unnecessary and unduly 

burdensome.’’ 1158

Commission Reproposal 

The Commission is reproposing 

§ 150.10(a)(3), largely as originally 

proposed with one clarifying 

amendment to § 150.10(a)(3)(iii), as 

discussed further below. The 

Commission believes that exchanges 

should consider the policy objectives of 

CEA section 4a(a)(3)(B), which is the 

standard that the Commission would 

use to review a petition to exempt a 

spread position from position limits. 

Regarding the comment arguing that 

CEA section 4a(a)(3)(b)(iii) does not 

require that the granting of a spread 

exemption must increase liquidity, the 

Commission interprets the CEA as 

providing it with the statutory authority 

to exempt spreads that are consistent 

with the other policy objectives for 

position limits, such as those in CEA 

section 4a(a)(3)(B). CEA section 

4a(a)(3)(B) provides that the 

Commission shall set limits to the 

maximum extent practicable, in its 

discretion—to diminish, eliminate, or 

prevent excessive speculation as 

described under this section; to deter 

and prevent market manipulation, 

squeezes, and corners; to ensure 

sufficient market liquidity for bona fide 

hedgers; and to ensure that the price 

discovery function of the underlying 

market is not disrupted. The 

Commission believes that exchanges 

who elect to grant spread exemptions to 

federal position limits should use the 

guidance in CEA section 4a(a)(3)(B) as 

the Commission would when reviewing 

de novo a spread exemption 

application. 

Regarding the comment requesting 

change to the requirements of 

§ 150.10(a)(3) to only require ‘‘such 

information as the relevant exchange 

deems necessary to determine if the 

requested exemption is consistent with 

the purposes of hedging,’’ the 

Commission believes that the proposal 

requires a minimum amount of 

information, and exchanges have 

discretion to require additional 

information. If (as one commenter 

represented) an exchange has market 

information that would supplement its 

analysis of a spread exemption 

application, nothing in the proposal 

would preclude an exchange from using 

that information in its analysis. 

However, the Commission notes that 

such information must be included in 

the records of that spread exemption 

application as required under 

§ 150.10(b). 

In response to the request for 

clarification regarding whether § 150.10 

applies to both federal and exchange-set 

limits, the Commission clarifies that, as 


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1159The Commission noted, for example, 

proposed § 150.9(a)(4) provided that: (i) A person 

intending to rely on a exchange’s exemption from 

position limits would be required to submit an 

application in advance and to reapply at least on 

an annual basis; (ii) the exchange would be required 

to notify an applicant in a timely manner whether 

the position was exempted, and reasons for any 

rejection; and (iii) the exchange would be able to 

revoke, at any time, any recognition previously 

issued pursuant to proposed § 150.9 if the exchange 

determined the recognition was no longer in accord 

with section 4a(c) of the Act. See 2016 

Supplemental Position Limits Proposal, 81 FR at 

38480, n. 192. 

1160See 2016 Supplemental Position Limits 

Proposal, 81 FR at 38476, n. 171 and accompanying 

text. 

1161For example, proposed § 150.9(a)(5) provided 

that the position will be deemed to be recognized 

as a non-enumerated bona fide hedging position 

when an exchange recognized it. 

1162CL–ISDA–60931 at 6–7. 

1163For example, proposed § 150.9(a)(6) provided 

that an exchange would promulgate enhanced 

reporting rules in order to obtain sufficient 

information to conduct an adequate surveillance 

program to detect and potentially deter excessively 

large positions that might disrupt the price 

discovery process. 

1164See, e.g., CL–FIA–60937 at 15; CL–CMC– 

60950 at 12–13; CL–CCI–60935 at 7–8; CL–NCGA– 

NGSA–60919 at 12–13; CL–MGEX–60936 at 6; CL– 

ISDA–60931 at 10; CL–NGFA–60941 at 4; CL– 

Working Group–60947 at 12 (footnotes omitted) and 

CL–AMG–60946 at 4–5. 

1165For example, proposed § 150.9(a)(7) provided 

that an exchange would publish on its Web site, no 

less frequently than quarterly, a description of each 

new type of derivative position that it recognized 

as a non-enumerated bona fide hedge. The 

Commission noted that it envisioned that each 

description would be an executive summary. The 

description would be required to include a 

summary describing the type of derivative position 

and an explanation of why it qualified as a nonenumerated bona fide hedge. The Commission 

observed that the exchanges were in the best 

position when quickly crafting these descriptions to 

accommodate an applicant’s desire for trading 

Continued 

explained above in connection with 

§ 150.5, § 150.10 would not apply if an 

exchange grants exemptions from 

speculative position limits it sets under 

paragraph § 150.5(a)(1), provided that 

that any spread exemptions to 

exchange-set limits not conforming to 

§ 150.3 and § 150.10 were capped at the 

level of the applicable federal limit in 

§ 150.2. Further, § 150.10 would not 

apply to exchanges that grant spread 

exemptions to exchange-set limits, in 

commodity derivative contracts not 

subject to a federal limit. 

Regarding the comment about 

whether the phrase ‘‘maximum size of 

all gross positions’’ applies to an 

applicant’s entire book of derivative 

positions or just those positions 

pertaining to the exemption application, 

the Commission intended that the 

applicant only report its maximum size 

of all gross positions in the commodity 

related to the exemption application 

that it is submitting. In that regard, 

Commission is reproposing 

§ 150.10(a)(3)(iii) to clarify as such. For 

a more detailed discussion, please see 

§ 150.9(a)(2) above. 

d. Proposed § 150.10(a)(4) 

Proposed Rule 

Proposed § 150.10(a)(4) set forth 

certain timing requirements that an 

exchange would be required to include 

in its rules for the spread application 

process. Those timing requirements 

would substantially mirror those 

provisions proposed in § 150.9(a)(4) 1159

for the non-enumerated bona fide 

hedging position application process. 

While these timing requirements are 

similar to those under proposed 

§ 150.9(a)(4), the exchange, under 

proposed § 150.10(a)(4), must also 

determine in a timely manner whether 

the facts and circumstances attendant to 

a position further the policy objectives 

of CEA section 4a(a)(3)(B).1160

Comments Received 

The Commission notes that it did not 

receive comments regarding 

§ 150.10(a)(4). 

Commission Determination 

The Commission is reproposing 

§ 150.10(a)(4), as originally proposed. 

e. Proposed § 150.10(a)(5) 

Proposed Rule 

Proposed § 150.10(a)(5) clarified that 

an applicant’s spread position would be 

deemed to be recognized as a spread 

position exempt from federal position 

limits at the time an exchange 

recognized it. The Commission noted 

that this was substantially similar to 

proposed § 150.9(a)(5) for nonenumerated bona fide hedging position 

exemptions.1161

Comments Received 

One commenter expressed the view 

that it is concerned regarding how an 

exchange should coordinate the granting 

of exemptions with respect to contracts 

on the same underlying commodities 

that trade on different exchanges, and 

requests guidance from the Commission 

on that matter.1162

Commission Reproposal 

The Commission is reproposing 

§ 150.10(a)(5), as originally proposed. 

The Commission notes that the proposal 

allows each exchange to use its own 

expertise to decide what exemptions 

and limit levels to employ for their 

venue with the Commission serving in 

an oversight role to monitor exemptions 

and position limits across exchanges. 

The Commission also notes that 

although the proposal does not address 

coordination of granting of exemptions 

among exchanges, there is nothing in 

the proposal that would prohibit 

exchanges from coordinating. 

f. Proposed § 150.10(a)(6) 

Proposed Rule 

Proposed § 150.10(a)(6) required 

exchanges that elect to process spread 

applications to promulgate reporting 

rules for applicants who owned, held or 

controlled positions recognized as 

spreads; the Commission noted that this 

is substantially similar to proposed 

§ 150.9(a)(6) for non-enumerated bona 

fide hedge exemptions.1163

Comments Received 

Several commenters 1164

recommended, ‘‘that the Commission 

remove the proposed requirement that 

an exchange must adopt enhanced 

reporting rules for market participants 

that rely on non-enumerated hedge 

exemptions, spread exemptions, or 

anticipatory exemptions’’ because the 

proposal ‘‘would force exchanges to 

establish rules that require market 

participants to report all referenced 

contract positions that they hold or 

control in reliance upon a nonenumerated hedge, spread, or 

anticipatory hedge exemption along 

with the underlying cash market 

exposure (e.g., cash positions or 

components of a spread) hedged by 

those positions.’’ Many of these 

commenters expressed the view that 

such reporting requirements would be 

overly burdensome and/or confusing. 

Commission Reproposal 

The Commission is reproposing 

§ 150.10(a)(6) with one modification to 

clarify in the regulation text that 

exchanges are authorized, but not 

required, to determine whether to 

require reporting by the spread 

exemption applicant. For a more 

detailed discussion, please see the 

discussion of § 150.9(a)(3) above. 

g. Proposed § 150.10(a)(7) 

Proposed Rule 

Proposed § 150.10(a)(7) required an 

exchange to publish on its Web site, no 

less frequently than quarterly, a 

description of each new type of 

derivative position that it recognized as 

a spread; the Commission noted that 

this was substantially similar to 

proposed § 150.9(a)(7) for nonenumerated bona fide hedging position 

exemptions.1165


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anonymity while promoting fair and open access for 

market participants to information regarding which 

positions might be recognized as non-enumerated 

bona fide hedges. 

1166CL–Nodal–60948 at 4. 

1167CL–CME–60926 at 11. 

1168 If the exchange determined to request under 

proposed § 150.10(a)(8) that the Commission 

consider the application, the exchange must, under 

proposed § 150.10(a)(4)(v)(C), notify an applicant in 

a timely manner that the exchange had requested 

that the Commission review the application. This 

provision provided the exchanges with the ability 

to request Commission review early in the review 

process, rather than requiring the exchanges to 

process the request, make a determination and only 

then begin the process of Commission review 

provided for under proposed § 150.10(d). The 

Commission noted that although most of its reviews 

would occur after the exchange makes its 

determination, the Commission could, as provided 

for in proposed § 150.10(d)(1), initiate its review, in 

its discretion, at any time. 

1169For example, proposed § 150.9(a)(8) provided 

that if an exchange makes a request pursuant to 

proposed § 150.9(a)(8), the Commission, as would 

be the case for an exchange, would not be bound 

by a time limitation. 

1170See 2016 Supplemental Position Limits 

Proposal, 81 FR at 38480; see also discussion of 

150.9(c) at 38474–75. 

Comments Received 

One commenter expressed the view 

that proposed § 150.10 would have an 

anti-competitive effect on markets that 

rely on intramarket spread trading to 

enhance liquidity on less actively traded 

contracts. The commenter was 

concerned that the information that 

would be published in a fact pattern 

summary would provide details that 

could be used to identify market 

participants, especially in thinly traded 

specialized markets.1166

Another commenter expressed the 

view that exchanges should ‘‘not be 

required to disclose any conditions of 

an exemption granted due to the 

potential for such information to 

compromise the exemption recipient’s 

position.’’ 1167

Commission Reproposal 

The Commission is reproposing 

§ 150.10(a)(6), as originally proposed. 

The Commission reiterates that the 

purpose of each summary is to provide 

transparency to market participants by 

providing fair and open access for 

market participants to information 

regarding which positions might be 

recognized as spreads. The summary 

would be an executive summary that 

does not provide details of a market 

participant who received such an 

exemption, but rather, a general 

description of what the position is and 

why it qualifies for a spread exemption. 

The commenters did not provide any 

proposed alternatives to provide such 

transparency to market participants. 

h. Proposed § 150.10(a)(8) 

Proposed Rule 

Proposed § 150.10(a)(8) provided 

options for an exchange to elect to 

request the Commission review a spread 

application that raised novel or complex 

issues, using the process set forth in 

proposed § 150.10(d), discussed 

below.1168 This was substantially 

similar to those proposed under 

§ 150.9(a)(8).1169

Comments Received 

The Commission did not receive 

comments regarding § 150.10(a)(8). 

Commission Reproposal 

The Commission is reproposing 

§ 150.10(a)(8), as originally proposed. 

i. Proposed § 150.10(b)—Recordkeeping 

Requirements 

Proposed Rule 

Proposed § 150.10(b) outlined the 

recordkeeping requirements for 

exchanges that elected to process spread 

exemption applications submitted 

pursuant to § 150.10(a). As noted above, 

the proposed processes under this rule 

were substantially similar to the 

corresponding provisions in § 150.9(b). 

Hence, the Commission does not repeat 

the discussion here. 

Commission Reproposal 

The Commission did not receive 

comments on § 150.10(b), and is 

reproposing this rule, as originally 

proposed, for the same reasons as 

discussed in connection with § 150.9(b). 

j. Proposed § 150.10(c) (Exchange 

Reporting) and Reproposal 

Proposed Rule 

Proposed § 150.10(c)(1) required 

designated contract markets and swap 

execution facilities that elected to 

process spread exemption applications 

to submit to the Commission a report for 

each week as of the close of business on 

Friday showing various information 

concerning the derivative positions that 

had been recognized by the designated 

contract market or swap execution 

facility as an exempt spread position, 

and for any revocation, modification or 

rejection of such recognition. Moreover, 

proposed § 150.10(c)(2) required a 

designated contract market or swap 

execution facility that elected to process 

applications for exempt spread 

positions to submit to the Commission 

(i) a summary of any exempt spread 

position newly published on the 

designated contract market or swap 

execution facility’s Web site; and (ii) no 

less frequently than monthly, any report 

submitted by an applicant to such 

designated contract market or swap 

execution facility pursuant to rules 

required under proposed 

§ 150.10(a)(6).1170

As noted above, the proposed 

processes under this rule were 

substantially similar to the 

corresponding provisions in § 150.9(c). 

The Commission did not receive 

comments on this section that differed 

from those received on § 150.9(c). 

Commission Reproposal 

The Commission is reproposing this 

rule, largely as originally proposed, for 

the reasons previously provided in the 

discussion regarding § 150.9(c), with the 

same revision to the regulatory text 

included in reproposed § 150.9(c), to 

clarify that exchanges have the 

discretion to determine whether to 

incorporate additional reporting 

requirements for spread exemption 

applicants. In particular, the 

Commission is proposing to amend 

language in § 150.10(c)(2) to clarify that, 

unless otherwise instructed by the 

Commission, an exchange that elects to 

process applications to exempt spread 

positions from position limits shall 

submit to the Commission, no less 

frequently than monthly, ‘‘any reports 

such [DCM or SEF] requires to be 

submitted by an applicant to such [DCM 

or SEF] pursuant to the rules required 

under paragraph (a)(6) of this section.’’ 

k. Proposed § 150.10(d) (Review of 

applications by the Commission) and 

Reproposal 

Proposed Rule 

Proposed § 150.10(d) provided for 

Commission review of applications to 

ensure that the processes administered 

by the exchange, as well as the results 

of such processes, were consistent with 

the purposes of section 4a(a)(3)(B) of the 

Act and the Commission’s regulations 

thereunder. As noted previously, under 

the proposal, the Commission was not 

diluting its ability to grant or not grant 

spread exemptions. The Commission 

reserved to itself the ability to review 

any exchange action, and to review any 

application by a market participant to 

an exchange, whether prior to or after 

disposition of such application by an 

exchange. An exchange could ask the 

Commission to consider a spread 

exemption application (proposed 

§ 150.10(a)(8)). The Commission could 

also on its own initiative at any time— 

before or after action by an exchange— 

review any application submitted to an 

exchange for recognition of a spread 

exemption (proposed § 150.10(d)(1)). 

And, as noted above, market 


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1171See 2016 Supplemental Position Limits 

Proposal, 81 FR 38482, Jun. 13, 2016. 

1172 Id. at 38495. 

1173 Id. 

participants would still be able to 

request a staff interpretive letter under 

§ 140.99 from the Commission or seek 

exemptive relief under CEA section 

4a(a)(7) from the Commission, as an 

alternative to the three proposed 

exchange-administered processes. 

As previously indicated, the processes 

under the proposed rule was 

substantially similar to the 

corresponding provisions in proposed 

§ 150.9(d). Hence, the Commission does 

not repeat the discussion here. 

Commission Reproposal 

The Commission did not receive 

comments on this section that differed 

from those received on § 150.9(d), and is 

reproposing this rule, as originally 

proposed, for the reasons discussed 

above in connection with § 150.9(d). 

l. Proposed § 150.10(e) (Review of 

summaries by the Commission) and 

Reproposal 

Proposed Rule 

The Commission proposed to rely on 

the expertise of the exchanges to 

summarize and post executive 

summaries of spread exemptions to 

their respective Web sites under 

proposed § 150.10(a)(7). The 

Commission also proposed, in 

§ 150.10(e), to review such executive 

summaries to ensure they provided 

adequate disclosure to market 

participants of the potential availability 

of relief from speculative position 

limits. 

Commission Reproposal 

As noted above, the proposed 

processes under this rule are 

substantially similar to the 

corresponding provisions in § 150.9(e). 

The Commission did not receive 

comments on this section that differed 

from those received on § 150.9(e), and 

so does not repeat the discussion here. 

For all the reasons previously provided, 

the Commission is reproposing this rule, 

as originally proposed. 

m. Proposed § 150.10(f) (Delegation of 

Authority) and Reproposal 

Proposed Rule 

The Commission proposed to delegate 

certain of its authorities under proposed 

§ 150.10 to the Director of the 

Commission’s Division of Market 

Oversight, or such other employee or 

employees as the Director designated 

from time to time. Proposed 

§ 150.10(f)(1)(i) delegated the 

Commission’s authority to the Division 

of Market Oversight to provide 

instructions regarding the submission of 

information required to be reported to 

the Commission by an exchange, and to 

specify the manner and determine the 

format, coding structure, and electronic 

data transmission procedures for 

submitting such information. Proposed 

§ 150.10(f)(1)(v) delegated the 

Commission’s review authority under 

proposed § 150.10(e) to DMO with 

respect to summaries of the types of 

spread exemptions that were required to 

be posted on an exchange’s Web site 

pursuant to proposed § 150.10(a)(7). 

Proposed § 150.10(f)(1)(i) delegated 

the Commission’s authority to the 

Division of Market Oversight to agree to 

or reject a request by an exchange to 

consider an application for recognition 

of an application for a spread 

exemption. Proposed § 150.10(f)(1)(iii) 

delegated the Commission’s authority to 

review any application for a spread 

exemption, and all records required to 

be maintained by an exchange in 

connection with such application. 

Proposed § 150.10(f)(1)(iii) also 

delegated the Commission’s authority to 

request such records, and to request 

additional information in connection 

with such application from the 

exchange or from the applicant. 

Proposed § 150.10(f)(1)(iv) delegated 

the Commission’s authority, under 

proposed § 150.10(d)(2) to determine 

when an application for a spread 

exemption required additional analysis 

or review, and to provide notice to the 

exchange and the particular applicant 

that they had 10 days to supplement 

such application. 

The Commission did not propose to 

delegate its authority under proposed 

§ 150.10(d)(3) to make a final 

determination as to the exchange’s 

disposition. The Commission stated that 

if an exchange’s disposition raised 

concerns regarding consistency with the 

Act or presents novel or complex issues, 

then the Commission should make the 

final determination, after taking into 

consideration any supplemental 

information provided by the exchange 

or the applicant.1171

Commission Reproposal 

As noted above, the proposed 

processes under this rule are 

substantially similar to the 

corresponding provisions in § 150.9(f); 

the Commission did not receive 

comments on this section that differed 

from those received on § 150.9(f), and so 

does not repeat the discussion here. For 

all the reasons previously provided, the 

Commission is reproposing § 150.9(f), as 

originally proposed. 

I. § 150.11—Process for Recognition of 

Positions As Bona Fide Hedging 

Positions for Unfilled Anticipated 

Requirements, Unsold Anticipated 

Production, Anticipated Royalties, 

Anticipated Services Contract Payments 

or Receipts, or Anticipatory CrossCommodity Hedge Positions 

1. Overview of the Enumerated 

Anticipatory Bona Fide Hedging 

Position Exemption Proposal 

After reviewing comments in 

response to the December 2013 Position 

Limits Proposal, the Commission 

proposed another method by which 

market participants may have 

enumerated anticipatory bona fide 

hedge positions recognized. As 

proposed in the December 2013 Position 

Limits Proposal, § 150.7 would require 

market participants to file statements 

with the Commission regarding certain 

anticipatory hedges which would 

become effective absent Commission 

action or inquiry ten days after 

submission. As the Commission 

explained in the 2016 Supplemental 

Position Limits Proposal, the method in 

proposed § 150.11 was an exchangeadministered process to determine 

whether certain enumerated 

anticipatory bona fide hedge positions, 

such as unfilled anticipated 

requirements, unsold anticipated 

production, anticipated royalties, 

anticipated service contract payments or 

receipts, or anticipatory crosscommodity hedges should be 

recognized as bona fide hedge 

positions.1172

The Commission noted that proposed 

§ 150.11 worked in concert with the 

following three proposed rules: 

• Proposed § 150.3(a)(1)(i), with the 

effect that recognized anticipatory 

enumerated bona fide hedging positions 

may exceed federal position limits; 

• proposed § 150.5(a)(2), with the 

effect that recognized anticipatory 

enumerated bona fide hedging positions 

may exceed exchange-set position limits 

for contracts subject to federal position 

limits; and 

• proposed § 150.5(b)(5), with the 

effect that recognized anticipatory 

enumerated bona fide hedging positions 

may exceed exchange-set position limits 

for contracts not subject to federal 

position limits.1173

The proposed § 150.11 process was 

somewhat analogous to the application 

process for recognition of nonenumerated bona fide hedging positions 

under proposed § 150.9. The process for 

recognition of enumerated anticipatory 


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1174 Id. 

1175 Id. at 38496. 

1176 Id. 

1177 Id. at 38481. 

1178 Id. 

1179 Id. 

1180CL- NCC–ACSA–60972 at 2; CL–AGA–60943 

at 3; CL–ICE–60929 at 12; CL–CMC–60950 at 6–9; 

CL–FIA–60937 at 5, 21; CL–API–60939 at 3; and 

CL–EEI–EPSA–60925 at 13. 

1181CL–CCI–60935 at 3–4; CL–FIA–60937 at 3; 

CL–Working Group-60947 at 10; CL–IECAssn– 

60949 at 12–13 and CL–CME–60926 at 13. 

1182CL–Public Citizen–60940 at 1–2; CL–RER1– 

60961 at 1; and CL–Better Markets–60928 at 3–5. 

1183CL–IECAssn–60949 at 7–9; CL–NCGA– 

NGSA–60919 at 7; CL–ICE–60929 at 9; CL–CMC– 

60950 at 9–11; CL–API–60939 at 3; CL–NCC– 

ACSA–60972 at 2; and CL-Working Group–60947 at 

7. 

1184CL–FIA–60937 at 3; and CL–CMC–60950 at 

12–13. 

bona fide hedging positions contained 

five paragraphs: (a) through (e). The first 

three paragraphs—§ 150.11(a), (b), and 

(c)—required exchanges that elected to 

have a process for recognizing 

enumerated anticipatory bona fide 

hedging positions, and market 

participants that sought position-limit 

relief for such positions, to carry out 

certain duties and obligations. The 

fourth and fifth paragraphs— 

§ 150.11(d), and (e)—delineated the 

Commission’s role and obligations in 

reviewing requests for recognition of 

enumerated anticipatory bona fide 

hedging positions.1174

The Commission noted that there 

would be significant benefits related to 

the adoption of proposed § 150.11. 

Similar to the benefits for recognizing 

positions as non-enumerated bona fide 

hedging positions under § 150.9, 

recognizing anticipatory positions as 

bona fide hedging posiitons under 

§ 150.11 would provide market 

participants with potentially a more 

expeditious recognition process than the 

Commission proposal for a 10-day 

Commission recognition process under 

proposed § 150.7. This could potentially 

enable commercial market participants 

to pursue trading strategies in a more 

timely fashion to advance their 

commercial and hedging needs to 

reduce risk. In addition, the 

Commission pointed out that exchanges 

would be able to use existing resources 

and knowledge in the administration 

and assessment of enumerated 

anticipatory bona fide hedging 

positions. The Commission and 

exchanges have evaluated these types of 

positions for years (as discussed in the 

December 2013 Position Limits 

Proposal).1175

The Commission also pointed out that 

proposed § 150.11, similar to proposed 

§ 150.9 and § 150.10, also would 

provide the benefit of enhanced recordretention and reporting of positions 

recognized as enumerated anticipatory 

bona fide hedging positions. As 

previously discussed, records retained 

for specified periods would enable 

exchanges to develop consistent 

practices and afford the Commission 

accessible information for review, 

surveillance, and enforcement efforts. 

Likewise, weekly reporting under 

§ 150.11 would facilitate the 

Commission’s tracking of such 

exemptions.1176

2. Proposed § 150.11(a) 

Proposed Rule 

As noted, proposed § 150.11(a) 

permitted exchanges to recognize 

certain enumerated anticipatory bona 

fide hedging positions, such as unfilled 

anticipated requirements, unsold 

anticipated production, anticipated 

royalties, anticipated service contract 

payments or receipts, or anticipatory 

cross-commodity hedges. The proposed 

rule allowed market participants to 

work with exchanges to seek the 

exemption. 

The process under proposed 

§ 150.11(a) was similar to the process 

under proposed § 150.9(a), described 

above. For example, an exchange with at 

least one year of experience and 

expertise administering position limits 

could elect to adopt rules to recognize 

commodity derivative positions as 

enumerated anticipatory bona fide 

hedges. However, the § 150.11(a) 

process was different from the process 

under proposed § 150.9(a) in that the 

Commission did not propose to permit 

separate processes for applications 

based on novel versus non-novel facts 

and circumstances.1177

As the Commission noted in the 2016 

Supplemental Position Limits Proposal, 

it determined to define certain 

anticipatory positions as enumerated 

bona fide hedging positions when it 

adopted current § 1.3(z)(2); the 

Commission did not change this 

determination in the December 2013 

Position Limits Proposal.1178

Consequently, the Commission did not 

anticipate that applications for 

recognition of enumerated anticipatory 

bona fide hedging positions would be 

based on novel facts and circumstances. 

For the same reason, proposed 

§ 150.11(a) did not require exchanges to 

post summaries of any enumerated 

anticipatory bona fide hedging 

positions. As the Commission noted, 

other simplifications follow from this 

difference.1179

Comments Received 

Several commenters recommended 

that the Commission specifically 

recognize the full scope of anticipatory 

hedging activities such as anticipatory 

merchandising and anticipatory 

processing hedges, utility sales and 

cross-commodity hedges as enumerated 

bona fide hedging position 

exemptions.1180

In addition, several commenters 

recommended that the Commission not 

adopt the ‘‘active trading’’ and ‘‘one 

year experience’’ requirements as 

proposed regarding a DCM’s 

qualification to administer exemptions 

from federal position limits.1181 These 

commenters stated that such 

qualification requirements could have 

the unintended consequences of: (i) 

harming the ability of market 

participants to effectively manage their 

risk by preventing the exchanges from 

recognizing an otherwise appropriate 

exemption from federal speculative 

position limits; and (ii) stifling future 

innovation in the development of new 

commodity derivative products created 

to meet evolving market needs and 

demands. 

Certain commenters opposed the 

Commission delegating hedge 

exemption authority to exchanges 

entirely.1182 These commenters believed 

that such delegated authority creates an 

inherent conflict of interest for 

exchanges because they are incentivized 

to increase trading volume. Among 

other concerns, these commenters fear 

that hedge exemption applicants may 

develop a preference for those 

exchanges more willing to grant 

exemptions. Further, the exchanges may 

not have a full picture of the entire 

market in which they are being asked to 

grant the exemption. 

According to other commenters, the 

Commission should eliminate the fiveday rule.1183 Instead, these commenters 

stated, the Commission should 

specifically authorize exchanges to grant 

bona fide hedging position exemptions 

during the last five days of trading or 

less and allow exchanges to permit 

commercial hedging into the spot period 

where the facts and circumstances 

warrant. 

Lastly, several commenters advocated 

for removal of the proposed requirement 

that exchanges adopt enhanced 

reporting requirements for market 

participants that rely on exchangeadministered hedge exemptions.1184

One argued that such a requirement is 

not authorized by the CEA and would 

have the unintended effect of preventing 


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1185CL–FIA–60937 at 3. 

1186CL–CMC–60950 at 12–13. 

1187CL–AMG–60946 at 3–4; and CL–FIA–60937 

at 3, 12. 

1188As the Commission noted above when 

discussing the requirement for one year of 

experience in connection with § 150.9(a), 

experience manifests in the people carrying out 

surveillance in a commodity rather than in an 

institutional structure. An exchange’s experience 

could be demonstrated through the relevant 

experience of the surveillance staff regarding the 

particular commodity. In fact, the Commission has 

historically reviewed the experience and 

qualifications of exchange regulatory divisions 

when considering whether to designate a new 

exchange as a contract market or to recognize a 

facility as a SEF; as such exchanges are new, staff 

experience has clearly been gained at other 

exchanges. 

new entrants to the relevant market.1185

Another further argues that these 

enhanced reporting requirements are 

unnecessary, impose undue cost 

burdens on commercial end-users, and 

the Commission can always request the 

information through its existing 

authority.1186 And two suggest that the 

Commission allow exchanges flexibility 

to request satisfactory data, but not set 

a fixed prerequisite time period to 

obtaining exemptions.1187

Commission Reproposal 

After carefully considering the 

comments received, the Commission is 

reproposing the rule, as originally 

proposed. At this time the Commission 

has already proposed several 

enumerated bona fide hedging position 

exemption categories. At this time, the 

Commission believes that additional 

fact patterns for bona fide hedging 

position exemptions will require 

consideration of the facts and 

circumstances on a case-by-case basis. 

The Commission is willing to explore 

further additions to the enumerated list 

at a later date. However, the 

Commission reiterates that, as 

previously discussed, an exchange can 

petition under § 13.2 for Commission 

recognition of a generic fact pattern as 

an enumerated bona fide hedging 

position, and that market participants 

have the flexibility of two processes for 

recognition of a position as an 

enumerated bona fide hedging position: 

(i) request an exemptive, no-action or 

interpretative letter under § 140.99; and/ 

or (ii) petition under § 13.2 for changes 

to Appendix B to part 150. 

Separately, as noted in the June 2016 

Supplemental Position Limits Proposal 

and above, the Commission is not 

persuaded that an exchange with no 

active trading and no previous 

experience with a new product class 

would have their interests aligned with 

the Commission’s policy objectives in 

CEA section 4a. In addition, as noted 

above, the Commission points out that 

the experience is manifested by the 

people carrying out surveillance rather 

than tied to a particular exchange.1188

Further, the Commission believes that 

the active trading requirement can be 

satisfied by maintaining any referenced 

contract listed in the particular 

commodity at issue. For example, a 

DCM may immediately begin accepting 

hedge exemption requests for a new 

commodity contract pursuant to 

§ 150.11(a) if the DCM already 

maintains contract(s) in the same 

underlying commodity class that satisfy 

the experience and active trading 

requirements. 

The Commission clarifies, however, 

that an exchange can petition the 

Commission, pursuant to § 140.99, for a 

waiver of the one-year experience 

requirement if such exchange believes 

that their experience and interested are 

aligned with the Commission’s interests 

with respect to recognizing enumerated 

anticipatory bona fide hedging 

positions. 

The Commission appreciates 

commenter concerns regarding those 

opposed to delegating any hedge 

exemption authority to exchanges. 

However, the Commission reiterates that 

it retains full oversight authority over 

exchanges issuing hedge exemptions. 

Further, the Commission believes an 

exchange’s required experience 

administering position limits for its 

actively traded contracts, and the 

Commission’s de novo review of granted 

hedge exemptions are adequate to guard 

against or remedy any conflicts of 

interest that may arise. The Commission 

also notes that exchanges remain bound 

by the Commission’s bona fide hedging 

position definition for all hedge 

exemption determinations conducted 

pursuant to part 150 of Commission 

Regulations. 

The Commission believes the five-day 

rule should be applied to anticipatory 

bona fide hedging positions. If a market 

participant wishes to secure an 

exemption from the five-day rule, the 

participant should submit an exemption 

request, pursuant to § 150.9, for 

recognition of a non-enumerated bona 

fide hedging position. 

Further, the Commission believes that 

reporting requirements applicable to 

market participants seeking an 

exemption pursuant to § 150.11 may 

remain as proposed. The Commission 

notes that § 150.11(a)(5) clarifies that 

applicants are bound by the reporting 

requirements found in § 150.7(e). As 

noted in § 150.7, understanding the 

recent history of a firm’s production 

data is necessary to ensure the requested 

anticipated hedge exemption is 

reasonable. However, as discussed 

above, the Commission notes that it may 

permit a reasonable, supported estimate 

of, for example, anticipated production 

for less than three years of annual 

production data, in the Commission’s 

discretion, if a market participant does 

not have three years of data. Further, the 

Commission is amending the applicable 

form instructions to clarify that 

Commission staff could determine that 

such an estimate is reasonable and 

would be accepted. The Commission is 

also proposing that exchange staff, on 

behalf of the Commission, also could 

permit a reasonable, supported estimate 

of, for example, anticipated production 

for less than three years of annual 

production data. 

3. Proposed § 150.11(b) (Recordkeeping) 

and Reproposal 

Proposed Rule 

Proposed § 150.11(b) required electing 

designated contract markets and swap 

execution facilities to keep full, 

complete, and systematic records of all 

activities relating to the processing and 

disposition of enumerated anticipatory 

bona fide hedging exemption requests 

submitted pursuant to § 150.11(a). As 

previously stated, the Commission 

believes such recordkeeping 

requirements are essential to ensure 

adequate compliance and oversight. 

Commission Reproposal 

As noted, the proposed processes 

under this rule are substantially similar 

to the corresponding provisions in 

§ 150.9(b) and § 150.10(b). Hence, the 

Commission does not repeat the 

discussion here. The Commission did 

not receive comments on § 150.11(b), 

and is reproposing this rule, as 

originally proposed, for the same 

reasons as § 150.9(b) and § 150.10(b). 

4. Proposed § 150.11(c) (Exchange 

Reporting) and Reproposal 

Proposed Rule 

Proposed § 150.11(c) required 

designated contract markets and swap 

execution facilities that elected to 

process enumerated anticipatory bona 

fide hedging position applications to 

submit to the Commission a report for 

each week as of the close of business on 

Friday showing various information 

concerning the derivative positions that 

had been recognized by the designated 

contract market or swap execution 

facility as an enumerated anticipatory 

bona fide hedging position, and for any 

revocation, modification or rejection of 

such recognition. Similar to nonenumerated bona fide hedging positions 


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1189The Commission notes that amended § 150.6 

matches vacated § 151.11(h). 

and spreads, this rule implemented a 

weekly reporting obligation for 

exchanges. Unlike the other hedge 

exemption application types, exchanges 

would have no monthly reporting or 

web-posting obligations related to 

accepting or granting enumerated 

anticipatory bona fide hedging position 

exemptions. 

Commission Reproposal 

In consideration of these reduced 

reporting requirements and the previous 

discussion of this subject regarding 

proposed §§ 150.9(c) and 150.10(c), the 

Commission is reproposing this rule, as 

originally proposed, for the reasons 

discussed therein. 

5. Proposed § 150.11(d) (Review of 

applications by the Commission) and 

Reproposal 

Proposed Rule 

As set forth in proposed § 150.11(d), 

an exchange could ask the Commission 

to consider an enumerated anticipatory 

bona fide hedging position application 

directly. Further, the Commission could 

also, on its own initiative, at any time— 

before or after action by an exchange— 

review any application submitted to an 

exchange for recognition of an 

enumerated anticipatory bona fide 

hedging position. As noted, alternatives 

also remain available. Market 

participants would retain the ability to 

apply directly to the Commission under 

§ 150.7, to separately request staff 

interpretive letters pursuant to § 140.99 

or seek exemptive relief under CEA 

section 4a(a)(7). 

The review process set forth in 

§ 150.11(d) was simpler than other 

hedge exemption requests because such 

applications are not anticipated to be 

based on novel facts and circumstances. 

Rather, Commission review would focus 

on whether the hedge exemption 

application satisfied the filing 

requirements contained in § 150.11(a). If 

the filing was not complete, then 

proposed § 150.11(d) would provide an 

opportunity to supplement to the 

applicant and the exchange. 

Commission Reproposal 

Aside from this minor difference, the 

proposed processes under this rule were 

substantially similar to the 

corresponding provisions in § 150.9(d) 

and § 150.10(d). Hence, the Commission 

does not repeat the discussion here. The 

Commission believes the proposed de 

novo review of exchange-granted 

anticipatory bona fide hedging position 

exemptions is adequate to maintain 

proper exchange oversight. For all the 

reasons previously provided above in 

the discussion regarding § 150.9(d), the 

Commission is reproposing this rule, as 

originally proposed. 

6. Proposed § 150.11(e) (Delegation of 

Authority) and Reproposal 

Proposed Rule 

As noted previously, the Commission 

proposed to delegate certain of its 

authorities under § 150.11 to the 

Director of DMO, or such other 

employee or employees as the Director 

may designate from time to time. In 

particular, proposed § 150.11(e)(1)(ii) 

delegated the Commission’s authority to 

DMO to provide instructions regarding 

the submission of information required 

by an exchange, and to specify the 

manner and determine the format, 

coding structure, and electronic data 

transmission procedures for submitting 

such information. Proposed 

§ 150.11(e)(1)(i) delegated the 

Commission’s authority to DMO to agree 

to or reject a request by an exchange to 

consider an application for recognition 

of an enumerated anticipatory bona fide 

hedge. Proposed § 150.11(e)(1)(iii) 

delegated the Commission’s authority to 

review any application for recognition 

of an enumerated anticipatory bona fide 

hedging position and delegate the 

authority to request related records or 

supporting information from the 

exchange or from the applicant. 

Lastly, the Commission proposed in 

§ 150.11(e)(iv), to delegate its authority 

to determine, under proposed 

§ 150.11(d)(2), that it was not 

appropriate to recognize a commodity 

derivative position as an enumerated 

anticipatory bona fide hedging position, 

or that the disposition by an exchange 

of an application for such recognition is 

inconsistent with the filing 

requirements of proposed § 150.11(a)(2). 

The delegation also provided DMO with 

the authority, after any such 

determination was made, to grant the 

applicant a reasonable amount of time 

to liquidate its commodity derivative 

position or otherwise come into 

compliance. 

This proposed delegation took into 

account that applications processed by 

an exchange under proposed § 150.11 

would be for positions that should 

satisfy the requirements for enumerated 

bona fide hedging positions set forth in 

the Commission’s rules, and should 

therefore be less likely to raise novel 

issues of interpretation, or novel issues 

with respect to consistency with the 

filing requirements of proposed 

§ 150.11(a)(2), than applications 

processed under proposed § 150.9 or 

§ 150.10. Such delegation is consistent 

with the Commission’s longstanding 

delegation to DMO of its authority to 

review applications for recognition of 

enumerated bona fide hedging positions 

under current § 1.48, as well as 

consistent with the more streamlined 

approach to Commission review of 

enumerated anticipatory bona fide 

hedging position applications in 

proposed § 150.7. 

Commission Reproposal 

As noted above, the proposed 

processes under this rule are 

substantially similar to the 

corresponding provisions in § 150.9(f) 

and § 150.10(f). Hence, the Commission 

does not repeat the discussion of related 

comments here. The Commission is 

reproposing this rule, as originally 

proposed, for the reasons discussed 

above in connection with § 150.9(f), 

with the clarification that the 

Commission retains the authority to 

make the final determination to grant or 

deny hedge exemption applications. 

J. Miscellaneous Regulatory 

Amendments 

1. Part 150.6—Ongoing Application of 

the Act and Commission Regulations 

Proposed Rule 

The Commission proposed to amend 

existing § 150.6 to conform the 

provision with the general applicability 

of part 150 to SEFs that are trading 

facilities, and concurrently making nonsubstantive changes to clarify the 

provision. The provision, as amended 

and clarified, provides this part shall 

only be construed as having an effect on 

position limits and that nothing in part 

150 shall affect any provision 

promulgated under the Act or 

Commission regulations including but 

not limited to those relating to 

manipulation, attempted manipulation, 

corners, squeezes, fraudulent or 

deceptive conduct, or prohibited 

transactions.1189 For example, by 

requiring DCMs and SEFs that are 

trading facilities to impose and enforce 

exchange-set speculative position limits, 

the Commission does not intend for the 

fulfillment of such requirements alone 

to satisfy any other legal obligations 

under the Act and Commission 

regulations of DCMs and SEFs that are 

trading facilities to detect and deter 

market manipulation and corners. In 

another example, a market participant’s 

compliance with position limits or an 

exemption does not confer any type of 

safe harbor or good faith defense to a 

claim that he had engaged in an 


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1190The Commission notes that proposed § 150.8 

matches vacated § 151.13. 

1191See discussion of new and amended series 

’04 reports above. 

1192 In a separate final rulemaking, the 

Commission is finalizing amendments to § 150.4 

regarding the aggregation of positions. See 2016 

Final Aggregation Rule. 

1193Previously, in 2013, the Commission adopted 

amendments to § 17.03. Ownership and Control 

Reports, Forms 102/102S, 40/40S, and 71, 78 FR 

69178 (Nov. 18, 2013). The Commission is now 

proposing to amend § 17.03 further by adding 

§ 17.03(h). 

1194 § 1.47 pertains to requirements for 

classification of purchases or sales of contracts for 

future delivery as bona fide hedging under § 1.3(z)(3 

of the regulations, while § 1.48 addresses 

requirements for classification of sales or purchases 

for future delivery as bona fide hedging of unsold 

anticipated production or unfilled anticipated 

requirements under § 1.3(z)(2) (i)(B) or (i)(C) of the 

regulations. 

1195 International Swaps and Derivatives 

Association v. United States Commodity Futures 

Trading Commission, 887 F. Supp. 2d 259 (D.D.C. 

2012). 

attempted manipulation, a perfected 

manipulation or deceptive conduct. 

Comments Received 

The Commission received no 

comments on the proposed amendments 

to § 150.6. 

Commission Reproposal 

The Commission is reproposing 

§ 150.6, with an amendment to clarify 

the application of part 150 to other 

provisions of the Act or Commission 

regulations. Specifically, in order to 

avoid any confusion regarding whether 

§ 150.6 applies to position limits 

regulations found outside of part 150 of 

the Commission’s regulations (e.g., 

relevant sections of part 19), the 

amendment clarifies that recordkeeping 

and reporting regulations associated 

with speculative position limits are 

affected by part 150. The amendment 

also clarifies that regulations 

incorporated by reference to part 150 are 

also affected by the regulations 

promulgated under part 150. These 

changes, while not substantively 

different from the proposed rule, 

provide additional clarity regarding the 

application of part 150 to other 

provisions of the Act or Commission 

regulations. 

The Commission also notes that 

§ 150.6 applies despite the 

Commission’s amendments to the 

appendices to parts 37 and 38 of the 

Commission’s regulations regarding 

delayed implementation of exchange-set 

limits for swaps on exchanges without 

sufficient swaps position information. 

2. Part 150.8—Severability 

Proposed Rule 

The Commission proposed to add 

§ 150.8 to address the severability of 

individual provisions of part 150. 

Should any provision(s) of part 150 be 

declared invalid, including the 

application thereof to any person or 

circumstance, § 150.8 provides that all 

remaining provisions of part 150 shall 

not be affected to the extent that such 

remaining provisions, or the application 

thereof, can be given effect without the 

invalid provisions.1190

Comments Received 

The Commission did not receive any 

comments regarding proposed § 150.8. 

Commission Reproposal 

The Commission is reproposing the 

severability clause in § 150.8. The 

Commission believes it is prudent to 

include a severability clause to avoid 

any further delay, as practicable, in 

carrying out Congress’ mandate 

(underscored by the Commission’s own 

preliminary finding of necessity) to 

impose position limits in a timely 

manner. 

3. Part 15—Reports—General Provisions 

Proposed Rule 

The Commission proposed to amend 

the definition of the term ‘‘reportable 

position’’ in current § 15.00(p)(2) by 

clarifying that: (1) Such positions 

include swaps; (2) issued and stopped 

positions are not included in open 

interest against a position limit; and (3) 

special calls may be made for any day 

a person exceeds a limit. Additionally, 

the proposed amendments to § 15.01(d) 

added language to reference swaps 

positions and updated the list of 

reporting forms in current § 15.02 to 

account for new and updated series ’04 

reporting forms, as discussed above.1191

Comments Received 

The Commission did not receive any 

comments regarding the proposed 

amendments to part 15. 

Commission Reproposal 

The Commission is reproposing 

amendments to part 15, as originally 

proposed, to update and clarify the 

definition of ‘‘reportable position,’’ add 

references to swaps positions, and add 

to the list of reporting forms. 

4. Part 17—Reports by Reporting 

Markets, Futures Commission 

Merchants, Clearing Members, and 

Foreign Brokers 

Proposed Rule 

In the December 2013 Position Limits 

Proposal, the Commission proposed to 

amend current § 17.00(b) to delete 

provisions related to aggregation, since 

those provisions are duplicative of 

aggregation provisions in § 150.4.1192

Instead, as proposed, § 17.00(b) provides 

that ‘‘[e]xcept as otherwise instructed by 

the Commission or its designee and as 

specifically provided in § 150.4 of this 

chapter, if any person holds or has a 

financial interest in or controls more 

than one account, all such accounts 

shall be considered by the futures 

commission merchant, clearing member 

or foreign broker as a single account for 

the purpose of determining special 

account status and for reporting 

purposes.’’ In addition, proposed 

§ 17.03(h) delegates to the Director of 

the Division of Market Oversight or his 

designee the authority to instruct 

persons pursuant to proposed 

§ 17.03.1193

Comments Received 

The Commission did not receive any 

comments regarding the proposed 

changes to part 17. 

Commission Reproposal 

The Commission is reproposing 

amendments to part 17, as originally 

proposed, to delete duplicative 

aggregation provisions and delegate to 

the Division of Market Oversight the 

authority to instruct persons pursuant to 

proposed § 17.03. 

4. Removal of Commission Regulations 

1.47 and 1.48, and Part 151—Position 

Limits for Futures and Swaps 

Proposed Rule 

As discussed above, the Commission 

intended, in a 2011 final rule, to amend 

several other sections as part of its then 

adoption on part 151. Among the 

sections the Commission was then 

affecting was the removal and 

reservation of §§ 1.47 and 1.48. Both 

sections permitted market participants 

to seek recognition of positions as bona 

fide hedges.1194

However, prior to the compliance date 

for that 2011 rulemaking, as noted 

above, a federal court vacated most 

provisions of that rulemaking, including 

the amendments to the definition of a 

bona fide hedging position in § 1.3(z), as 

well as to the removal and reservation 

of §§ 1.47 and 1.48.1195 Because the 

Commission did not instruct the 

Federal Register to roll back the 2011 

changes to the CFR, the current CFR still 

shows the versions adopted in 2011, 

which shows §§ 1.47 and 1.48 as 

‘‘reserved.’’ As the Commission noted in 

the December 2013 Position Limits 

Proposal, in light of the proposed 

amendments to part 150, as well as the 

District Court vacatur of part 151, the 


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1196See December 2013 Position Limits Proposal, 

Table 4, at 75712, for a list of existing regulations 

related to enumerated bona fide hedges. 

1197 International Swaps and Derivatives 

Association v. United States Commodity Futures 

Trading Commission, 887 F. Supp. 2d 259 (D.D.C. 

2012). 

1198CL–IECAssn–59679 at 1–2. 

1199CL–EEI–EPSA–59602 at 2 and 3, CL–EEI– 

Sup–60386 at 3. 

amendments to the definition of a bona 

fide hedging position in 1.3(z), and the 

removal and reservation of §§ 1.47 and 

1.48, the Commission again proposed to 

remove and reserve §§ 1.47 and 1.48. 

Commission Reproposal 

The Commission is reproposing to 

remove and reserve § 1.47 in light of the 

Commission’s proposal of new 

provisions in § 150.9 addressing 

exchange recognitions of positions as 

non-enumerated bona fide hedging 

positions, subject to Commission 

review. Similarly, in connection with 

the reproposal of §§ 150.7 and 150.11, 

the Commission is proposing to remove 

and reserve, as originally proposed, 

§ 1.48. Finally, the Commission is 

reproposing that part 151 be removed 

and reserved in response to the 

reproposed revisions to part 150 that 

conform it to the amendments made to 

the CEA section 4a by the Dodd-Frank 

Act. 

IV. Related Matters 

A. Cost-Benefit Considerations 

Section 15(a) of the CEA requires the 

Commission to consider the costs and 

benefits of its actions before 

promulgating a regulation under the 

CEA or issuing certain orders. Section 

15(a) further specifies that the costs and 

benefits shall be evaluated in light of 

five broad areas of market and public 

concern: (1) Protection of market 

participants and the public; (2) 

efficiency, competitiveness, and 

financial integrity of futures markets; (3) 

price discovery; (4) sound risk 

management practices; and (5) other 

public interest considerations. The 

Commission considers the costs and 

benefits resulting from its discretionary 

determinations with respect to the 

Section 15(a) factors. 

The baseline against which the 

Commission considers the benefits and 

costs of these reproposed rules is the 

statutory requirements of the CEA and 

the Commission regulations now in 

effect—in particular the Commission’s 

Part 150 regulations and rules 1.47 and 

1.48.1196

1. Necessity Finding 

Out of an abundance of caution in 

light of the district court decision in 

ISDA v. CFTC,1197 and without 

prejudice to any argument the 

Commission may advance in any forum, 

the Commission has preliminarily 

found, as a separate and independent 

basis for the Rule, that speculative 

position limits are necessary to achieve 

the purposes of the CEA. 

a. Benefits of Speculative Position 

Limits Rules 

The Commission expects that the 

speculative position limits in the 

reproposed Rule will promote market 

integrity. Willingness to participate in 

the futures and swaps markets may be 

reduced by perceptions that a 

participant with an unusually large 

speculative position could exert 

unreasonable market power. A lack of 

participation in these markets may harm 

liquidity, and consequently, may 

negatively impact price discovery and 

market efficiency as well. 

Position limits may serve as a 

prophylactic measure that reduces 

market volatility due to large trades that 

impact prices. For example, a party who 

is holding large open interest may 

become unwilling or unable to meet a 

call for additional margin or take other 

steps that are necessary to maintain the 

position. In such an instance, the party 

may substantially reduce its open 

interest in a short time interval. In 

general, price impacts could arise from 

large positions as they are established or 

liquidated. 

Exchanges and the Commission may 

gain insight into the markets as market 

participants seek exemptions from 

position limits. This may improve the 

exchanges’ and the Commission’s ability 

to supervise markets and to deter and 

prevent market manipulation. Further, 

the discipline of seeking exemptions 

that are tied to particular situations may 

improve a market participant’s risk 

management practices, as it goes 

through the exercise of justifying the 

need for an exemption. 

There are additional benefits to 

imposing position limits in the spot 

month. Spot month position limits are 

designed to deter and prevent corners 

and squeezes. Spot month position 

limits may also make it more difficult to 

mark the close of a futures contract to 

possibly benefit other contracts that 

settle on the closing futures price. 

Marking the close harms markets by 

spoiling convergence between futures 

prices and spot prices at expiration. 

Convergence is desirable, because it 

facilitates hedging of the spot price of a 

commodity at expiration. In addition, 

since many other contracts settle based 

on the futures price at expiration, 

mispricing could affect a larger scope of 

contracts. 

b. Costs of Speculative Position Limits 

Rules 

The Commission recognizes that 

position limits impose compliance costs 

on market participants. Under position 

limits, market participants must monitor 

their positions and have safeguards in 

place to remain under a federal position 

limit or an exemption level. Some 

market participants will have to incur 

the costs of seeking exemptions from 

federal positons limits. In this 

Reproposal, the Commission has sought 

to reduce these costs by setting the 

federal position limits at an 

appropriately high level and by relying 

on the experience and expertise of 

exchanges to administer exemptions. 

Market participants who find position 

limits binding may have to transact in 

less effective instruments such as 

futures contracts that are similar but not 

the same as the core referenced futures 

contract. These instruments could 

include forward contracts, trade 

options, or futures on a foreign board of 

trade. Transacting in substitute 

instruments may raise transaction costs. 

Finally, if transactions shift to other 

instruments, futures prices might not 

reflect fully all the speculative demand 

to hold the futures contract, because 

substitute instruments may not 

influence prices in the same way that 

trading directly in the futures contract 

does. In these circumstances, futures 

market price discovery and efficiency 

might be harmed. 

c. Summary of General Comments 

Regarding Speculative Position Limits 

Rules 

i. Comments on General Aspects of the 

Rule 

One commenter asserted that the 

proposed rules have the potential to 

increase systemic risk, impair market 

function, and increase the costs and 

volatility of wholesale energy 

commodities. Moreover, the commenter 

asserted that these adverse impacts are 

unrelated to any mandates placed upon 

the Commission by Congress.1198

Another commenter said that position 

limits that are not necessary or 

appropriate increase commercial 

parties’ compliance costs and reduce 

market liquidity, which in turn 

increases the cost of hedging. The 

commenter believes the Commission 

did not adequately consider these costs 

and the lack of corresponding 

benefits.1199


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1200CL–ASR–60933 at 5. 

1201CL–IECAssn–60949 at 19. 

1202CL–IECAssn–60949 at 23. 

1203CL–Sen. Levin–59637 at 9–10. 

1204CL–MFA–60385 at 12–13. See also CL– 

COPE–59622 at 5 and CL–CMC–59634 at 2. 

1205CL–ISDA–60931 at 5. 

1206CL–ISDA/SIFMA–59611 at 24–25. 

1207CL–IECAssn–60949 at 23, 25–26. 

1208CL–IECAssn–60949 at 26. 

1209CL–ISDA/SIFMA–59611 at 23. 

One commenter requested that as the 

Commission enacts its final rule it 

should avoid imposing materially costly 

and complex rules and reporting 

requirements on hedgers unless they are 

manifestly necessary to prevent a 

meaningful threat to market 

integrity.1200

In response to 2016 Supplemental 

Position Limits Proposal RFC 37, a 

commenter stated that maintaining the 

status quo in which exchanges 

administer an established process for 

position limits and exemptions will 

provide legal certainty and maintain 

current costs instead of increasing 

them.1201 In response to 2016 

Supplemental Position Limits Proposal 

RFC 55, this commenter said that the 

Commission’s Division of Enforcement 

has numerous tools at its disposal, and 

that the Exchanges have position stepdown and exemption revocation 

authorization at their disposal, to 

enforce CEA market manipulation 

regulations.1202

Sen. Levin commented that the 

benefits of the proposed rules, while 

difficult to quantify, create a net benefit 

to the public and the markets by helping 

to ensure the markets’ continued 

stability, fairness, and profitability.1203

ii. Response to Comments on General 

Aspects of the Rule 

The Commission has interpreted the 

Dodd-Frank Act to mandate that the 

Commission impose federal position 

limits on physical-delivery futures 

contracts. In addition, the Commission 

is making a preliminary alternative 

finding that position limits are 

necessary to accomplish statutory 

objectives. The Commission believes 

that it has calibrated the levels of those 

limits so as to avoid harmful effects on 

the markets and, accordingly, does not 

believe the imposition of federal 

position limits at the reproposed levels 

will have the effects that concerned 

commenters. These commenter 

concerns are counterpoised by the 

desirable effects on markets that Sen. 

Levin ascribed to position limits. 

iii. Comments on Cost Estimates 

A commenter expressed concern that 

the CFTC has underestimated the costs 

of compliance with the position limits 

rules, and the number of affected 

parties, so that the potential unintended 

consequences of the rules will outweigh 

their benefits. The commenter believes 

this would result because the 

compliance costs associated with 

position limits are high and particularly 

burdensome for market participants 

who are unlikely ever to come close to 

reaching the limits.1204

Another commenter believes that the 

cost-benefit analysis in the 2016 

supplemental proposal features 

unrealistically low estimates of the time 

and costs that will be required to 

implement and maintain compliance 

programs.1205

Another commenter asserted that the 

Commission did not adequately 

quantify the harm from position limits 

on liquidity for bona fide hedgers and 

the price discovery function, or the 

implementation and on-going reporting 

and monitoring costs for market 

participants. The commenter believes 

that costs will arise from altering 

speculative trading strategies in 

response to a limited definition of bona 

fide hedging; reassessing and modifying 

existing trading strategies to comply 

with limits; amending DCMs’ current 

aggregation and bona fide hedging 

policies; and creating compliant 

application regimes for SEFs.1206

In response to 2016 Supplemental 

Position Limits Proposal RFC 56, 

another commenter asserted that unduly 

low position limits would reduce 

liquidity and discourage market 

participation, thereby not advancing 

regulatory goals that are already 

appropriately protected under the status 

quo. In response to 2016 Supplemental 

Position Limits Proposal RFC 66, this 

commenter said the Commission should 

consider public interest considerations 

relating to the particular interests of 

commercial end-users, which rely on 

mitigating price risk in order to remain 

in business. This commenter believes 

that commercial end-users are at risk of 

being squeezed out of the market, and 

potentially squeezed out of business, as 

a result of the difficulty of hedging 

commercial risks. The commenter urged 

the Commission to apply graduated 

regulatory requirements for bona fide 

hedging determinations that would 

account for differences between market 

participants.1207

iv. Response to Comments on Cost 

Estimates 

As shown in the impact analysis, the 

Commission seeks to reduce market 

participants’ compliance costs by setting 

the federal position limits at a level 

sufficiently high to only affect market 

participants with very large open 

interest. Thus, the Commission expects 

minimal compliance costs for those 

with positions below these high levels. 

Small traders would be required only to 

monitor their open interest and have 

safeguards in place to remain below 

position limits. The Commission finds 

the exemption process valuable because 

it requires participants with very large 

open interest to provide the information 

required by the exemption application 

to the relevant exchange(s) and to the 

Commission. Having this information 

helps exchanges and the Commission to 

better understand the markets they 

regulate. 

As for the high costs that some 

commenters claimed to be required to 

implement and maintain compliance 

programs, the Commission presented 

and requested comment on its estimates 

of the costs associated with compliance 

programs. Commenters did not provide 

any specific cost estimates to support 

their assertions of the potential for high 

costs. 

v. Comments on Cross-Border Aspects 

of the Rule 

In response to 2016 Supplemental 

Position Limits Proposal RFC 67, a 

commenter noted that swaps and 

futures markets have become more 

global and suggested that restrictive 

position limit regulations and added 

reporting requirements would drive 

global companies to jurisdictions that 

have more friendly regulatory 

treatment.1208 Another commenter 

urged the Commission to consider and 

assess the costs and benefits of applying 

the rules on an extraterritorial basis.1209

vi. Response to Comments on CrossBorder Aspects of the Rule 

The Commission considers that 

market participants might use other 

means to engage in derivative activity 

besides domestic futures and swaps if 

federal position limits are set too low. 

For instance, price discovery for a 

futures contract might move to a foreign 

board of trade that lists a substitute 

contract. Further, foreign parties might 

elect to engage in foreign swaps instead 

of transacting in U.S. futures and swaps. 

To mitigate these risks, the Commission 

endeavors not to set the position limits 

at levels that are unduly low. 

vii. Comments on Quantification of 

Costs of the Rule 

A commenter criticized the 

Commission’s consideration of the costs 

and benefits of the proposed rules for 


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1210CL–ISDA/SIFMA–59611 at 3–4 and 22. See 

also CL–ISDA–60370 at 2. 

1211CL–ISDA/SIFMA–59611 at 2, 3, citing ISDA, 

887 F. Supp. 2d at 273. The commenter said the 

Commission should identify marginal benefits of 

the rule and evaluate the costs and benefits 

appropriately (given limitations on available data). 

See also CL–ISDA/SIFMA–59611 at 22, n. 83, citing 

Inv. Co. Inst. v. CFTC, 720 F.3d 370, 378–79 (D.C. 

Cir. 2013). Another commenter believed that the 

Commission must find there is a problem in market 

pricing as a result of positions exceeding non-spot 

month position limits, or a benefit from prohibiting 

such excess positions, before adopting position 

limits. CL–Working Group–59693 at 61. The 

commenter is concerned that, as a result of non-spot 

month position limits, parties carrying positions 

above the limit will lose the market opportunity 

experienced in holding the positions, there could be 

an immediate reduction in liquidity if those parties 

must liquidate those positions, and a reduction in 

the positions of the market participants would 

reduce open interest, reducing subsequent non-spot 

month limits and beginning a continuous 

downward cycle that eventually would draw 

liquidity from markets and impact hedgers. Id. 

1212CL–ISDA/SIFMA–59611 at 30 

1213CL–ISDA/SIFMA–59611 at 24–25 

1214CL–ISDA/SIFMA–59611 at 22 fn 83 

1215CL–ISDA/SIFMA–59611 at 23–24. 

1216CL–ISDA/SIFMA–59611 at Annex B at 5. 

1217CL–ISDA/SIFMA–59611 at Annex B at 5. 

1218CL–ISDA/SIFMA–59611 at Annex B at 5–6. 

1219CL–ISDA/SIFMA–59611 at Annex B at 6. 

1220CL–Working Group–59693 at 61. The 

commenter also believes that non-spot month 

position limits would create a restraint on non-spot 

month liquidity due to strip positions along the 

curve, and this would create an unnecessary impact 

on hedgers. Id. at 61–62. 

1221CL–Sen. Levin–59637 at 9. 

1222CL–OSEC–59972 at 2. 

failing to consider both direct and 

indirect costs on commodities markets, 

market participants, and the economy 

generally.1210 The Commenter believes 

that legal precedents require that in 

order to adopt a position limit rule, the 

Commission must find a reasonable 

likelihood that excessive speculation 

will pose a problem in a particular 

market, and that position limits are 

likely to curtail the excessive 

speculation without imposing undue 

costs.1211 To the contrary, this 

commenter said it had not observed 

excessive speculation in the years since 

the financial crisis and, thus, position 

limits would only increase regulatory 

burdens with no corresponding 

benefit.1212 Moreover, the commenter 

thinks the Commission did not 

adequately quantify the harm that 

market experts predict position limits 

will impose on liquidity for bona fide 

hedgers, the disruption to the price 

discovery function, or the shifting of 

price discovery offshore. The 

commenter also pointed to a lack of 

quantification of implementation costs, 

initial compliance and monitoring costs, 

and on-going reporting and monitoring 

costs for market participants, and the 

lack of quantified costs of a limited 

definition of bona fide hedging which 

would require alterations to speculative 

trading strategies to meet the definition; 

the amendments to DCMs’ current 

aggregation and bona fide hedging 

policies; or the creation of compliant 

application regimes for SEFs.1213

The commenter cited papers by Craig 

Pirrong and Philip Verleger as proper 

evaluations of the costs and benefits of 

position limits for derivatives,1214 and 

asserted that if quantitative information 

is lacking the Commission must make 

guesses, even if imprecise, and conduct 

an economic analysis of the likely 

impact of the proposed rules.1215 In the 

paper cited by the commenter, Craig 

Pirrong suggested that the Commission 

could provide ‘‘valuable evidence’’ 

about costs and benefits by 

documenting for each commodity 

subject to limits, using a long period of 

historical data, how often limits would 

have been binding and how much large 

speculators would have had to reduce 

their positions in order to comply with 

limits.1216 He believes it would be 

useful to see how often sudden and 

unreasonable price changes occurred 

during the period the limits would have 

been binding, in comparison to costs 

during periods when limits have been 

binding and not associated with sudden 

and unreasonable price changes.1217 He 

said that a proper cost-benefit analysis 

should quantify net benefits relative to 

the status quo and identify which 

categories of market participants benefit, 

the sources of those benefits, and their 

magnitude, and also identify which 

types of participants are more likely to 

incur the costs associated with the 

limits, identify the sources of those 

costs, and quantify them, while 

providing the data and information 

necessary for replication of the 

analysis.1218 Last, Mr. Pirrong believes 

the Commission should address 

potential costs raised by commenters on 

the position limit rules proposed in 

2011.1219

Another commenter also thought that 

the Commission should perform a costbenefit analysis to determine whether 

non-spot month position limits are 

justified. The commenter said that the 

Commission’s statements that ‘‘few’’ 

participants would exceed the limits is 

not a sufficient analysis and that the 

Commission is obligated to do a more 

rigorous analysis before declaring 5, 7, 

or 11 persons as ‘‘few.’’ Further, the 

commenter pointed out that the 

Commission has not specifically stated 

how often those market participants 

would have exceeded those levels, how 

much over the limit they were, how the 

position exceedances were distributed 

along the price curve, or whether the 

positions were calendar spreads, and 

claimed that the lack of this information 

means there is no way to know whether 

the removal of those positions would 

have led to a significant reduction in 

liquidity and therefore market 

participants must assume that such a 

reduction in liquidity would have been 

significant.1220

Sen. Levin commented that the 

Commission correctly identified the 

prevention and reduction of artificial 

price disruptions to commodity markets 

as a positive benefit that would protect 

both market participants and the public, 

and that would outweigh the cost 

imposed on certain speculative traders. 

Sen. Levin commented that the 

Commission correctly observed that the 

sound risk management practices 

required by the proposed rules would 

benefit speculators, end users, and 

consumers.1221 Sen. Levin believes 

these benefits would include: The 

promotion of prudent risk management 

(with Amaranth illustrating the dangers 

of poor risk management), and broader 

economic efficiency, public welfare, and 

political security attributable to the 

availability and price stability of 

commodities such as wheat.1222

viii. Response to Comments on 

Quantification of Costs of the Rule 

The Commission does not believe that 

the consideration of costs and benefits 

under CEA section 15(a) requires a 

quantification of all costs and benefits. 

Nor does the statute require the 

Commission to hazard a guess when the 

available information is imprecise. The 

statute requires the Commission to 

consider the costs and benefits of its 

rulemaking, which contemplates a 

qualitative discussion when 

quantification is difficult. 

The Commission addresses most of 

the commenter’s cost and benefit 

concerns later in this consideration of 

costs and benefits. As for the 

identification and quantification of costs 

and benefits suggested by Mr. Pirrong, 

the Commission believes it would be of 

limited usefulness. For instance, the 

quantification would be highly 

uncertain and require many subjective 

interpretations and judgements on the 

part of investigators. Further, due to 

statutory restrictions on its release of 

confidential data, the Commission 

would be unable to provide data and 

other information necessary for the 

public to conduct an independent 

replication of the Commission’s 

analysis. 

The Commission considered 

proceeding in stages by first imposing 


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1223CL–CMC–59634 at 2. 

1224See,CL–CMC–59634 at 3. Cf.CEA section 

15(a)(2)(D) (titled ‘‘Costs and Benefits’’): ‘‘The costs 

and benefits of the proposed Commission action 

shall be evaluated in light of . . . considerations of 

sound risk management practices;’’ CEA section 

4a(a)(2)(C) (titled ‘‘Goal’’): ‘‘In establishing the 

limits required under [CEA section 4a(a)(2)(A)], the 

Commission shall strive to ensure that trading on 

foreign boards of trade in the same commodity will 

be subject to comparable limits and that any limits 

to be imposed by the Commission will note cause 

price discovery in the commodity to shift to trading 

on the foreign boards of trade.’’ 

1225See the discussion of factors 3 (risk 

management) and 4 (price discovery) under section 

15(a), below. 

1226CL–MFA–60385 at 4. 

1227See CL–ISDA/SIFMA–59611 at 25. Another 

commenter asserted that the Commission 

determined in 1993 that all-months-combined 

position limits are unnecessary and that the benefits 

of such limits did not outweigh the likely costs of 

eroding speculative volume and liquidity and the 

disruption in the efficient functioning of the nonstorable commodity futures markets. CL–Working 

Group–59693 at 61 or CL–CMC. The commenter 

provided no citations to Commission actions in 

1993. Commission staff believes that the commenter 

may be referring to a proposal from CME to 

eliminate the all-months-combined limits in the 

live cattle, live hogs, and feeder cattle futures and 

options markets in a March 4, 1993, submission. 

The Commission approved the proposal in an 

August 2, 1993, letter to the CME. 

1228See CL–IECAssn–60949 at 24. Another 

commenter suggested that non-spot month position 

limits operate as a barrier to market entry for longer 

dated activities in the name of preventing ‘‘a 

shallow threat’’ of excessive speculation, and that 

costs resulting from position limits would be 

ultimately passed to the consumer, harming the 

American economy. CL–EDF–60398 at 4–5. 

1229CL–Working Group–59693 at 61–62. 

1230CL–MFA–60385 at 13. 

1231CL–Calpine–59663 at 4. 

position limits in the spot month before 

imposing then in the single month and 

all months combined. The Commission 

is preliminarily rejecting this alternative 

based on the impact analysis, because 

the single month and all months 

combined positon limits are set 

sufficiently high to impact only very 

few market participants. Further, the 

Commission believes that most of these 

participants would qualify for various 

exemptions to positions limits. 

Another commenter asserted that the 

CEA directs the Commission to balance 

the four factors listed in CEA section 

4a(a)(3)(B) and, thus, the Commission 

should present rigorous analysis to meet 

this requirement.1223 In particular, the 

commenter pointed out that the 

Commission has not published an 

analysis of how the proposed position 

limits promote sound risk management 

and ensure that trading on foreign 

boards of trade in the same commodity 

will be subject to comparable limits so 

that position limits do not cause price 

discovery to shift to the foreign boards 

of trade.1224

In response to this commenter, the 

Commission interprets CEA section 

4a(a)(3)(B) as a direction to the 

Commission to set limits ‘‘to the 

maximum extent practicable’’ to further 

the four policy objectives in that 

section. The Commission believes this is 

a Congressional recognition of the 

impossibility of achieving an actual 

‘‘maximum’’ for each of the four policy 

objectives. In any case, as part of this 

consideration of costs and benefits, the 

Commission considers the promotion of 

sound risk management practices and 

whether price discovery in a commodity 

will shift to a foreign board of trade.1225

ix. Comments on Liquidity Effects 

Commenters addressed the effects of 

position limits on liquidity. One 

expressed concern that the proposed 

position limits may constrain effective 

risk transfer by unduly restricting 

hedging or limiting the risk-bearing 

capacity of large speculators, thereby 

causing reduced liquidity, wider bidoffer spreads and higher transaction 

costs.1226 Another thought the 

Commission did not consider that 

liquidity and price discovery may be 

diminished if speculative traders’ 

activities are restricted.1227 In response 

to 2016 Supplemental Position Limits 

Proposal RFC 62, another commenter 

said that price discovery will improve if 

market participants are allowed to 

innovate and grow without excessive 

governmental interference and 

regulatory reporting costs.1228 And in 

response to 2016 Supplemental Position 

Limits Proposal RFC 59, this commenter 

suggested that position limits should be 

imposed in a manner that will foster 

innovation and growth for the 

betterment of the markets. 

x. Response to Comments on Liquidity 

Effects 

Liquidity is not a factor that the 

Commission is required to consider 

under section 15(a) of the CEA; 

nevertheless, the Commission did 

consider how liquidity concerns 

implicate the 15(a) factors. For instance, 

the Commission’s regulatory goals 

generally include protecting market 

liquidity, and enhancing market 

efficiency and improving price 

discovery through increased liquidity. 

The Commission has sought to reduce 

market participant burdens with the 

understanding that regulatory 

compliance costs increase transaction 

costs, which might reduce liquidity, all 

else being equal. The Commission has 

considered that liquidity, including the 

risk-bearing capacity of markets, and 

price discovery may be harmed if 

position limits are set too low and so 

has sought to avoid these adverse 

effects. 

The Commission preliminarily 

declines to treat general goals such as 

fostering innovation and growth for the 

betterment of markets as a specific 

public interest consideration under CEA 

section 15(a). While these are of course 

laudable objectives, the Commission 

believes they are difficult to accomplish 

through position limits. The 

Commission has not cited these general 

benefits as a reason for position limits. 

Last, the Commission notes that 

exchanges have proper incentives and a 

variety of tools with which to increase 

liquidity on their exchanges and, as a 

general matter, make their exchanges 

useful to the market.1229

xi. Comments Referring to Position 

Accountability 

A commenter requested that the 

Commission compare the costs and 

benefits of the proposed position limits 

regime with those of a position 

accountability regime, because the 

commenter believed that position 

accountability levels would serve as a 

less costly and disruptive alternative to 

position limits.1230 Another commenter 

compared a position accountability 

process to position limits, and argued 

that if the Commission imposes position 

limits for non-spot month contracts, the 

commenter would need to expend 

significant resources to ensure that its 

information technology systems could 

identify, gather and report bona fide 

hedging positions. But under position 

accountability, the commenter would be 

able to reply to a specific request for 

additional information using its own 

internal reports that have been designed 

to meet its specific commercial and riskmanagement needs. The position 

accountability approach would 

substantially reduce, if not eliminate, 

the burden of having to conform 

information technology systems to the 

Commission’s reporting 

requirements.1231

A third commenter also suggested that 

while administering position 

accountability levels, the Commission 

could conduct a comprehensive costbenefit analysis of the impact of spot 

month position limits on market 

liquidity for commercial hedgers and 

price discovery before determining 

whether to extend position limits 

outside of the spot months, and use the 

information collected to understand the 

trading activity of market participants 

with large speculative positions and 

determine if non-spot month 


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1232CL–FIA–60303 at 3–4. 

1233As stated in Section IIA, the Commission 

foresees various possibilities in remediating this 

current inability to monitor position limits in realtime in the future. 

1234CL–AFR–60953 at 2; CL–RER2–60962 at 1. 

1235CL–Better Markets–60928 at 6. 

speculative position limits are 

necessary.1232

xii. Response to Comments Referring to 

Position Accountability 

The Commission considered 

administering position accountability 

levels in the non-spot month, but has 

preliminarily determined that the 

adoption of position limits with an 

exemption process is the better 

approach, because it benefits the 

supervisory functions of the exchanges 

and the Commission by providing better 

insight into the markets. In addition, the 

Commission notes it has a lack of 

statutory authority for the Commission 

itself to administer position 

accountability levels. Rather, the CEA 

authorizes exchanges to administer 

position accountability levels. In 

contrast, the Commission’s emergency 

authority under the CEA is limited. 

Further, the Commission notes it 

interprets CEA section 4a(a)(3) as a 

direction to impose, at an appropriate 

level, position limits on the spot month, 

each other month (i.e., single month), 

and the aggregate of all months. 

2. DCM Core Principle 5(B) and SEF 

Core Principle 6(B), and new Appendix 

E to Part 150 

a. Summary of Changes 

The Commission is reproposing to 

amend its guidance regarding DCM core 

principle 5(B) and SEF core principle 

6(B), and adopting a new Appendix E to 

Part 150. The amendments have the 

effect of delaying the implementation of 

exchanges’ obligation to adopt swap 

position limits until there is sufficient 

access to swap position information 

regarding market participants’ swap 

positions. 

b. Baseline 

The baselines for these changes are 

the Commission’s current guidance on 

DCM Core Principle 5, SEF Core 

Principle 6, and the current Part 150. 

c. Benefits and Costs 

Section 15(a) of the CEA requires the 

Commission to consider the costs and 

benefits of its discretionary actions with 

respect to rules and orders. The 

Commission believes it is also 

appropriate to consider the costs and 

benefits of changes to the appendices to 

parts 37, 38, and 150 of the 

Commission’s regulations, even though 

these appendices constitute guidance. 

The Commission appreciates that the 

changes to this guidance will delay the 

point in time when exchanges will 

become obligated to monitor and 

enforce federal position limits for swaps 

(although exchanges could take 

voluntary steps in this regard at any 

appropriate time). As a result, this 

change in guidance will likely confer 

benefits and reduce costs, although it is 

difficult to identify the benefits and 

costs that result directly from the 

change in guidance because the exact 

time at which exchanges will become 

obligated to monitor and enforce federal 

position limits for swaps is not 

currently specified but will instead 

depend on the future availability of 

information. Also, given the 

interrelationship between the 

exchanges’ enforcement of federal 

position limits for swaps with the 

exchanges’ other actions with respect to 

position limits and the Commission’s 

enforcement of federal position limits, it 

is difficult to identify the incremental 

effect that will occur when exchanges 

become obligated to enforce federal 

position limits for swaps. 

However, the Commission believes 

that because of the change in the 

Commission’s guidance, exchanges and 

market participants will benefit because 

the delay will result in a lower 

requirement to invest in technology and 

personnel to assess federal position 

limits. In terms of costs, the 

Commission believes that there might be 

a cost to the market associated with this 

change in guidance because the delay 

may result in exchanges’ reducing their 

monitoring of excessive positions in 

real-time.1233

d. Summary of Comments 

The Commission requested comment 

on its consideration of the benefits and 

costs associated with the proposed 

amendments to guidance, and asked if 

there are additional alternatives that the 

Commission has not identified. Two 

commenters requested that the 

Commission formulate a plan to address 

the lack of data access by DCMs and 

SEFs.1234 These commenters did not 

provide a detailed alternative, however. 

On the other hand, one commenter 

asserted that there should be no delay 

in implementing position limits for 

swaps because, according to the 

commenter, the Commission has access 

to sufficient swap data it needs to 

implement position limits.1235 The 

Commission is considering various 

alternatives, but has not made a 

determination on which direction to 

take. 

3. Section 150.1—Definitions 

The Commission is reproposing new 

definitions of, or amendments to the 

definitions of, several terms: Basis 

contract, bona fide hedge, calendar 

spread contract, commodity derivative 

contract, commodity index contract, 

core referenced futures contract, eligible 

affiliate, entity, excluded commodity, 

futures-equivalent, intercommodity 

spread, long position, short position, 

spot month, intermarket spread, 

physical commodity, pre-enactment 

swap, pre-existing position, referenced 

contract, spread contract, speculative 

position limit, swap, swap dealer, and 

transition period. These new definitions 

and amendments are discussed above. 

a. Benefits and Costs 

A general benefit of including 

definitions in the regulation is greater 

clarity. In particular, having specific 

definitions of terms set out as a separate 

part of the regulations helps users of the 

regulation to understand how the 

position limit rulemaking relates, in 

general, to the concepts and terminology 

of CEA as amended by the Dodd-Frank 

Act. Although market participants and 

other users of the regulations must take 

time and effort to understand and adapt 

to new definitions in the context of the 

rulemaking, the Commission believes 

these costs are reduced by setting out 

the definitions as a separate part of the 

regulations rather than incorporating the 

definitions in the substantive provisions 

of the rules. 

Specific benefits and costs of 

definitions are discussed within the 

context of specific rules where the 

definitions are directly applicable. In 

addition, the Commission believes that 

several definitions merit a specific 

consideration of costs and benefits, 

because the adoption of these 

definitions would represent the exercise 

of substantive discretion on the part of 

the Commission. 

b. Bona Fide Hedging Position 

i. Summary of Changes 

The Commission is reproposing a 

definition of bona fide hedging position 

in § 150.1. The Commission believes 

this definition of bona fide hedging 

position is consistent with CEA section 

4a(c) regarding physical commodities 

and otherwise closely conforms to the 

status quo. Commercial cash market 

activities are covered by the part of the 

definition that sets out an economically 

appropriate test. The Commission also 

notes that since CEA 4c(a)(5) separately 

states that intentional or reckless 


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1236 17 CFR 1.3(z) (2010). As discussed above, a 

district court generally vacated the Commission’s 

part 151 rulemaking, that would have amended 

§ 1.3(z) to apply only to excluded commodities. 

However, the Commission has not instructed the 

Federal Register to roll back those vacated 

amendments. Thus, the current version of § 1.3(z) 

is found in the 2010 or earlier version of the CFR. 

1237CL–Working Group–59693at 23–26. 

1238CL–AMG–60946 at 2–3. 

1239CL–CME–59718 at 47. 

1240CL–NGFA–60941 at 2–3 

1241See, e.g., CL–EEI–EPSA–59602 at 14. The 

commenter believes that the Commission evaluated 

only correlation during the spot month, but not the 

closer correlation that typically exists in the nonspot months. Id. 

1242CL–NRG at 5 

disregard for orderly trading execution 

is unlawful and because it is unclear 

how a market participant would comply 

with an orderly trading requirement in 

the context of OTC transactions, the 

Commission is proposing to delete the 

orderly trading requirement in the 

definition of bona fide hedging position. 

The Commission’s addition of subparagraph (2)(iii)(C) to the definition of 

bona fide hedging position in § 150.1 

reiterates the Commission’s authority to 

permit exchanges to recognize bona fide 

hedging positions in accordance with 

§ 150.9(a). Those positions are subject to 

CEA section 4a(c) standards as well as 

Commission review. 

ii. Baseline 

The baseline for this amendment to 

the rule is the definition for ‘‘bona fide 

hedging transactions and positions,’’ set 

forth in current § 1.3(z).1236

iii. Benefits and Costs 

Futures contracts function to hedge 

price risk because they allow a party to 

fix a price for a specified quantity of a 

particular commodity at a designated 

point in time. Futures contracts, 

thereby, can be used by market 

participants to create price certainty for 

physically-settled transactions. Thus, 

the Commission believes that to qualify 

as a bona fide hedging position for a 

physical commodity, the position must 

ultimately result in hedging against 

some form of price risk in the physical 

marketing channel. 

The Commission is amending the five 

day/spot month rule so that it will allow 

exchanges to grant spread exemptions 

that are valid in the five day/spot month 

period. The Commission anticipates that 

allowing spread exemptions to be 

recognized in the spot month might 

improve liquidity and, thereby, lower 

costs for market participants. 

Also, the rule amendments will allow 

bona fide hedge exemptions to cover a 

period of more than one year of cash 

market exposure. The current definition 

limits to one year the hedging of 

anticipated production of, or 

requirements for, an agricultural 

commodity. Removing this current 

restriction is desirable because many 

commercial enterprises may prefer to 

hedge cash market exposure for more 

than one year. 

The Commission understands that 

some activity that may have been 

recognized by exchanges as bona fide 

hedging in the past may not satisfy the 

definition in the reproposed rule. The 

Commission has sought to mitigate costs 

arising from this transition by setting 

position limits at levels that are 

appropriately high (so as to limit the 

extent of positions that may require an 

exemption) and by not including any 

requirement that exchanges use the 

reproposed rule’s definition of bona fide 

hedging position other than with respect 

to the federal position limits in the 

referenced contracts listed in 150.2(d). 

The Commission notes that an 

exchange is permitted to recognize 

exemptions for non-enumerated bona 

fide hedging positions, certain spread 

positions, and anticipatory bona fide 

hedging positions, under the processes 

of § 150.9, 150.10 and 150.11, 

respectively, subject to assessment of 

the particular facts and circumstances, 

where price risk arises as a result of 

other fact patterns than those of the 

enumerated positions. The Commission 

expects to review with an open mind 

any hedging activity that exchanges 

choose to exempt as bona fide hedging 

positions with respect to federal 

position limits. The Commission 

believes, however, that it would be 

inappropriate to allow the exchanges to 

act with unbounded discretion in 

interpreting the meaning of the term 

‘‘economically appropriate’’ when the 

exchanges determine whether to 

recognize an exemption for bona fide 

hedging. Such a broad delegation is not 

authorized by the CEA and, in the 

Commission’s view, would be contrary 

to the reasonably certain statutory 

standards in CEA section 4a(c), such as 

the ‘‘economically appropriate’’ test. 

That is, if the statutory standards are 

reasonable certain, then the Commission 

may delegate authority to exchanges. If 

the statutory standards were not 

reasonably certain, then the 

Commission would be precluded from 

delegating authority to the exchanges. 

Further, as explained in the discussion 

of § 150.9, 150.10 and 150.11, exchange 

determinations in this regard will be 

subject to the Commission’s de novo 

review. 

iv. Summary of Comments 

Several commenters said that the 

rule’s definition of bona fide hedging 

position should be expanded in various 

ways that would extend the scope of the 

definition to include the hedging of a 

wider variety of risks, in addition to 

price risk. For example, one commenter 

claimed that hedging some of the risks 

and costs associated with building 

energy infrastructure may not satisfy the 

bona fide hedging position definition, 

and that as a result some of these costs 

would likely be passed onto 

consumers.1237 A commenter 

representing asset managers said that 

the final rule should include a risk 

management exemption, including for 

commodity index contract positions, 

because the availability of such an 

exemption would reduce compliance 

costs and reduce negative consequences 

for liquidity and price discovery, while 

providing the same benefit in terms of 

preventing excessive speculation.1238 A 

third commenter asserted that the 

‘‘specifically enumerated’’ criterion in 

the proposed definition would constrain 

risk management activities by 

effectively reclassifying large risk 

reducing positions as excessive 

speculation.1239 On the other hand, a 

fourth commenter believed that the 

definition of bona fide hedging position 

in the supplemental proposal will 

benefit consumers through lower prices 

enabled by an efficient hedging 

mechanism as existing strategies remain 

readily available.1240

Another commenter asserted that the 

correlation standards in the proposed 

rule would make the bona fide hedging 

position exemption unavailable for 

hedges related to illiquid delivery 

locations and result in higher risks for 

market participants and higher costs for 

consumers.1241 Along similar lines, 

another commenter said the 

Commission had not sufficiently 

considered the commonly accepted 

accounting practice of entering into 

economic hedges or sufficiently 

analyzed the costs and burdens to 

companies that engage in economic 

hedging of applying the 0.80 correlation 

for cross-commodity hedging required 

in the final rule.1242

The Commission believes that the 

definition of bona fide hedging position 

and the related exemption process in 

the reproposed rule will accommodate 

many existing hedging strategies that 

market participants use. As it would be 

impossible to enumerate every 

acceptable bona fide hedging activity, 

the Commission has preliminarily 

determined that it is appropriate to rely 

on the experience and expertise of 

exchanges to process these exemptions. 

The Commission believes that the 

exchanges will be better placed to 


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1243For example, the Commission believes that 

the exchanges’ involvement in this process is more 

flexible and far superior to setting out regulatory 

safe harbors for factors such as a linear correlation 

in the spot month that may demonstrate a position 

qualifies for the exemption. 

1244See, e.g., CL–EEI–EPSA–59602 at 15, CL– 

EEI–Sup–60386 at 7. See also CL–Calpine–59663 at 

7. 

1245CL–Olam–59946 at 1. 

1246See the Commission determination regarding 

comments on specific, identifiable risks, above, for 

an explanation of why it would be inappropriate to 

apply the bona fide hedging definition on an item 

by item basis. 

1247See CL–NCGA–ASA–60917 at 7; CL– 

IECAssn–60949 at 25; and CL–FIA–60937 at 18–19. 

determine which activities qualify for 

bona fide hedging position exemptions 

based on the applicable facts and 

circumstances. The Commission 

anticipates that the exchanges’ role in 

administering bona fide hedging 

position exemptions will help to 

mitigate the potential adverse effects 

that commenters attributed to an overly 

narrow application of such 

exemptions.1243

Regarding commenters’ suggestions 

that the definition of bona fide hedging 

position be expanded to encompass 

hedges of risks other than risks related 

to prices in physical marketing 

channels, the Commission notes that 

many risks come into play outside the 

physical marketing channel to which 

referenced contracts relate. The 

Commission has preliminarily 

determined that hedging of these other 

risks should not be covered by the bona 

fide hedging position definition, 

because the Commission views the 

statutory standards in CEA section 

4a(c)(2), largely mirroring those of the 

general definition of a bona fide hedging 

position in § 1.3(z)(1), to be reasonably 

certain as limited to hedges of price 

risks. Further, as explained above, the 

statutory standard of CEA section 4a(c) 

requires bona fide hedging positions to 

be a substitute for a transaction taken or 

to be taken in the cash market. 

Generally, this precludes application of 

the bona fide hedging exemption to 

hedging of purely financial risks that are 

not price risks related to the physical 

marketing channel. For example, 

commodity index contracts are not 

eligible for recognition as the basis of a 

bona fide hedging position exemption 

because these contracts are not used to 

hedge price risks in physical marketing 

channels, as required in CEA section 

4a(c)(2)(A)(i), and, as well, would not 

meet the requirements for a bona fide 

hedging position as a pass-through swap 

offset under CEA section 4a(c)(2)(B). 

Commenters also addressed the 

element of the bona fide hedging 

position definition that generally 

requires that hedges be considered on a 

net basis in determining whether the 

definition is satisfied. One commenter 

argued that hedging on a net basis 

would be unworkable and require costly 

new technology systems to be built 

around more rigid, commercially 

impractical hedging protocols that 

prevent dynamic risk management in 

response to rapidly changing market 

conditions.1244 Another commenter 

asserted that hedging on a gross basis is 

economically appropriate in a variety of 

circumstances and the Commission’s 

proposal would limit market 

participants’ ability to hedge the risks 

associated with their commercial 

activities, potentially resulting in 

increased costs and volatility that could 

detrimentally impact the market 

participants and lead to higher prices 

for consumers.1245

The Commission believes that it is 

fundamental to the definition of bona 

fide hedging position to require that 

such hedging reduce the overall risk of 

the commercial enterprise. Consistent 

with that focus on overall risk, it should 

be noted that the Commission does 

recognize certain gross hedges, e.g., the 

use of a calendar month spread position 

to hedge the price risk of a soybean 

crush processor, because those gross 

hedges reduce overall risk. That is, in 

applying the definition one must 

consider whether a hedge reduces the 

overall risk of the commercial 

enterprise, and overall risks must be 

determined on a net basis.1246 In this 

aspect, too, the Commission believes 

that the involvement of exchanges in the 

bona fide hedge exemption process will 

be valuable, and the Commission would 

expect to consider the determinations of 

exchanges in this regard with an open 

mind. 

Four commenters expressed 

opposition to an aspect of the proposal 

in the supplemental notice that would 

not allow hedge exemptions for spread 

transactions to be applied during the 

last five days of trading of a futures 

contract, saying that spread exemptions 

should be allowed into the spot month 

to avoid negative effects on liquidity 

and potential disruptions of 

convergence, potentially resulting in 

additional risk for market participants 

which ultimately gets passed to 

consumers.1247

The Commission agrees with 

commenters that allowing spread 

exemptions to be applied in the spot 

month might improve liquidity and 

lower risks for market participants. 

Thus, the Reproposal would permit 

exchanges to grant § 150.10 spread 

exemptions into the five day/spot 

period. The costs and benefits of the 

forms are considered in the discussion 

of Part 19 and rule 150.7. 

c. Core Referenced Futures Contract and 

Referenced Contract 

i. Summary of Changes 

The Commission proposes to define 

the term ‘‘core referenced futures 

contract’’ and amend the list of 

contracts in § 150.2. The effect of this is 

that the federal positon limits in 

§ 150.2(d) will apply to the following 

additional contracts: Rough Rice, Live 

Cattle, Cocoa, Coffee, Frozen Orange 

Juice, U.S. Sugar No. 11, U.S. Sugar No. 

16, Light Sweet Crude Oil, NY Harbor 

ULSD, RBOB Gasoline, Henry Hub 

Natural Gas, Gold, Silver, Copper, 

Palladium, and Platinum. 

ii. Baseline 

The baseline for the definition of the 

term ‘‘core referenced futures contract’’ 

is that the term encompasses the legacy 

agricultural futures contracts that are 

subject to existing federal position 

limits, namely: Corn (and Mini-Corn), 

Oats, Soybeans (and Mini-Soybeans), 

Wheat (Mini-Wheat), Soybean Oil, Hard 

Winter Wheat, Hard Red Spring Wheat, 

and Cotton No. 2. The baseline for the 

definition of the term ‘‘referenced 

contract’’ is the same as that of the term 

‘‘core referenced futures contract.’’ 

iii. Benefits and Costs 

The definitions of the terms ‘‘core 

referenced futures contract’’ and 

‘‘referenced contract’’ set the scope of 

contracts to which federal position 

limits apply. As noted above, the 

Commission has preliminarily decided 

to proceed in stages when imposing 

federal position limits. Among other 

things, this will allow the Commission 

to observe how futures markets respond 

to an initial set of position limits before 

applying position limits more widely, 

including to contracts with less 

liquidity. All other things being equal, 

markets for contracts that are more 

illiquid tend to be more concentrated, so 

that a position limit on such contracts 

might significantly reduce trading 

interest on one side of the market, 

because a large trader would face the 

potential of being capped out by a 

position limit. For this reason, among 

others, the contracts to which the 

position limits in § 150.2(d) apply 

include some of the most liquid 

physical-delivery futures contracts. 

Following the application of position 

limits to these contracts, the 

Commission would be able to study the 

effects of position limits more readily 

and, it is anticipated, consider how to 

apply position limits more broadly in a 


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1248The defined term ‘‘location basis contract’’ 

generally means a derivative that is cash-settled 

based on the difference in price, directly or 

indirectly, of (1) a core referenced future contract; 

and (2) the same commodity underlying a particular 

core referenced futures contract at a different 

delivery location than that of the core referenced 

futures contract. 

1249CL–FIA–59595 at 20. 

1250See, e.g., CL–NGSA–59674 at 33; CL–NGSA– 

59900 at 9. Another commenter made a more 

general assertion that the costs of monitoring 

positions subject to a limit, including reporting 

costs, would drive commercial market participants 

to the spot markets and cause them to restrict the 

variability provided to customers, if trade options 

or forward contracts with optionality were subject 

to position limits. CL–Calpine–59663 at 5. 

1251CL–Citadel–59933 at 1–3. The commenter 

also made two recommendations relevant to the 

definition of core referenced futures contract: That 

position limits for cash-settled contracts are not 

warranted and that commodity index swaps should 

Continued 

way that would not unduly restrain 

liquidity in less liquid markets. 

The Commission has also 

preliminarily determined not to apply 

position limits to cash-settled core 

referenced futures contracts (that are not 

linked to physical-delivery futures 

contracts) at this time. For these 

contracts, the possibility of corners and 

squeezes is reduced, because there is no 

link to a physical-delivery futures 

contract that may be distorted, and 

therefore there is less of a need for 

position limits. Of course, there may be 

other concerns about manipulation of 

cash-settled futures contracts that are 

not linked to physical-delivery futures 

contracts, however. For instance, there 

may be an incentive to manipulate a 

commodity price index in a manner that 

would benefit particular cash-settled 

futures or swap positions. Such 

manipulative conduct includes 

cornering or squeezing the underlying 

cash market on which a cash-settlement 

index is based. The Commission notes 

that these manipulation concerns may 

be addressed, in part, through the 

Commission’s authority to regulate 

futures and swaps (including the terms 

of these contracts set by exchanges) and 

take enforcement actions, until such 

time as the Commission adopts position 

limits on cash-settled core referenced 

futures contracts. Further, exchanges in 

their SRO function may also constrain 

and discipline traders who are trading 

in a disruptive fashion. Indeed, it is 

reasonable to expect that, given the 

exchanges’ deep familiarity with their 

own markets and their ability to tailor 

a response to a particular market 

disruption, such exchange action is 

likely to be more effective than a 

position limit in such circumstances. 

However, the Commission notes the 

exchanges do not have authority over 

those persons who only transact in OTC 

swaps. 

The Commission has preliminarily 

determined to exclude trade options 

from the rule’s definition of ‘‘referenced 

contract,’’ for several reasons. The 

Commission believes that many trade 

options would qualify for bona fide 

hedging position exemptions, since 

trade options are generally used to 

hedge risks. The Commission also 

believes that not including trade options 

in the scope of position limits will 

relieve many market participants of 

significant compliance costs that would 

be required to apply position limits to 

trade options. Last, this approach will 

allow the market to continue to innovate 

in the use of trade options to hedge a 

variety of risks. 

The rule’s definition of the term 

‘‘referenced contract’’ includes a swap 

or futures contract that is ‘‘indirectly 

linked’’ to a physical-delivery futures 

contract. The ‘‘indirectly linked’’ 

contract could be a cash-settled swap or 

cash-settled futures contract that settles 

to the price of another cash-settled 

derivative that, in turn settles to the 

price of a physical-delivery futures 

contract. A contract that settles based on 

the level of a commodity price index, 

comprised of commodities that are not 

the same or substantially the same, 

would not be an ‘‘indirectly linked’’ 

contract, even if the index uses futures 

prices as components. A contract based 

on such a commodity price index is 

excluded because the index represents a 

blend of the prices of various 

commodities. 

The Reproposal’s definition of the 

term ‘‘referenced contract’’ does not 

include a swap or futures contract that 

fixes its closing price on the prices of 

the same commodity at different 

delivery locations than specified in the 

core referenced futures contract, or on 

the prices of commodities with different 

commodity specifications than those of 

the core referenced futures contract. 

This approach is also in accord with 

market practice, in that a core 

referenced futures contract specifies 

location(s) and grade(s) of a commodity 

in the relevant contract specification. 

Thus, a contract on one grade of 

commodity is treated by the market as 

different from a contract on a different 

grade of the same commodity. 

A location basis contract—a contract 

which reflects the difference between 

two delivery locations of the same 

commodity—is also excluded from the 

definition of referenced contract.1248 A 

location basis contract may be used to 

hedge price risks relating to delivery at 

a location other than that of the core 

referenced futures contract. For 

instance, a location basis contract can be 

used in combination with a referenced 

contract to create a synthetic derivative 

contract on a commodity at a different 

delivery location, with a resulting zero 

net position in the referenced contract. 

However, a location basis contract that 

had a relatively small difference in 

location with that of the core referenced 

futures contract likely would not expose 

a speculator to significant price risk. 

Absent the exclusion of location basis 

contracts from the definition of 

referenced contract, such a speculator 

could increase exposure to a referenced 

contract by netting down, using such a 

location basis contract, the position that 

would otherwise be restricted by a 

position limit on the referenced 

contract. 

iv. Summary of Comments 

Commenters said that trade options 

should not be included in the definition 

of ‘‘referenced contract.’’ One 

commenter said there is significant 

uncertainty about the distinction 

between forward contracts and trade 

options, so costs associated with 

imposing position limits on trade 

options would greatly exceed any 

benefits.1249 Another argued that 

because trade options have never been 

subject to position limits, commercial 

parties do not have any systems in place 

to: Distinguish between trade options 

that are referenced contracts and those 

that are not; monitor the number and 

quantity of referenced-contract trade 

option positions across delivery points 

and trading venues; and integrate them 

with other position tracking 

systems.1250

The Commission took the difficulties 

explained by commenters in complying 

with position limits on trade options 

into account when preliminarily 

determining not to include trade options 

in the definition of referenced contract. 

To provide flexibility, the reproposed 

rule permits trade options to be taken 

into consideration as a cash position, on 

a futures-equivalent basis, as the basis of 

a bona fide hedging position. 

Another commenter discussed the 

exclusion of commodity index swaps 

from the definition of swaps that are 

economically equivalent to core 

referenced futures contracts. This 

commenter said this disparate treatment 

will shift trading activity to index 

swaps, drain liquidity from exchangelisted products, harm pre-trade 

transparency and the price discovery 

process, and further depress open 

interest (as volumes shift to index swap 

positions that do not count toward open 

interest calculations).1251


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not be treated differently than other cash-settled 

contracts: Id. 

1252See, e.g., CL–EEI–EPSA–59602 at 18. 

1253CL–Citadel–59933 at 4. 

1254See supra discussion of the Commission’s 

interpretation of this mandate and the alternative 

necessity finding. 

1255These contracts are Chicago Board of Trade 

corn and mini-corn, oats, soybeans and minisoybeans, wheat and mini-wheat, soybean oil, and 

soybean meal; Minneapolis Grain Exchange hard 

red spring wheat; ICE Futures U.S. cotton No. 2; 

and Kansas City Board of Trade hard winter wheat. 

The Commission acknowledges 

uncertainty about whether there will be 

a loss in liquidity due to the imposition 

of federal position limits. The 

Commission will monitor this issue 

going forward. 

Another commenter suggested that 

the definition of bona fide hedging 

position should include the hedging of 

a binding and irrevocable bid, because 

a failure to do so could increase the 

costs incurred by utilities and special 

entities to provide power or gas by 

forcing bidders to incorporate into their 

bids or offers the cost associated with 

the risk that no exemption for such a 

hedge would be permitted.1252 In 

response, the Commission points out 

that, under reproposed § 150.9, a bidder 

may seek recognition of a nonenumerated bona fide hedging position, 

under which an exchange may consider 

the facts and circumstances on a caseby-case basis. 

d. Futures Equivalent 

i. Summary of Changes 

The Commission is reproposing two 

further revisions to the definition of 

‘‘futures-equivalent’’ in the rule. The 

first revision clarifies that the term 

‘‘futures-equivalent’’ includes a futures 

contract which has been converted to an 

economically equivalent amount of an 

open position in a core referenced 

futures contract. Second, the 

Commission clarifies that, for purposes 

of calculating futures equivalents, the 

size of an open position represented by 

an option contract must be determined 

as the economically-equivalent amount 

of an open position in a core referenced 

futures contract. 

ii. Baseline 

The baseline for this change to the 

rule’s definition of ‘‘futures equivalent’’ 

is the current § 150.1(f) definition of 

‘‘futures-equivalent’’. 

iii. Benefits and Costs 

The Commission has preliminarily 

determined that the definition of 

‘‘futures-equivalent’’ in current 

§ 150.1(f) is too narrow in light of the 

Dodd-Frank Act amendments to CEA 

section 4a. To conform to the statutory 

changes and to make the definition 

more amenable to application within 

the broader position limits regime, the 

Commission is reproposing a more 

descriptive definition of the term 

‘‘futures-equivalent’’ by adding more 

explanatory text. The Commission 

continues to believe that, as it stated in 

the proposal, there are no cost or benefit 

implications to these further 

clarifications. 

iv. Summary of Comments 

The Commission requested comment 

on the revisions to the definition of the 

term ‘‘futures equivalent,’’ but did not 

receive any substantive comments. 

Consequently, the Commission is 

reproposing the definition in the 

Supplemental 2016 position limit 

proposal. 

e. Intermarket Spread Position and 

Intramarket Spread Position 

i. Summary of Changes 

Current part 150 does not contain 

definitions for the terms ‘‘intermarket 

spread position’’ or ‘‘intramarket spread 

position.’’ In the Supplemental 2016 

Position Limits Proposal the 

Commission proposed to expand the 

scope of definitions of these terms that 

had been included in the December 

2013 Position Limits Proposal. The 

expanded definitions of ‘‘intermarket 

spread position’’ or ‘‘intramarket spread 

position’’ include positions in multiple 

commodity derivative contracts. This 

expansion would allow market 

participants to establish an intermarket 

spread position or an intramarket spread 

position that would be taken into 

account under the position limits 

regime and exemption processes. The 

expanded definitions also cover spread 

positions established by taking positions 

in derivative contracts in the same 

commodity, in similar commodities, or 

in the products or by-products of the 

same or similar commodities. 

ii. Baseline 

Current § 150.1 does not include 

definitions for the terms ‘‘intermarket 

spread position’’ and ‘‘intramarket 

spread position.’’ Therefore, the 

baseline is a market where 

‘‘intermarket’’ and ‘‘intramarket’’ spread 

positions are not explicitly included in 

the definition of contracts that are 

exempt from federal position limits. 

iii. Benefits and Costs 

The changes to the definitions of the 

terms ‘‘intermarket spread position’’ and 

‘‘intermarket spread positions’’ broaden 

the scope of the two terms in 

comparison to the definitions proposed 

in the December 2013 Position Limits 

Proposal. In the Commission’s view, the 

changes are only operative in the 

application of §§ 150.3, 150.5 and 

150.10, which address exemptions from 

position limits for certain spread 

positions. The two definitions operate 

in conjunction with § 150.10, which sets 

forth a process for exchanges to 

administer spread exemptions. The 

definitions and § 150.10, together, will 

enable market participants to obtain 

relief from position limits for these 

types of spreads, among others. 

iv. Summary of Comments 

Citadel recommended that crosscommodity netting should be 

permitted.1253 The Commission 

preliminarily declines to permit crosscommodity netting within a particular 

referenced contract. However, the 

Commission addresses cross-commodity 

netting in the context of authorizing 

exchanges to recognize spread 

exemptions under reproposed § 150.10. 

4. Section 150.2—Speculative Position 

Limits 

a. Rule Summary 

As previously discussed, the 

Commission interprets CEA section 

4a(a)(2) to mandate that it establish 

speculative position limits for all 

agricultural and exempt physical 

commodity derivative contracts and, as 

a separate and independent basis for 

this rulemaking, has made a preliminary 

finding that position limits are 

necessary as a prophylactic measure to 

carry out the purposes of section 

4a(a).1254 The Commission currently 

sets and enforces speculative position 

limits for futures and futures-equivalent 

options contracts on nine agricultural 

products. Specifically, current § 150.2 

provides ‘‘[n]o person may hold or 

control positions, separately or in 

combination, net long or net short, for 

the purchase or sale of a commodity for 

future delivery or, on a futuresequivalent basis, options thereon, in 

excess of [enumerated spot, singlemonth, and all-month levels for nine 

specified contracts].’’ 1255 The 

Commission proposed to amend § 150.2 

to expand the scope of federal position 

limits regulation in three chief ways: (1) 

Specify limits on 16 contracts in 

addition to the nine existing legacy 

contracts (i.e., a total of 25); (2) extend 

the application of these limits beyond 

futures and futures-equivalent options 

to all commodity derivative interests, 

including swaps; and (3) extend the 

application of these limits across trading 

venues to all economically equivalent 

contracts that are based on the same 


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1256See supra discussion of the Commission’s 

necessity finding. 

1257These objectives are to: (1) ‘‘diminish, 

eliminate, or prevent excessive speculation;’’ (2) 

‘‘deter and prevent market manipulation, squeezes, 

and corners;’’ (3) ‘‘ensure sufficient market liquidity 

for bona fide hedgers;’’ and (4) ‘‘ensure that the 

price discovery function of the underlying market 

is not disrupted.’’ 7 U.S.C. 6a(a)(3). 

1258For a more detailed description, see 

discussion above. 

1259 § 150.1 includes a definition of the term 

‘‘speculative position limits.’’ 

1260 § 150.1 defines the term ‘‘core referenced 

futures contract’’ by reference to ‘‘a futures contract 

that is listed in § 150.2(d).’’ 

1261Specifically, in addition to the existing 9 

legacy agricultural contracts now within § 150.2— 

i.e., Chicago Board of Trade corn (C), oats (O), 

soybeans (S), soybean oil (SO), soybean meal (SM), 

and wheat (W); Minneapolis Grain Exchange hard 

red spring wheat (MWE); ICE Futures U.S. cotton 

No. 2 (CT); and Kansas City Board of Trade hard 

winter wheat (KW)—proposed § 150.2 would 

expand the list of core referenced futures contracts 

to capture the following additional agricultural, 

energy, and metal contracts: Chicago Board of Trade 

Rough Rice (RR); ICE Futures U.S. Cocoa (CC), 

Coffee C (KC), FCOJ–A (OJ), Sugar No. 11 (SB) and 

Sugar No. 16 (SF); Chicago Mercantile Exchange 

Live Cattle (LC); Commodity Exchange, Inc., Gold 

(GC), Silver (SI) and Copper (HG); and New York 

Mercantile Exchange Palladium (PA), Platinum 

(PL), Light Sweet Crude Oil (CL), NY Harbor ULSD 

(HO), RBOB Gasoline (RB) and Henry Hub Natural 

Gas (NG). The Commission originally proposed in 

its 2013 to set position limits on 28 core referenced 

contracts, including the 25 contracts noted above 

plus CME Feeder Cattle, Lean Hog and Class III 

Milk. Those three contracts will not be included in 

the Reproposal for the reasons discussed above. 

1262This would result in the application of 

prescribed position limits to a number of contract 

types with prices that are or should be closely 

correlated to the prices of the 25 core referenced 

futures contracts—i.e., economically equivalent 

contracts—including: (1) ‘‘look-alike’’ contracts 

(i.e., those that settle off of the core referenced 

futures contract and contracts that are based on the 

same commodity for the same delivery location as 

the core referenced futures contract); (2) contracts 

based on an index comprised of one or more prices 

for the same delivery location and in the same or 

substantially the same commodity underlying a 

core referenced futures contract; and (3) intercommodity spreads with two components, one or 

both of which are referenced contracts. 

1263As discussed supra, the Commission is 

reproposing to adopt a streamlined, amended 

definition of ‘‘spot month’’ in § 150.1. The term is 

defined as the trading period immediately 

preceding the delivery period for a physicaldelivery futures contract and cash-settled swaps 

and futures contracts that are linked to the physicaldelivery contract. The definition provides that the 

spot month for cash-settled contracts is that same 

period as that of the core referenced futures 

contract. For more details, see discussion above. 

1264See Nat’l Ass’n of Mfrs. v. SEC, 748 F.3d 359, 

369–70 (D.C. Cir. 2014). 

1265 7 U.S.C. 6a(a)(3)(A). 

1266See discussion above. 

underlying commodity. In addition, the 

Commission’s proposed rule included 

methods and procedures for 

implementing and applying the 

expanded limits. 

The Commission is reproposing 

amendments to § 150.2 to impose 

speculative position limits as mandated 

by Congress in accordance with the 

statutory bounds that define the 

Commission’s discretion in doing so 

and, as a separate and independent 

basis for the Reproposal, because the 

speculative position limits are necessary 

to achieve their statutory purposes.1256

First, pursuant to CEA section 4a(a)(5) 

the Commission must concurrently 

impose position limits on swaps that are 

economically equivalent to the 

agricultural and exempt commodity 

derivatives for which position limits are 

mandated in CEA section 4a(a)(2), and 

for which the Commission separately 

finds position limits are necessary. 

Second, CEA section 4a(a)(3) requires 

that the Commission appropriately set 

limit levels mandated and/or found 

necessary under section 4a(a)(2) that ‘‘to 

the maximum extent practicable, in its 

discretion,’’ accomplish four specific 

objectives.1257 Third, CEA section 

4a(a)(2)(C) requires that in setting limits 

mandated (or adopted as necessary) 

under section 4a(a)(2)(A), the 

‘‘Commission shall strive to ensure that 

trading on foreign boards of trade in the 

same commodity will be subject to 

comparable limits and that any 

limits. . . imposed. . .will not cause 

price discovery in the commodity to 

shift to trading on the foreign boards of 

trade.’’ Key elements of the reproposed 

rule are summarized below.1258

Generally, § 150.2 will limit the size 

of speculative positions,1259 i.e., prohibit 

any person from holding or controlling 

net long/short positions above certain 

specified spot month, single month, and 

all-months-combined position limits. 

These position limits will reach: (1) 25 

‘‘core referenced futures contracts,’’ 1260

representing an expansion of 16 

contracts beyond the 9 legacy 

agricultural contracts identified 

currently in § 150.2; 1261 (2) a newly 

defined category of ‘‘referenced 

contracts’’ (as defined in § 150.1); 1262

and (3) across all trading venues to all 

economically equivalent contracts that 

are based on the same underlying 

commodity. 

b. § 150.2(a) Spot-Month Speculative 

Position Limits 

i. Summary of Changes 

In order to implement CEA section 

4a(a)(3)(A), reproposed rule § 150.2(a) 

prohibits any person from holding or 

controlling positions in referenced 

contracts in the spot month in excess of 

the level specified by the Commission 

for referenced contracts.1263

Additionally, § 150.2(a) requires that a 

trader’s positions, net long or net short, 

in the physical-delivery referenced 

contract and linked cash-settled 

referenced contract be calculated 

separately under the spot month 

position limits fixed by the Commission 

for each. As a result, a trader could hold 

positions up to the applicable spot 

month limit in the physical-delivery 

contracts, as well as positions up to the 

applicable spot month limit in linked 

cash-settled contracts (i.e., cash-settled 

futures and swaps), but would not be 

able to net across physical-delivery and 

cash-settled contracts in the spot month. 

ii. Baseline 

To the extent the Commission has 

correctly interpreted that CEA section 

4a(a)(2) mandates position limits, the 

costs and benefits of whether to require 

position limits have been balanced by 

Congress and the Commission is not 

tasked with revisiting those costs and 

benefits on that specific question.1264 To 

the extent the Reproposal rests on the 

preliminary alternative necessity 

finding, the baseline is the current 

§ 150.2 of the Commission’s regulations. 

iii. Benefits and Costs 

As discussed above, CEA section 

4a(a)(3)(A) directs the Commission, each 

time it establishes limits, to set limits on 

speculative positions during the spotmonth.1265 It is during the spot-month 

period that concerns regarding certain 

manipulative behaviors, such as corners 

and squeezes, become most urgent.1266

The Commission has for decades 

applied guidance that spot-month 

position limits for physical-delivery 

futures contracts should be equal to no 

more than one-quarter of the estimated 

deliverable supply for that commodity. 

Spot-month position limits provide 

benefits to the market by restricting 

speculators’ ability to amass market 

power, regardless of whether there is 

intent to manipulate or distort the 

market. In so doing, spot-month 

position limits restrict the ability of 

speculators to engage in corners and 

squeezes and other forms of 

manipulation. They also prevent the 

potential adverse impacts of unduly 

large positions even in the absence of 

manipulation, thereby promoting a more 

orderly liquidation process for each 

contract and fostering convergence 

between the expiring core referenced 

futures contract and its underlying cash 

market. This makes the core referenced 

futures contract more useful for hedging 

cash market positions. 

For example, as discussed above, the 

absence of manipulative intent behind 

excessive speculation does not preclude 

the risk that accumulation of very large 

positions will cause the negative 


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1267 December 2013 Position Limits Proposal, 78 

FR 75685 n. 60. 

1268 ‘‘Choppy’’ prices often refers to illiquidity in 

a market where transacted prices bounce between 

the bid and the ask prices. Market efficiency may 

be harmed in the sense that transacted prices might 

need to be adjusted for bid-ask bounce to determine 

the fundamental value of the underlying contract. 

1269CL–ADM–60300 at 3. 

1270CL–ISDA/SIFMA–59611 at 26. 

consequences of the types observed in 

the Hunt and Amaranth incidents. 

Moreover, it is often difficult to discern 

manipulative intent. That is one reason 

position limits are valuable as a 

prophylactic measure for, in the 

language of Section 4a(a)(1), 

‘‘preventing’’ burdens on interstate 

commerce. The Hunt brothers and 

Amaranth examples illustrate the 

burdens on interstate commerce of 

excessive speculation that occurred in 

the absence of position limits, and 

position limits would have restricted 

those traders’ ability to cause 

unwarranted price movement and 

market volatility. This would be so even 

had their motivations been innocent. 

Both episodes involved extraordinarily 

large speculative positions, which the 

Commission has historically associated 

with excessive speculation.1267

Exchanges and market participants 

also benefit from spot-month position 

limits because market participants who 

seek exemptions to the spot-month limit 

will have to justify why their positions 

qualify for the exemption, which fosters 

visibility into the market for the 

exchanges and fosters better risk 

management practices for the market 

participant seeking the exemption. 

In its determination of the appropriate 

spot month levels for the core 

referenced futures contracts, the 

Commission took into account exchange 

estimates of deliverable supply, which 

were verified by the Commission staff, 

and exchange spot-month limit level 

recommendations. A more detailed 

discussion of the costs and benefits for 

the actual limits can be found below in 

the discussion of 150.2(d). However, 

more generally, the Commission 

recognizes federal spot month position 

limits do impose costs to exchanges and 

market participants. Federal spot month 

limits will require hedgers to apply for 

exemptions if they hold positions in 

excess of the federal limits. These costs 

are considered in the discussion of 

150.3. In addition, speculators who 

want exposure beyond the federal limit 

for a referenced contract will incur costs 

to trade in instruments that are not 

subject to federal limits, such as trade 

options and bespoke swaps, which 

typically incur more expensive 

transactions costs than exchange traded 

futures and swaps. 

Furthermore, as discussed above, 

exchanges may choose to adopt spotmonth limits below the federal limit. 

Market participants who are hedging 

their cash market positions would incur 

costs of having to apply for an 

exemption from the exchange if their 

hedging positons are above the lower 

limit set by the exchange. Otherwise, a 

market participant who wants 

speculative exposure above the lower 

limit, but who does not qualify for an 

exemption, would have to take 

speculative positions in other 

instruments not subject to exchange or 

Federal position limits, which as noted 

above may involve higher transaction 

costs. 

The Commission also recognizes that 

there are costs to setting federal spotmonth limits too high or too low. If the 

Federal spot-month limit is too high, the 

exchanges and the Commission lose 

visibility into market activity because 

the number of exemption applications 

from market participants will be 

reduced because of the higher limit. In 

addition, if limits are too high, market 

participants could obtain positions that 

would impact the price of the 

commodity, possibly manipulating or 

distorting the futures price, thus 

impairing the price discovery process of 

the core referenced futures contract. 

Furthermore, if a market participant 

establishes a very large position and 

then has to unwind its position, there 

could be an adverse impact on the price 

of the core referenced futures contract 

(e.g., as occurred with Amaranth). 

Conversely, if the Federal spot-month 

limit is too low, market participants and 

exchanges would incur larger costs to 

apply for and process, respectively, 

more exemption applications. In 

addition, as noted above, transactions 

costs for market participants who are 

near or above the limit would rise as 

they transact in other instruments with 

higher transaction costs to obtain their 

desired level of speculative positions. 

Additionally, limits that are too low 

could incentivize speculators to leave 

the market and not be available to 

provide liquidity for hedgers, resulting 

in ‘‘choppy’’ prices and reduced market 

efficiency.1268 Further, option 

premiums would likely increase to 

account for the more volatile prices of 

the underlying core referenced futures 

contract. Moreover, if confidence in the 

price of the core referenced futures 

contract erodes, market participants 

may move to another DCM or FBOT. 

The Commission proposes to use its 

discretion in the manner in which it 

implements the statutorily-required 

spot-month position limits so as to 

achieve Congress’s objectives in CEA 

section 4a(a)(3)(B)(ii); that is, to prevent 

or deter market manipulation, including 

corners and squeezes. For example, the 

Commission proposes to use its 

discretion under CEA section 4a(a)(1) to 

set limits that are equal in the spotmonth for physical-delivery and linked 

cash-settled referenced contracts 

respectively. By setting separate limits 

for physical-delivery and cash-settled 

referenced contracts, the Reproposal 

restricts the size of the position a trader 

may hold or control in cash-settled 

referenced contracts, thus reducing the 

incentive of a trader to manipulate the 

settlement of the physical-delivery 

contract in order to benefit positions in 

the cash-settled referenced contract. 

Thus, the separate limits further 

enhance the prevention of market 

manipulation provided by spot-month 

position limits by reducing the potential 

for incentives to engage in manipulative 

action. 

iv. Summary of Comments 

One commenter urged the 

Commission to ensure that a final rule 

does not compromise predictable 

convergence in the market, or risk 

threatening the utility of contracts for 

risk management purposes, noting the 

importance of risk management to the 

general health of the economy.1269

Another commenter noted the 

requirement that the Commission 

consider alternatives and said that the 

Commission should consider not 

adopting non-spot-month limits, limits 

that are set arbitrarily, or limits on 

financially settled contracts; consider 

recognizing cross-commodity netting; 

consider a plan for cross-border 

application of position limits; and 

consider new data sources, including 

SDRs (although such data’s reliability is 

still in development).1270

The Commission agrees that the 

federal position limit regime should not 

unnecessarily impede convergence 

between the futures and cash markets, 

which would impede the price 

discovery process of the core referenced 

contract. As discussed below, the 

Commission endeavors to take into 

account how the position limit levels 

would impact the number of market 

participants in all of the referenced 

contracts to reduce undesirable impact 

on those markets. 

The Commission has preliminarily 

exercised its discretion in determining 

how to adopt position limits and has 

chosen to start with the 25 core 

referenced futures contracts which were 

selected on the basis that such contracts: 


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1271See CL–MFA–60385 at 4. Citing testimony of 

Erik Haas (Director of Market Regulation, ICE 

Futures U.S.) at the EEMAC public meeting on 

February 26, 2105, the commenter asserted that the 

volume of over-the-counter transactions is already 

increasing because futures contracts have become 

too costly the further out the curve one goes. Id. 

1272See CL–ISDA/SIFMA–59611 at Annex B at 5. 

This commenter referenced, but did not include, 

two papers as follows. James Hamilton and Jing Wu, 

Risk Premia in Crude Oil Futures Prices, NBER 

Working Paper (2013). Peter Christoffersen, Kris 

Jacobs, and Bingxin Li, Dynamic Jump Intensities 

and Risk Premiums in Crude Oil Futures and 

Options Markets, working paper (2013). 

1273CL–Working Group–60947 at 14. 

1274The Commission is reproposing to adopt the 

same level for single-month and all-monthscombined limits, and refers to those limits as the 

‘‘non-spot-month limits.’’ The spot month and any 

single month refer to those periods of the core 

referenced futures contract. 1275 7 U.S.C. 6a(a)(3)(A). 

(1) Have high levels of open interest and 

significant notional value; or (2) serve as 

a reference price for a significant 

number of cash market transactions. The 

specific levels are not set arbitrarily. 

Rather, as discussed more below, the 

Commission takes into account the 

expertise of the exchanges that list the 

core referenced futures contracts. In that 

regard, the Commission received and 

verified estimates of deliverable 

supplies for core referenced futures 

contracts and considered spot-month 

limit levels those exchanges suggested. 

Regarding the data considered in setting 

the levels of non-spot month limits, 

Commission staff has worked with 

industry to improve the reliability of 

swap data collected pursuant to part 20 

of Commission regulations. As 

discussed below in more detail, the 

Commission’s confidence in the data 

has improved such that it relied on part 

20 swap position data, to propose initial 

levels of federal non-spot month limits 

on futures and swaps in the Reproposal. 

The Commission addresses crosscommodity netting in the spread 

exemptions covered in reproposed 

§ 150.10. 

A commenter was concerned that the 

proposed position limits will cause 

market participants to transact in lesstransparent and non-cleared markets 

due to a lack of liquidity on futures 

markets, and undermine efforts to 

encourage market transparency and 

reduce systemic risks through 

centralized clearing.1271 Another 

commenter pointed out that 

constraining speculation would 

constrain hedging, and that more 

financial involvement in commodity 

markets has lowered risk premia and 

made hedging cheaper, making it 

economical to hold larger inventories 

that help reduce the frequency and 

severity of large price increases.1272 A 

third commenter questioned whether 

the Supplemental Proposal’s costbenefit analysis includes the costs of 

processing bona fide hedging and 

spread exemptions for contracts subject 

only to exchange-set speculative 

position limits and not federal 

speculative position limits.1273

The Commission has preliminarily 

considered how the limits would impact 

traders. In that regard the Commission 

sought not to impede the liquidity of the 

markets for both hedgers and 

speculators by setting the spot month 

position limit at a level that would not 

deter hedgers or speculators from 

participating in the market. The 

Commission is mindful of the beneficial 

effects that speculators have on the 

commodity markets. As a consequence, 

the Commission takes into 

consideration the risk of deterring 

appropriate speculation when setting 

the federal limits. The Commission also 

preliminarily considered the exchangesuggested spot-month limits when 

setting the federal spot-month limit. As 

discussed below, in most cases the 

exchange-suggested limit levels 

reproposed by the Commission are the 

federal spot-month limit. Therefore, the 

Commission preliminarily believes that 

the federal limits are in line with the 

exchanges’ expectations and therefore 

the exchanges would be unlikely, at 

least initially, to adopt a smaller 

exchange-set spot-month limit for the 

core referenced futures contracts. The 

Commission will also review the federal 

limits in the future to determine if they 

are effective and not unduly restrictive. 

c. § 150.2(b) Single-Month and AllMonths-Combined Speculative Position 

Limits 

i. Summary of Changes 

Reproposed § 150.2(b) provides that 

no person may hold or control 

positions, net long or net short, in 

referenced contracts in a single-month 

or in all-months-combined in excess of 

the levels specified by the Commission. 

In that regard, § 150.2(b) would require 

netting all positions in referenced 

contracts (regardless of whether such 

referenced contracts are physicaldelivery or cash-settled) when 

calculating a person’s positions for 

purposes of the proposed single-month 

or all-months-combined position limits 

(collectively ‘‘non-spot-month’’ position 

limits).1274

ii. Baseline 

The baseline is the current § 150.2 of 

the Commission’s regulations. 

iii. Benefits and Costs 

CEA section 4a(a)(3)(A) directs the 

Commission, each time it establishes 

limits, to set limits on speculative 

positions for months other than the 

spot-month.1275 While market 

disruptions arising from the 

concentration of positions remain a 

possibility outside the spot month, the 

above-mentioned concerns about 

corners and squeezes and other forms of 

manipulation are reduced outside the 

spot-month. Accordingly, the 

Reproposal requires netting of physicaldelivery and cash-settled referenced 

contracts for purposes of determining 

compliance with non-spot-month limits. 

The Commission has preliminarily 

determined it is appropriate to permit 

the additional flexibility in complying 

with the non-spot-months limits that 

netting allows, given the decreased risk 

of corners and squeezes outside the 

spot-month. Because this additional 

flexibility means market participants are 

able to retain offsetting positions 

outside of the spot-month, liquidity 

should not be significantly impaired 

and disruptions to price discovery 

should be reduced. 

However, more generally, the 

Commission recognizes that federal 

non-spot month position limits do 

impose costs to exchanges and market 

participants. These costs are generally 

the same as discussed above with 

respect to § 150.2(a). The consideration 

of the costs to exchanges and market 

participants of § 150.2(a) is also 

applicable to § 150.2(b). 

iv. Summary of Comments 

Comments on this section are 

addressed in the discussion of 150.2(e) 

below. 

d. § 150.2(c) Purpose of This Part 

i. Summary of Changes 

Reproposed § 150.2(c)(1) and (2) 

specify that for purposes of part 150, the 

spot month and any single month shall 

be those of the core referenced futures 

contract and that an eligible affiliate is 

not required to comply separately with 

speculative position limits. 

ii. Baseline 

The baseline is the current § 150.2 of 

the Commission’s regulations. 

iii. Benefits and Costs 

The Commission believes these are 

conforming amendments to effectuate 

the rule and do not have cost or benefit 

implications. 


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1276As discussed above, the definition of 

referenced contract excludes any guarantee of a 

swap, location basis contracts, commodity index 

contracts and trade option that meets the 

requirements of § 32.3 of this chapter. 

1277 17 CFR 150.2. 

1278 December 2013 Position Limits Proposal, 78 

FR 75725. 

1279The Commission originally proposed in its 

2013 to set position limits on 28 core referenced 

contracts, including the 25 contracts noted above 

plus CME Feeder Cattle, Lean Hog and Class III 

Milk. Those three contracts will not be included in 

the Reproposal for the reasons discussed above. 

1280The guidance for meeting DCM core principle 

3 (as listed in 17 CFR part 38 app. C) specifies that, 

‘‘[t]he specified terms and conditions [of a futures 

contract], considered as a whole, should result in 

a ‘deliverable supply’ that is sufficient to ensure 

that the contract is not susceptible to price 

manipulation or distortion. In general, the term 

‘deliverable supply’ means the quantity of the 

commodity meeting the contract’s delivery 

specifications that reasonably can be expected to be 

readily available to short traders and salable by long 

traders at its market value in normal cash marketing 

channels . . .’’ See Core Principles and Other 

Requirements for Designated Contract Markets, 77 

FR 36612, 36722 (Jun. 19, 2012). 

1281 § 150.2(e)(3)(ii)(A) would require DCMs to 

submit estimates of deliverable supply. DCM 

estimates of deliverable supplies (and the 

supporting data and analysis) would continue to be 

subject to Commission review. § 150.2(e)(3)(ii)(A) 

would allow a DCM to petition the Commission no 

less than two calendar months before the due date 

for submission of an estimate of deliverable supply 

to recommend that the Commission not change the 

spot-month limit. 

1282Since 1999, the same 10 percent/2.5 percent 

methodology, now incorporated in current 

§ 150.5(c)(2), has been used to determine futures allmonths position limits for referenced contracts. 

1283Options listed on DCMs would be adjusted 

using an option delta reported to the Commission 

pursuant to 17 CFR part 16; swaps would be 

iv. Summary of Comments 

No commenter addressed any cost or 

benefit considerations relating to 

proposed rules § 150.2(c)(1) or (2). 

e. § 150.2(d) Core Referenced Futures 

Contracts 

i. Summary of Changes 

As defined in proposed § 150.1, 

referenced contracts are futures, 

options, or swaps contracts that are 

directly or indirectly linked to a core 

referenced futures contract or the 

commodity underlying a core referenced 

futures contract.1276

New rule § 150.2(d) lists the 25 core 

referenced futures contracts on which 

the Commission has preliminarily 

determined to establish federal 

speculative position limits. The list 

reflects a significant expansion of 

federal speculative position limits from 

the list of nine agricultural contracts 

under current part 150.1277 The 

Commission has selected these 

important food, energy, and metals 

contracts on the basis that such 

contracts (i) have high levels of open 

interest and significant notional value 

and/or (ii) serve as a reference price for 

a significant number of cash market 

transactions. Thus, the Commission is 

reproposing position limits on these 

contracts in order to commence the 

expansion of its federal position limit 

regime with those commodity derivative 

contracts that it believes have the 

greatest impact on interstate commerce. 

The Commission will be reviewing 

other contracts going forward. 

As discussed in the 2013 Position 

Limit Proposal,1278 the Commission 

calculated the notional value of open 

interest (delta-adjusted) and open 

interest (delta-adjusted) for all futures, 

futures options, and significant price 

discovery contracts as of December 31, 

2012 in all agricultural and exempt 

commodities as part of its selection of 

the 25 core referenced futures contracts 

in § 150.2(d). The Commission selected 

commodities in which the derivative 

contracts had largest notional value of 

open interest and open interest for three 

categories: Agricultural, energy, and 

metals. The Commission then 

designated the benchmark futures 

contracts for each commodity as the 

core referenced futures contract for 

which position limits would be 

established. Reproposed § 150.2(d) lists 

16 core referenced futures contracts for 

agricultural commodities, four core 

referenced futures contracts for energy 

commodities, and five core referenced 

futures contracts for metals 

commodities.1279

ii. Baseline 

The baseline is the current § 150.2 of 

the Commission’s regulations. 

iii. Benefits and Costs 

The benefits and costs are considered 

in the discussion of the definition of 

core referenced futures contract and 

referenced contract in § 150.1. 

iv. Summary of Comments 

Comments on this section are 

considered in the discussion of the 

definition of core referenced futures 

contract and referenced contract in 

§ 150.1. 

f. § 150.2(e) Levels of Speculative 

Position Limits 

i. Summary of Changes 

The list of initial spot month, single 

month and all-months combined 

position limit levels adopted by the 

Commission for referenced contracts 

can be found in Appendix D to this part. 

Under reproposed § 150.2(e)(3), the 

Commission will recalibrate spot month 

position limit levels no less frequently 

than every two calendar years, with any 

such recalibration to result in limits no 

greater than one-quarter (25 percent) of 

the estimated spot-month deliverable 

supply 1280 in the relevant core 

referenced futures contract. This 

formula is consistent with the 

acceptable practices in current § 150.5, 

as well as the Commission’s 

longstanding practice of using this 

measure of deliverable supply to 

evaluate whether DCM-set spot-month 

limits are in compliance with DCM core 

principles 3 and 5. The Reproposal 

separately restricts the size of positions 

in cash-settled referenced contracts that 

would potentially benefit from a trader’s 

potential distortion of the price of the 

underlying core referenced futures 

contract. 

Accordingly, each DCM is required to 

supply the Commission with an 

estimated spot-month deliverable 

supply figure that the Commission will 

use to recalibrate spot-month position 

limits unless the Commission decides to 

rely on its own estimate of deliverable 

supply instead.1281

In contrast to spot-month limits, 

which will be set as a function of 

deliverable supply, the formula for the 

non-spot-month position limits is based 

on total open interest for all referenced 

contracts that are aggregated with a 

particular core referenced futures 

contract. In that regard, § 150.2(e)(4) 

explains that the Commission will 

calculate non-spot-month position limit 

levels based on the following formula: 

10 percent of the largest annual average 

open interest for the first 25,000 

contracts and 2.5 percent of the open 

interest thereafter.1282 As is the case 

with spot month limits, the Commission 

will adjust single month and allmonths-combined limits no less 

frequently than every two calendar 

years. 

The Commission’s average open 

interest calculation will be computed 

for each of the past two calendar years, 

using either month-end open contracts 

or open contracts for each business day 

in the time period, as practical and in 

the Commission’s discretion. Initially, 

the Commission is reproposing initial 

non-spot-month limits using the larger 

open interest level from two 12-month 

periods (July 1, 2104 to June 30, 2015; 

and July 1, 2015 to June 30, 2016), for 

futures contracts and options thereon 

reported under part 16, and for swaps 

reported under part 20. 

In the future, the Commission expects 

to use the data reported pursuant to 

parts 16, 20, and/or 45 of the 

Commission’s regulations to estimate 

average open interest in referenced 

contracts.1283


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counted on a futures equivalent basis, equal to the 

economically equivalent amount of core referenced 

futures contracts reported pursuant to 17 CFR part 

20 or as calculated by the Commission using swap 

data collected pursuant to 17 CFR part 45. 

1284 December 2013 Position Limit Proposal, 78 

FR 75727. One commenter urged the Commission 

to retain the legacy speculative limits for 

enumerated agricultural products. The 

‘‘enumerated’’ agricultural products refer to the list 

of commodities contained in the definition of 

‘‘commodity’’ in CEA section 1a; 7 U.S.C. 1a. This 

list of agricultural contracts includes nine currently 

traded contracts: Corn (and Mini-Corn), Oats, 

Soybeans (and Mini-Soybeans), Wheat (and Miniwheat), Soybean Oil, Soybean Meal, Hard Red 

Spring Wheat, Hard Winter Wheat, and Cotton No. 

2. See 17 CFR 150.2. The position limits on these 

agricultural contracts are referred to as ‘‘legacy’’ 

limits because these contracts on agricultural 

commodities have been subject to federal positions 

limits for decades. This commenter stated, ‘‘There 

is no appreciable support within our industry or, 

as far as we know, from the relevant exchanges to 

move beyond current levels. . . . Changing current 

limits, as proposed in the rule, will have a negative 

impact on futures-cash market convergence and 

will compromise contract performance.’’ CL– 

American Farm Bureau Federation–59730 at 3). 

Contra CL–ISDA and SIFMA–59611 at 32 (setting 

initial spot-month limits at the existing exchangeset levels would be arbitrary because the exchangeset levels have not been calibrated to apply as ‘‘a 

ceiling on the spot-month positions that a trader 

can hold across all exchanges for futures, options 

and swaps’’); CL–ICE–59966 at 6 (‘‘the Proposed 

Rule . . . effectively halves the present position 

limit in the spot month by aggregating across 

trading venues and uncleared OTC swaps’’). See 

also CL–ISDA and SIFMA–59611 at 3 (the spot 

month limit methodology is ‘‘both arbitrary and 

unjustified’’). 

1285 December 2013 Position Limit Proposal, 78 

FR 75727. The Commission also stated that if the 

Commission could not verify an exchange’s 

estimate of deliverable supply for any commodity 

as reasonable, the Commission might adopt the 

existing DCM-set level or a higher level based on 

the Commission’s own estimate, but not greater 

than would result from the exchange’s estimated 

deliverable supply for a commodity. 

One commenter was unconvinced that estimated 

deliverable supply is ‘‘the appropriate metric for 

determining spot month position limits’’ and 

opined that the ‘‘real test’’ should be whether limits 

‘‘allow convergence of cash and futures so that 

futures markets can still perform their price 

discovery and risk management functions.’’ CL– 

NGFA–60941 at 2. Another commenter stated, 

‘‘While 25% may be a reasonable threshold, it is 

based on historical practice rather than 

contemporary analysis, and it should only be used 

as a guideline, rather than formally adopted as a 

hard rule. Deliverable supply is subject to 

numerous environmental and economic factors, and 

is inherently not susceptible to formulaic 

calculation on a yearly basis.’’ CL–MGEX–60301 at 

1. Another commenter expressed the view that the 

25 percent formula is not ‘‘appropriately calibrated 

to achieve the statutory objective’’ set forth in 

section 4a(a)(3)(B)(i) of the CEA, 7 U.S.C. 

6a(a)(3)(B)(i). CL–CME–60926 at 3. Another 

commenter opined that because the Commission 

‘‘has not established a relationship between 

‘estimated deliverable supply’ and spot-month 

potential for manipulation or excessive 

speculation,’’ the 25 percent formula is arbitrary. 

CL–ISDA and SIFMA–59611 at 31. 

Several commenters opined that a limit at 25 

percent of deliverable supply is too high. E.g., CL– 

Americans for Financial Reform–59685 at 2; CL– 

Tri–State Coalition for Responsible Investment– 

59682 at 1; CL–CMOC–59720 at 3; CL–WEED– 

59628 (‘‘Only a lower limit would ensure market 

stability and prevent market manipulation.’’); CLPublic Citizen-60313 at 1 (‘‘There is no good reason 

for a single firm to take 25% of a market.’’); CL– 

IECA–59964 at 3 (25 percent of deliverable supply 

‘‘is a lot of market power in the hands of 

speculators’’). One commenter stated that ‘‘position 

limits should be set low enough to restore a 

commercial hedger majority in open interest in each 

core referenced contract,’’ CL–Institute for 

Agriculture and Trade Policy (‘‘IATP’’)–60323 at 5, 

suggesting in a later submission that position limits 

at 5–10 percent of estimated deliverable supply in 

each covered contract applied on an aggregated 

basis might ‘‘enable commercial hedgers to regain 

for all covered contracts their pre-2000 average 

share of 70 percent of agricultural contracts,’’ CL– 

IATP–60394 at 2. One commenter supported 

expanding position limits ‘‘to ensure rough or 

approximate convergence of futures and underlying 

cash at expiration.’’ CL–Pamela D. Thornton 

(‘‘Thornton’’)–59702 at 1. 

Several commenters supported setting limits 

based on updated estimates of deliverable supply 

which reflect current market conditions. E.g., CL– 

ICE–59966 at 5; CL–FIA–59595 at 8; CL–EEI–EPSA– 

59602 at 9; CL–MFA–59606 at 5; CL–CMC–59634 

at 14; CL–Olam–59658 at 3; CL–CCMC–59684 at 6– 

7. 

1286 December 2013 Position Limits Proposal, 78 

FR at 75728. 

1287CEA section 5(d)(1)(B), 7 U.S.C. 7(d)(1)(B). 

1288 December 2013 Position Limits Proposal, 78 

FR at 75729. 

1289CEA section 15(a)(2)(B), 7 U.S.C. 19(a)(2)(B). 

1290The Commission notes that the CME did not 

provide a recommended spot month limit for its 

Live Cattle Contract. The Commission ultimately 

kept the current spot month limit of 450 contracts 

in place for the Live Cattle contract. 

ii. Baseline 

The baseline is the current § 150.2 of 

the Commission’s regulations. 

iii. Benefits and Costs 

Method for Setting Spot-Month Position 

Limit Levels 

The method for determining the levels 

at which the limits are set is consistent 

with the Commission’s longstanding 

acceptable practices for DCM-set 

speculative position limits. In the 

December 2013 Position Limits 

Proposal, the Commission proposed to 

set the initial spot month speculative 

position limit levels for referenced 

contracts at the existing DCM-set levels 

for the core referenced futures 

contracts.1284 As an alternative, the 

Commission stated that it was 

considering using 25 percent of an 

exchange’s estimate of deliverable 

supply if the Commission verified the 

estimate as reasonable.1285 As a further 

alternative, the Commission stated that 

it was considering setting initial spot 

month position limit levels at a 

recommended level, if any, submitted 

by a DCM (if lower than 25 percent of 

estimated deliverable supply).1286

In preliminarily determining the 

levels at which to set the initial 

speculative position limits, the 

Commission considered, among other 

things, the recommendations of the 

exchanges as well as data to which the 

exchanges do not have access. In 

considering these and other factors, a 

significant concern of the Commission 

became the effect of alternative limit 

levels on traders in the cash-settled 

referenced contracts. A DCM has 

reasonable discretion in establishing the 

manner in which it complies with core 

principle 5 regarding position limits.1287

As the Commission observed in the 

December 2013 Position Limits 

Proposal, ‘‘there may be a range of spot 

month limits, including limits set below 

25 percent of deliverable supply, which 

may serve as practicable to maximize 

. . . [the] policy objectives [set forth in 

section 4a(a)(3)(B) of the CEA].’’ 1288 The 

Commission must also consider the 

competitiveness of futures markets.1289

Thus, the Commission preliminarily 

determined to accept the 

recommendations of the exchanges to 

set federal limits below 25 percent of 

deliverable supply, where setting a limit 

level at less than 25 percent of 

deliverable supply did not appear to 

restrict unduly positions in the cashsettled referenced contracts. The 

exchanges retain the ability to adopt 

lower exchange-set limit levels than the 

initial speculative position limit levels 

set by the Commission in this 

rulemaking. 

As discussed in more detail above, the 

process of determining appropriate spotmonth limit levels included the 

Commission receiving updated 

estimates of deliverable supply from the 

DCMs listing the 25 core referenced 

contracts, which Commission staff 

verified as reasonable after conducting 

its own independent review of 

estimated deliverable supply for the 

subject core referenced contracts. 

Furthermore, the DCMs provided 

recommended spot-month limit levels 

for some of the 25 core referenced 

contracts which the Commission 

considered while determining the 

appropriate level of spot-month limits 

for the 25 core referenced futures 

contracts.1290 In addition, the 

Commission then conducted an impact 

analysis of different spot-month limit 

levels to discern how many market 

participants would be affected by the 

different limit levels. 

As part of reproposing § 150.2(e)(3)(i), 

the Commission has considered 

scenarios where exchanges may or may 

not update deliverable supply. This may 

result in the Commission reviewing and 

re-establishing position limits in the 

spot month. Exchanges may elect not to 

undertake this expense of re-estimating 

the deliverable supply of the underlying 


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1291CL–Chamber–59684 at 4 and 5–6. 

1292CL–FIA at 6 and 44. 

1293The Commission notes that the CME did not 

provide a recommended spot month limit for its 

Live Cattle Contract. The Commission ultimately 

kept the current spot month limit of 450 contracts 

in place for the Live Cattle contract. 

1294CL–CME–61007 at 5. 

1295The Commission noted in the December 2013 

Position Limits Proposal ‘‘that DCMs historically 

have set or maintained exchange spot month limits 

at levels below 25 percent of deliverable supply.’’ 

December 2013 Position Limits Proposal, 78 FR 

75729. 

1296See CL–CME–61007 (specifying lower 

exchange-set limit levels for W and RR in certain 

circumstances). 

1297 December 2013 Position Limit Proposal, 78 

FR 75727. 

1298CL–MGEX–60938 at 2. 

1299Most commenters who supported 

establishing the same level of speculative limits for 

each of the three wheat core referenced futures 

contracts focused on parity in the non-spot months. 

However, some commenters did support wheat 

party in the spot month, e.g., CL–CMC–59634 at 15; 

CL–NCFC–59942 at 6. 

1300 December 2013 Position Limits Proposal, 78 

FR 75729. 

1301 Id. 

commodity. Among many reasons, this 

might be because the deliverable supply 

has not changed much during the time 

that the last estimate was made. In these 

cases, the Commission has the option to 

maintain the current spot month 

position limit level or use the formula 

based on the outdated deliverable 

supply estimate if different, or use the 

exchange’s recommendation for the 

level of the spot month position limit. 

Sparing the exchanges of the cost of reestimating the deliverable supply may 

be beneficial if the estimation costs are 

high or if the anticipated difference in 

the estimates is small. The Commission 

must also be mindful that exchanges 

might want the federal position limit to 

be set lower, because a lower limit 

might prevent liquidity in the 

exchange’s core reference contract from 

developing on another exchange. 

Exchanges may elect to re-estimate 

deliverable supply. This would allow 

the Commission to maintain the current 

spot month level, replace it with the 

formula based on 25% of updated 

deliverable supply, or accept the 

exchange’s recommendation for a 

different level. It is prudent to revise the 

spot month position limit if the 

deliverable supply has changed 

appreciably, because setting the limit 

too low might harm liquidity or setting 

it too high might make it easier for 

someone to engage in market 

manipulation such as perfecting a 

corner and squeeze. 

iv. Summary of Comments 

One commenter cautioned the 

Commission not to rely on inaccurate or 

unreliable data or apply a one-size-fitsall approach in setting the levels of 

position limits, in order to avoid 

potential harms to market liquidity and 

increased costs.1291 Another commenter 

suggested that, in light of the 

complexities and costs of implementing 

federal and exchange-set limits, the 

Commission should not implement final 

rules until at least nine months after the 

final rule is issued.1292

The Commission has preliminarily 

determined to ease the transition to the 

initial speculative position limits by 

setting a compliance date of January 3, 

2018 in § 150.3(e)(1). As for the process 

of determining appropriate spot-month 

position limit levels, the Commission 

endeavored to use accurate and reliable 

data. For example, the Commission 

looked to updated estimates of 

deliverable supply from the DCMs 

listing the 25 core referenced contracts, 

which Commission staff verified as 

reasonable after conducting its own 

independent review of estimated 

deliverable supply for the subject core 

referenced futures contracts.1293 In 

addition, the Commission then 

conducted an impact analysis of 

different spot-month limit levels to 

discern how many market participants 

would be affected by the different limit 

levels. To determine the non-spot 

month position limits, the Commission 

used futures daily open interest data. In 

addition, it worked with market 

participants to improve the swap data 

collected pursuant to part 20 of the 

Commission’s regulations, so that data 

could be used in determining open 

interest levels in the swap markets for 

referenced contracts. The Commission 

deems both the estimated deliverable 

supply data and exchange 

recommended spot-month limits along 

with the open interest data to be current 

and reliable for basing federal spot 

month and non-spot month limits, 

respectively. 

g. Initial Speculative Spot Month 

Position Limit Levels 

i. CME and MGEX Agricultural 

Contracts 

For the CME and MGEX Agricultural 

(Legacy) contracts, which were 

previously subject to federal position 

limits, the Commission has 

preliminarily determined to set the 

initial speculative spot month position 

limit levels for C, O, RR, S, SM, SO, W 

and KW at the recommended levels 

submitted by CME,1294 all of which are 

lower than 25 percent of estimated 

deliverable supply.1295 As is evident 

from the table set forth in the discussion 

above, this also means that the 

Commission is reproposing the initial 

speculative position limit levels for 

these eight contracts as proposed. These 

initial levels track the existing DCM-set 

levels for the core referenced futures 

contracts; 1296 therefore, as noted in the 

December 2013 Position Limits 

Proposal, many market participants are 

already used to these levels and 

conform their practices accordingly.1297

The Commission continues to believe 

this approach is consistent with the 

regulatory objectives of the Dodd-Frank 

Act amendments to the CEA. 

The Commission has also 

preliminarily determined to set the 

initial speculative spot month position 

limit level for MWE at 1,000 contracts, 

which is the level requested by 

MGEX 1298 and approximately equal to 

25 percent of estimated deliverable 

supply. This is an increase from the 

proposed level of 600 contracts and is 

greater than the initial speculative spot 

month position limit levels for W and 

KW.1299 As stated in the December 2013 

Position Limits Proposal, the 25 percent 

formula is consistent with the 

longstanding acceptable practices for 

DCM core principle 5.1300 The 

Commission continues to believe, based 

on its experience and expertise, that the 

25 percent formula is a reasonable 

‘‘prophylactic tool to reduce the threat 

of corners and squeezes, and promote 

convergence without compromising 

market liquidity.’’ 1301

The Commission’s impact analysis 

reveals no traders in cash settled 

contracts in any of C, O, S, SM, SO, W, 

MWE, KW, or RR, and no traders in 

physical delivery contracts for O and 

RR, above the initial speculative limit 

levels for those contracts. The 

Commission found varying numbers of 

traders in the C, S, SM, SO, W, MWE, 

KW physical delivery contracts over the 

initial levels, but the numbers were very 

small for MWE and KW. Because the 

levels that the Commission is adopting 

for C, O, S, SM, SO, W, KW, and RR 

maintain the status quo for those 

contracts, the Commission assumes that 

some or possibly all of such traders over 

the initial levels are hedgers. Hedgers 

may have to file for an applicable 

exemption, but hedgers with bona fide 

hedging positions should not have to 

reduce their positions as a result of 

speculative position limits per se. Thus, 

the number of traders in the C, S, SM, 

SO, W and KW physical delivery 

contracts who would need to reduce 

speculative positions below the initial 

limit levels should be lower than the 

numbers indicated by the impact 


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1302Contra CL–ISDA and SIFMA–59611 at 55 

(proposed spot month limits ‘‘are almost certainly 

far smaller than necessary to prevent corners or 

squeezes’’). 

1303 December 2013 Position Limits Proposal, 78 

FR 75729, Dec. 12, 2013. 

1304CL–MGEX–59932 at 2. 

1305CL–MGEX–60380 at 5. 

1306CL–MGEX–59932 at 2. MGEX asserted that 

‘‘[w]ithout wheat contract parity—proven 

historically effective and efficient—inequities 

would be introduced into the marketplace that 

could well result in artificial market disruption 

through a lack of convergence, distorting the market 

and bringing no value to the price discovery 

process.’’ Id. 

1307Several commenters supported adopting 

equivalent non-spot month position limits for the 

three existing wheat referenced contracts traders. 

E.g., CL–FIA–59595 at 4, 15; CL–CMC–60391 at 8; 

CL–CMC–60950 at 11; CL–CME–59718 at 44; CL– 

American Farm Bureau–59730 at 4; CL–MGEX– 

59932 at 2; CL–MGEX–60301 at 1; CL–MGEX– 

59610 at 2–3; CL–MGEX–60936 at 2–3; CL–NCFC– 

59942 at 6; CL–NGFA–59956 at 3. 

1308Revision of Speculative Position Limits, 57 

FR 12766, 12770 (Apr. 13, 1992). See also Revision 

of Speculative Position Limits and Associated 

Rules, 63 FR 38525, 38527 (July 17, 1998). Cf. 

December 2013 Position Limits Proposal, 78 FR 

75729, Dec. 12, 2013 (there may be range of spot 

month limits that maximize policy objectives). 

1309One commenter supported considering 

‘‘tropicals (sugar/coffee/cocoa) . . . separately from 

those agricultural crops produced in the US 

domestic market.’’ CL–Thornton–59702 at 1; see 

also CL–Armajaro Asset Management–59729 at 1. 

1310CL–CME–61007 at 5. 

1311The Commission noted in the December 2013 

Position Limits Proposal ‘‘that DCMs historically 

have set or maintained exchange spot month limits 

at levels below 25 percent of deliverable supply.’’ 

December 2013 Position Limits Proposal, 78 FR 

75729, Dec. 12, 2013. 

1312 Id. 

1313 Id. 

1314CL–CME–61007 at 5. 

1315The Commission noted in the December 2013 

Position Limits Proposal ‘‘that DCMs historically 

have set or maintained exchange spot month limits 

at levels below 25 percent of deliverable supply.’’ 

December 2013 Position Limits Proposal, 78 FR 

75729, Dec. 12, 2013. 

1316One commenter cautioned against raising 

limit levels for GC to 25 percent of deliverable 

supply, and expressed concern that higher federal 

Continued 

analysis. And, while setting initial 

speculative levels at 25 percent of 

deliverable supply would, based upon 

logic and the Commission’s impact 

analysis, affect fewer traders in the C, S, 

SM, SO, W and KW physical delivery 

contracts, consistent with its statement 

in the December 2013 Position Limits 

Proposal, the Commission believes that 

setting these lower levels of initial spot 

month limits will serve the objectives of 

preventing excessive speculation, 

manipulation, squeezes and corners,1302

while ensuring sufficient (in the view of 

the listing DCM) market liquidity for 

bona fide hedgers and ensuring that the 

price discovery function of the market is 

not disrupted.1303

Summary of Comments 

MGEX contended that the proposed 

wheat position limit disparity 

(particularly in non-spot months) may 

inject significant instability into the 

market, as market participants will be 

unable to utilize time-tested risk 

management practices equally across 

the three contracts and have unintended 

negative market consequences resulting 

from hedgers and speculators limiting 

their activity (particularly spread 

trading) in markets with the lowest 

limits—or ceasing to trade in the lowerlimit markets altogether.1304

MGEX was concerned that the 

proposed method inhibits growth in 

rapidly changing and expanding 

derivatives markets and will limit 

growth in the HRSW contract at a time 

when participation is increasing.1305

MGEX asserted that the Proposed Rule 

has a disproportionate impact on HRSW 

market participants, given that MGEX 

HRSW has more large traders 

approaching the single month and all 

months combined limits than CBOT 

Wheat and KCBT Hard Winter Wheat 

despite the fact that the number of large 

traders approaching the Proposed Rule 

single month and all months combined 

limit levels stayed relatively constant 

among the three U.S. wheat contracts; 

MGEX also contended that price 

volatility or concentration in one 

contract may unduly affect the price of 

the others.1306

The Commission took concerns about 

wheat contract parity into account when 

preliminarily setting the spot month and 

non-spot month levels for the CBOT 

Wheat, KCBT Hard Winter Wheat and 

MGEX Hard Red Spring Wheat 

contracts. In that regard, as discussed 

below, the Commission is reproposing 

to maintaining the status quo for the 

non-spot month position limit levels for 

the KW and MWE core referenced 

futures contracts so that there will be 

partial wheat parity.1307 The 

Commission has preliminarily 

determined not to raise the limit levels 

for KW and MWE to the limit level for 

W, as 32,800 contracts appears to be 

extraordinarily large in comparison to 

open interest in the KW and MWE 

markets, and the limit level for KW and 

MWE is already larger than a limit level 

based on the ‘‘10, 2.5 percent’’ formula. 

Even when relying on a single criterion, 

such as percentage of open interest, the 

Commission has historically recognized 

that there can ‘‘result . . . a range of 

acceptable position limit levels.’’ 1308

ii. Softs 

For the ‘‘Softs’’—agricultural 

contracts on cocoa, coffee, cotton, 

orange juice, sugar and live cattle—the 

Commission has preliminarily 

determined to set the initial speculative 

spot month position limit levels for the 

CC, KC, CT, OJ, SB, and SF 1309 core 

referenced futures contracts, based on 

the estimates of deliverable supply 

submitted by ICE,1310 at 25 percent of 

estimated deliverable supply.1311 As is 

evident from the table set forth in the 

discussion above, this also means that 

the Commission is reproposing initial 

speculative position limit levels that are 

significantly higher than the levels for 

these six contracts as proposed. As 

stated in the December 2013 Position 

Limits Proposal, the 25 percent formula 

is consistent with the longstanding 

acceptable practices for DCM core 

principle 5.1312 The Commission 

continues to believe, based on its 

experience and expertise, that the 25 

percent formula is a reasonable 

‘‘prophylactic tool to reduce the threat 

of corners and squeezes, and promote 

convergence without compromising 

market liquidity.’’ 1313

The Commission did not receive any 

estimate of deliverable supply for the 

CME (LC) core referenced futures 

contract from CME, nor did CME 

recommend any change in the limit 

level for LC. In the absence of any such 

update, the Commission is reproposing 

the initial speculative position limit 

level of 450 contracts as proposed. Of 

616 reportable persons, the 

Commission’s impact analysis did not 

reveal any unique person trading cash 

settled or physical delivery spot month 

contracts who would have held 

positions above this level for LC. 

With respect to the IFUS CC, KC, CT, 

OJ, SB, and SF core referenced futures 

contracts, the Commission’s impact 

analysis did not reveal any unique 

person trading cash settled spot month 

contracts who would have held 

positions above the initial levels that the 

Commission is adopting; as illustrated 

above. Rather, adopting lower levels 

would mostly have affected small 

numbers of traders in physical delivery 

contracts. Therefore, the Commission 

has preliminarily determined to accept 

ICE’s recommendations. 

iii. Metals 

For the metals contracts, the 

Commission has preliminarily 

determined to set the initial speculative 

spot month position limit levels for GC, 

SI, and HG at the recommended levels 

submitted by CME,1314 all of which are 

lower than 25 percent of estimated 

deliverable supply.1315 In the case of GC 

and SI, this is a doubling of the current 

exchange-set limit levels.1316 In the case 


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limits would incentivize exchanges to raise their 

own limits. CL–WGC–59558 at 2–4. 1317Contra CL–ISDA and SIFMA–59611 at 55 

(proposed spot month limits ‘‘are almost certainly 

far smaller than necessary to prevent corners or 

squeezes’’). 

1318 In this regard, the Commission notes that 

CME did not have access to the Commission’s 

impact analysis when CME recommended levels for 

its physical-delivery core referenced futures 

contracts. 

1319CL–CME–61007 at 5. One commenter opined 

that 25 percent of deliverable supply would result 

in a limit level that is too high for natural gas, and 

suggest 5 percent as an alternative that ‘‘would 

provide ample liquidity and significantly reduce 

the potential for excessive speculation.’’ CL–IECA– 

59964 at 3. 

1320 December 2013 Position Limits Proposal, 78 

FR at 75729. 

1321 Id. 

1322This exemption for up to 10,000 contracts 

would be five times the spot month limit of 2,000 

contracts, consistent with the December 2013 

Position Limits Proposal. See December 2013 

Position Limits Proposal, 78 FR at 75736–8. Under 

vacated § 151.4, the Commission would have 

applied a spot-month position limit for cash-settled 

contracts in natural gas at a level of five times the 

level of the limit for the physical delivery core 

referenced futures contract. See Position Limits for 

Futures and Swaps, 76 FR 71626, 71687 (Nov. 18, 

2011). 

1323Some commenters supported retaining a 

conditional spot month limit in natural gas. E.g., 

CL–ICE–60929 at 12 (‘‘Any changes to the current 

terms of the Conditional Limit would disrupt 

present market practice for no apparent reason. 

Furthermore, changing the limits for cash-settled 

contracts would be a significant departure from 

current rules, which have wide support from the 

broader market as evidenced by multiple public 

comments supporting no or higher cash-settled 

limits.’’). Contra CL–Levin–59637 at 7 (‘‘The 

proposed higher limit for cash settled contracts is 

ill-advised. It would not only raise the affected 

position limits to levels where they would be 

effectively meaningless, it would also introduce 

market distortions favoring certain contracts and 

certain exchanges over others, and potentially 

disrupt important markets, including the U.S. 

natural gas market that is key to U.S. 

manufacturing.’’); CL–Public Citizen–59648 at 5 

(‘‘Congress, in allowing an exemption for bona fide 

hedgers but not pure speculators, could not 

possibly have intended for the Commission to 

implement position limits that allow market 

speculators to hold 125 percent of the estimated 

deliverable supply. Once again, while this 

of HG, the initial level is the same as the 

existing DCM-set level for the core 

referenced futures contract, and lower 

than the level proposed. The 

Commission has also preliminarily 

determined to set the initial speculative 

spot month position limit level for PL at 

100 contracts and PA at 500 contracts, 

which are the levels recommended by 

CME. In the case of PL and PA, the 

initial level is the same as the existing 

DCM-set level for the core referenced 

futures contract, and a decrease from the 

proposed levels of 500 and 650 

contracts, respectively. 

The Commission found varying 

numbers of traders in the GC, SI, PL, 

PA, and HG physical delivery contracts 

over the initial levels, but the numbers 

were very small except for PA. Because 

the levels that the Commission is 

adopting for PL, PA, and HG maintain 

the status quo for those contracts, the 

Commission assumes that some or 

possibly all of such traders over the 

initial levels are hedgers. The 

Commission reiterates the discussion 

above regarding agricultural contracts: 

hedgers may have to file for an 

applicable exemption, but hedgers with 

bona fide hedging positions should not 

have to reduce their positions as a result 

of speculative position limits per se. 

Thus, the number of traders in the 

metals physical delivery contracts who 

would need to reduce speculative 

positions below the initial limit levels 

should be lower than the numbers 

indicated by the impact analysis. And, 

while setting initial speculative levels at 

25 percent of deliverable supply would, 

based upon logic and the Commission’s 

impact analysis, affect fewer traders in 

the metals physical delivery contracts, 

consistent with its statement in the 

December 2013 Position Limits 

Proposal, the Commission believes that 

setting these lower levels of initial spot 

month limits will serve the objectives of 

preventing excessive speculation, 

manipulation, squeezes and corners,1317

while ensuring sufficient market 

liquidity for bona fide hedgers in the 

view of the listing DCM and ensuring 

that the price discovery function of the 

market is not disrupted. 

The Commission’s impact analysis 

reveals no unique persons in the SI and 

HG cash settled referenced contracts, 

and very few unique persons in the cash 

settled GC referenced contract, whose 

positions would have exceeded the 

initial limit levels for those contracts. 

Based on the Commission’s impact 

analysis, preliminarily setting the initial 

federal spot month limit levels for PL 

and PA at the lower levels 

recommended by CME impact a few 

traders in PL and PA cash settled 

contracts. 

The Commission has considered the 

numbers of unique persons that would 

have been impacted by each of the cashsettled and physical-delivery spot 

month limits in the PL and PA 

referenced contracts. The Commission 

notes those limits would have impacted 

more traders in the physical-delivery PA 

contract than in the cash-settled PA 

contract, while fewer traders would 

have been impacted in the physicaldelivery PL contract than in the cashsettled PL contract, albeit in any event 

few traders would have been 

impacted.1318 The Commission also 

considered the distribution of those 

cash-settled traders over time; as 

reflected in the open interest table 

discussed above regarding setting nonspot month limits, it can be readily 

observed that open interest in each of 

the cash-settled PL and PA referenced 

contracts was markedly lower in the 

second 12-month period (year 2) than in 

the prior 12-month period (year 1). 

Accordingly, the Commission 

preliminarily concludes that the CME 

recommended levels in PL and PA 

referenced contracts are acceptable. 

iv. Energy 

For the energy contracts, the 

Commission has preliminarily 

determined to set the initial speculative 

spot month position limit levels for the 

NG, CL, HO, and RB core referenced 

futures contracts at 25 percent of 

estimated deliverable supply which, in 

the case of CL, HO, and RB is higher 

than the levels recommended by 

CME.1319 As is evident from the table 

set forth above, this also means that the 

Commission is adopting initial 

speculative position limit levels that are 

significantly higher than the proposed 

levels for these four contracts. As stated 

in the December 2013 Position Limits 

Proposal, the 25 percent formula is 

consistent with the longstanding 

acceptable practices for DCM core 

principle 5.1320 The Commission 

continues to believe, based on its 

experience and expertise, that the 25 

percent formula is a reasonable 

‘‘prophylactic tool to reduce the threat 

of corners and squeezes, and promote 

convergence without compromising 

market liquidity.’’ 1321

The levels that CME recommended for 

NG, CL, HO, and RB are twice the 

existing exchange-set spot month limit 

levels. Nevertheless, the Commission is 

proposing to set the initial speculative 

spot month limit levels at 25 percent of 

deliverable supply for CL, HO, and RB 

because the higher levels will lessen the 

impact on a number of traders in both 

cash settled and physical delivery 

contracts. For NG, the Commission is 

proposing to set the physical delivery 

limit at 25 percent of deliverable 

supply, as recommended by CME; the 

Commission is also proposing to set a 

conditional spot month limit exemption 

of 10,000 for NG only.1322 This 

exemption would to some degree 

maintain the status quo in natural gas 

because each of the NYMEX and ICE 

cash settled natural gas contracts, which 

settle to the final settlement price of the 

physical delivery contract, include a 

conditional spot month limit exemption 

of 5,000 contracts (for a total of 10,000 

contracts).1323 However, neither 


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exception for cash-settled contracts would avoid 

market manipulations such as corners and squeezes 

(since cash-settled contracts give no direct control 

over a commodity), it does not address the problem 

of undue speculative influence on futures prices.’’). 

One commenter urged the Commission ‘‘to 

eliminate the requirement that traders hold no 

physical-delivery position in order to qualify for the 

conditional spot-month limit exemption’’ in order 

to maintain liquidity in the NYMEX natural gas 

futures contract. CL–BG–59656 at 6–7. See also CL– 

APGA at 8 (the Commission should condition the 

spot month limit exemption for cash settled natural 

gas contracts by precluding a trader from holding 

more than one quarter of the deliverable supply in 

physical inventory). Cf. CL–CME–59971 at 3 

(eliminate the five times natural gas limit because 

it ‘‘encourages participants to depart from, or 

refrain from establishing positions in, the primary 

physical delivery contract market and instead opt 

for the cash-settled derivative contract market, 

especially during the last three trading days when 

the five times limit applies. By encouraging 

departure from the primary contract market, the five 

times limit encourages a process of de-liquefying 

the benchmark physically delivered futures market 

and directly affects the determination of the final 

settlement price for the NYMEX NG contract- the 

very same price that a position representing five 

times the physical limit will settle against.’’). 

1324CL–ISDA/SIFMA–59611 at Annex A at 3. The 

economist noted that he used a ‘‘methodology for 

predicting changes in crude oil prices linked to 

global inventory levels.’’ Id. 

1325 Id. at 9. 

1326 Id. at 10. 

1327CL–Vectra–60369 at 1–2. The commenter was 

particularly concerned that given the ‘‘dearth of 

speculative capacity’’ in many energy contracts, 

hedging costs would increase and be passed on to 

consumers. Id. 

1328CL–IECAssn–60949 at 23. 

1329Commission staff analyzed and evaluated the 

quality of part 20 data for the period from July 1, 

2014 through June 30, 2015 (‘‘Year 1’’), and the 

period from July 1, 2015 through June 30, 2016 

(‘‘Year 2’’). 

1330 December 2013 Position Limits Proposal, 78 

FR 75730, Dec. 12, 2013. 

NYMEX and ICE penultimate contracts, 

which settle to the daily settlement 

price on the next to last trading day of 

the physical delivery contract, nor OTC 

swaps, are currently subject to any spot 

month position limit. In addition, the 

Commission’s impact analysis suggests 

that a conditional spot month limit 

exemption greater than 25 percent of 

deliverable supply for cash settled 

contracts in CL, HO, and RB would 

potentially benefit only a few traders, 

while a conditional spot month limit 

exemption for cash settled contracts in 

NG would potentially benefit many 

traders. 

Summary of Comments 

One economist estimated, using 

various stated assumptions but not an 

empirical model, that position limits at 

the proposed level would cost American 

consumers roughly $100 billion, based 

on an increase of $15 per barrel of oil 

in 2013.1324 This economist also 

asserted that position limits (or the mere 

possibility that such limits may be 

tightened) would discourage passive 

investors from the commodity 

derivative sector and, thus, would 

adversely affect investment in the oil 

and gas industry by raising the cost of 

hedging for exploration firms.1325 This 

economist believes that position limits 

would increase costs whether or not the 

position limits actually restrict a market 

participant’s trading, because 

compliance costs such as recordkeeping 

and reporting would modestly increase 

the costs of drilling associated with the 

regulations and discourage market 

entry.1326

The Commission believes that positon 

limits are unlikely to deter passive 

investors because they have the 

opportunity to invest in commodities 

through collective investment vehicles 

such as exchange traded funds (ETFs) or 

commodity pools. For example, if a 

position limit would become binding on 

a particular ETF, market demand would 

be expected to encourage another party 

to create a new ETF that could replicate 

a similar strategy to the previous one, 

which would allow the passive 

investment to continue. 

Regarding the forms and application 

process to obtain a § 150.11 exemption, 

the Commission believes that the 

requirements are not as onerous as the 

commenter fears. In this regard, an oil 

exploration firm would likely be able to 

qualify for an anticipatory hedge 

exemption. The Commission believes 

the costs of this process will have a 

negligible impact on the oil exploration 

firm’s costs of hedging. 

Another commenter was concerned 

that position limits set so low as to 

diminish speculative capacity in U.S. 

energy markets will distort prices, 

increase volatility, increase option 

premiums and increase the cost of 

hedging.1327

The Commission agrees with the 

commenter that setting position limits 

too low could distort prices, increase 

volatility, increase option premiums 

and increase the cost of hedging. The 

Commission believes it has 

preliminarily set the limit levels 

sufficiently high so that they will not 

have a significant adverse impact on the 

efficiency and price discovery functions 

of the core referenced futures contracts. 

In response to 2016 Supplemental 

Position Limits Proposal RFC 55, a 

commenter pointed out that the 

Commission’s Division of Enforcement 

has numerous tools at its disposal, and 

the exchanges have position step-down 

and exemption revocation authorization 

at their disposal, to enforce market 

manipulation prohibitions.1328

The Commission agrees with the 

commenter, but notes that the Division 

of Enforcement’s tools can be used only 

after market manipulation or other 

adverse consequences have already 

occurred. As for the tools at the disposal 

of the exchanges to reduce a market 

participant’s position or deter it from 

attempting to manipulate the market, 

the Commission considered these points 

when preliminarily setting the federal 

position limits at levels that may be 

higher than the Commission would 

otherwise consider, and in some cases 

higher than the levels suggested by the 

exchanges. 

h. Method for Setting Single-Month and 

All-Months Combined Position Limit 

Levels 

As discussed in more detail above, the 

Commission has preliminarily 

determined to use the futures position 

limits formula, 10 percent of the open 

interest for the first 25,000 contracts and 

2.5 percent of the open interest 

thereafter (i.e., the ‘‘10, 2.5 percent’’ 

formula), to set non-spot month 

speculative position limits for 

referenced contracts. This was the 

method proposed in the December 2013 

Position Limits Proposal. The 

Commission used a combination of data 

on open interest in physical commodity 

futures and options from the relevant 

exchanges and adjusted part 20 swaps 

data covering a total of 24 months, 

rather than two calendar years of data in 

setting the initial non-spot month 

position limit levels.1329 The 

Commission continues to believe that 

‘‘the non-spot month position limits 

would restrict the market power of a 

speculator that could otherwise be used 

to cause unwarranted price 

movements.’’ 1330 In preliminarily 

determining the appropriate non-spot 

month limit levels the Commission 

considered the results of its impact 

analysis of different non-spot month 

limit levels to discern how many market 

participants would be affected by 

different limit levels. 

In addition, the Commission believes 

that it is beneficial to update the nonspot month position limits based on 

recent position data, such as Part 20 

data. The Commission also proposes to 

retain the option to maintain the 

existing position limit levels if it 

believes there is good reason to deviate 

from the formulas. This could be the 

case if, for example, the Commission 

has experience at a level higher the 

amount given in the formula and 

believes that the higher level is 

appropriate, because the Commission 

has not observed any problems at the 

higher level. Furthermore, the 


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1331One commenter expressed concern ‘‘that 

proposed all-months-combined speculative position 

limits based on open interest levels is not 

necessarily the appropriate methodology and could 

lead to contract performance problems.’’ This 

commenter urged ‘‘that all-months-combined limits 

be structured to ‘telescope’ smoothly down to 

legacy spot-month limits in order to ensure 

continued convergence.’’ CL–National Grain and 

Feed Association–60312 at 4. 

1332One commenter supported a higher limit for 

KW than proposed to promote growth and to enable 

liquidity for Kansas City hedgers who often use the 

Chicago market. CL–Citadel–59717 at 8. Another 

commenter supported setting ‘‘a non-spot month 

and combined position limit of no less than 12,000 

for all three wheat contracts.’’ CL–MGEX–60301 at 

1. Contra CL–Occupy the SEC–59972 at 7–8 

(commending ‘‘the somewhat more restrictive 

limitations . . . on wheat trading’’). 

1333Several commenters supported adopting 

equivalent non-spot month position limits for the 

three existing wheat referenced contracts traders. 

See, e.g., CL–FIA–59595 at 4, 15; CL–CMC–60391 

at 8; CL–CMC–60950 at 11; CL–CME–59718 at 44; 

CL–American Farm Bureau–59730 at 4; CL–MGEX– 

59932 at 2; CL–MGEX–60301 at 1; CL–MGEX– 

59610 at 2–3; CL–MGEX–60936 at 2–3; CL–NCFC– 

59942 at 6; CL–NGFA–59956 at 3. 

1334Revision of Speculative Position Limits, 57 

FR 12770, 12766, Apr. 13, 1992. See also Revision 

of Speculative Position Limits and Associated 

Rules, 63 FR 38525, 38527, Jul. 17, 1998. Cf. 

December 2013 Position Limits Proposal (there may 

be range of spot month limits that maximize policy 

objectives), 78 FR 75729, Dec. 12, 2013. 

1335One commenter expressed concern that too 

high non-spot month limit levels could lead to a 

repeat of convergence problems experienced by 

certain contracts and that ‘‘the imposition of all 

months combined limits in continuously produced 

non-storable commodities such as livestock . . . 

will reduce the liquidity needed by hedgers in 

deferred months who often manage their risk using 

strips comprised of multiple contract months.’’ CL– 

American Farm Bureau Federation–59730 at 3–4. 

One commenter requested that the Commission 

withdraw its proposal regarding non-spot month 

limits, citing, among other things, the Commission’s 

previous approval of exchange rules lifting allmonths-combined limits for live cattle contracts ‘‘to 

ensure necessary deferred month liquidity.’’ CL– 

CME–59718 at 4. Another commenter expressed 

concern that non-spot month limits would have a 

negative impact on live cattle market liquidity. CL– 

‘‘CMC’’)–59634 at 12–13. See also CL–CME–59718 

at 41. 

1336One commenter was concerned that applying 

the 10, 2.5 percent formula to open interest for gold 

would result in a lower non-spot month limit level 

than the spot month limit level, and urged the 

Commission to ‘‘apply a consistent methodology to 

both spot and non-spot months.’’ CL–WGC–59558 

at 5. 

1337One commenter suggested deriving non-spot 

month limit levels for the CL, HO, and RB 

referenced contracts from the usage ratios for US 

crude oil and oil products rather than open interest 

and expressed concern that ‘‘unnecessarily low 

limits will hamper legitimate hedging activity.’’ CL– 

Citadel–59717 at 7–8. Another commenter 

suggested setting limit levels based on customary 

position size. CL–APGA–59722 at 6. This 

commenter also supported setting the single month 

limit at two-thirds of the all months combined limit 

in order to relieve market congestion as traders exit 

or roll out of the next to expire month into the spot 

month. CL–APGA–59722 at 7. 

1338CL–COPE–59662 at 5. The commenter 

asserted that the Commission’s position limits 

proposal was based solely on concerns about 

attempts to manipulate the price discovery contract 

or hoard physical inventory because the 

Commission highlighted only the Amaranth and 

Hunt Brothers cases. Id. 

1339See also the definition of the term ‘‘Preexisting position’’ adopted in § 150.1. Such preexisting positions that are in excess of the position 

limits will not cause the trader to be in violation 

based solely on those positions. To the extent a 

trader’s pre-existing positions would cause the 

trader to exceed the non-spot-month limit, the 

trader could not increase the directional position 

that caused the positions to exceed the limit until 

the trader reduces the positions to below the 

position limit. As such, persons who established a 

net position below the speculative limit prior to the 

enactment of a regulation would be permitted to 

acquire new positions, but the total size of the preexisting and new positions may not exceed the 

applicable limit. 

Commission has preliminarily 

determined that it will fix subsequent 

levels no less frequently than every two 

calendar years. This conclusion is 

reproposed in § 150.2(e)(2). 

i. CME and MGEX Agricultural 

Contracts 

The Commission is reproposing nonspot month speculative position limit 

levels for the Corn (C), Oats (O), Rough 

Rice (RR), Soybeans (S), Soybean Meal 

(SM), Soybean Oil (SO), and Wheat (W) 

core referenced futures contracts based 

on the 10, 2.5 percent open interest 

formula.1331 Based on the Commission’s 

experience since 2011 with non-spot 

month speculative position limit levels 

for the Hard Red Winter Wheat (KW) 

and Hard Red Spring Wheat (MWE) core 

referenced futures contracts, the 

Commission is proposing to maintain 

the limit levels for those two 

commodities at the current level of 

12,000 contracts rather than reducing 

them to the lower levels that would 

result from applying the 10, 2.5 percent 

formula.1332

Maintaining the status quo for the 

non-spot month limit levels for the KW 

and MWE core referenced futures 

contracts means there will be partial 

wheat parity.1333 The Commission has 

preliminarily determined not to raise 

the limit levels for KW and MWE to the 

limit level for W, as 32,800 contracts 

appears to be extraordinarily large in 

comparison to open interest in the KW 

and MWE markets, and the limit level 

for KW and MWE is already larger than 

a limit level based on the 10, 2.5 percent 

formula. Even when relying on a single 

criterion, such as percentage of open 

interest, the Commission has 

historically recognized that there can 

‘‘result . . . a range of acceptable 

position limit levels.’’ 1334

ii. Softs 

The Commission is reproposing nonspot month speculative position limit 

levels for the CC, KC, CT, OJ, SB, SF and 

LC1335 core referenced futures contracts 

based on the 10, 2.5 percent open 

interest formula. 

iii. Metals 

The Commission is reproposing nonspot month speculative position limit 

levels for the GC, SI, PL, PA, and HG 

core referenced futures contracts based 

on the 10, 2.5 percent open interest 

formula.1336

iv. Energy 

The Commission is reproposing nonspot month speculative position limit 

levels for the NG, CL, HO, and RB core 

referenced futures contracts based on 

the 10, 2.5 percent open interest 

formula.1337

Summary of Comments 

A commenter claimed that the 

proposed rule did not address the price 

impact of speculative money flows into 

commodities, and that if the 

Commission is concerned with the types 

of manipulative activities shown by the 

Hunt Brothers and Amaranth cases, 

there are ‘‘targeted and less burdensome 

and complex ways to prevent such a 

manipulative harm’’ and the inclusion 

of position limits on swaps is invalid 

because swaps cannot be used to cause 

this detrimental impact.1338

The Commission disagrees, and notes 

that swaps can be used to cause 

detrimental impact, as occurred in the 

Amaranth case. Amaranth entered into 

swaps on an exempt commercial market 

that were directly linked to a core 

reference futures contract. So to ignore 

swaps would not adequately address the 

issue that position limits are intended to 

address. 

i. § 150.2(f)–(g) Pre-Existing Positions 

and Positions on Foreign Boards of 

Trade 

i. Summary of Changes 

The Commission is reproposing new 

§ 150.2(f)(2) to exempt from federal nonspot-month speculative position limits 

any referenced contract position 

acquired by a person in good faith prior 

to the effective date of such limit, 

provided that the pre-existing position 

is attributed to the person if such 

person’s position is increased after the 

effective date of such limit.1339

Finally, reproposed § 150.2(g) will 

apply position limits to positions on 

FBOTs provided that positions are held 

in referenced contracts that settle to a 

referenced contract and the FBOT 

allows direct access to its trading system 

for participants located in the United 

States. 


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1340The Commission excluded from position 

limits ‘‘pre-enactment swaps’’ and ‘‘transition 

period swaps,’’ in its grandfathering provisions, as 

discussed above. 

1341See supra discussion of CEA section 4a(a)(6) 

concerning aggregate position limits and the 

treatment of FBOT contracts. 

1342 December 2013 Proposal, 78 FR 75828, Dec. 

12, 2013. 

1343Reproposed § 150.3 has ten paragraphs: (a) 

through (j). Reproposed § 150.3(i) (aggregation of 

accounts) and (j) (delegation of authority to DMO 

Director) do not have cost-benefit implications, and 

are not discussed in this section. 

1344For a fuller discussion of all the changes to 

reproposed § 150.3, see Section III.C., above. 

ii. Baseline 

The baseline is the current § 150.2 of 

the Commission’s regulations. 

iii. Benefits and Costs 

The Commission exempted certain 

pre-existing positions from position 

limits under new § 150.2(f) as part of its 

grandfathering provisions.1340

Essentially, this means only futures 

contracts initially will be subject to nonspot month position limits, as well as 

swaps entered after the compliance 

date. The Commission notes that a preexisting position in a futures contract 

also would not be a violation of a nonspot month limit, but, rather, would be 

grandfathered, as discussed under 

§ 150.2(f)(2). Therefore, market 

participants can more easily adjust their 

existing positions to the new federal 

position limit regime. Market 

participants will however incur costs for 

newly established positions in the 

relevant swaps after the compliance 

date, such as those discussed above 

such as the costs of monitoring their 

positions with respect to any applicable 

federal position limit and applying for 

exemptions should they need to exceed 

those limits. 

New § 150.2(g), extends the federal 

position limits to a person who holds 

positions in referenced contracts on an 

FBOT that settle against any price of one 

or more contracts listed for trading on 

a DCM or SEF that is a trading facility, 

if the FBOT makes available such 

referenced contracts to its members or 

other participants located in the United 

States through direct access to its 

electronic trading and ordering 

matching system. In that regard, 

§ 150.2(g) is consistent with CEA section 

4a(a)(6)(B), which directs the 

Commission to apply aggregate position 

limits to FBOT linked, direct-access 

contracts.1341

Regulations 150.2(f) and (g) 

implement statutory directives in CEA 

section 4a(b)(2) and CEA section 

4a(a)(6)(B), respectively, and are not acts 

of the Commission’s discretion. Thus, a 

consideration of costs and benefits of 

these provisions is not required under 

CEA section 15(a). 

iv. Summary of Comments 

No commenter addressed the costs or 

benefits of § 150.2(f) and (g). 

5. Section 150.3—Exemptions From 

Federal Position Limits 

As discussed above, the Commission 

has provided a general discussion of 

reproposed § 150.3 and highlighted the 

rule-text changes that it has made after 

several rounds of proposed rulemakings 

and responsive comments. In this 

release, the Commission has reproposed 

paragraphs (a), (b), (d), (e), (g) and (h) as 

proposed in December 2013.1342 The 

Commission has amended the text in 

proposed § 150.3(c) and (f). In the 

December 2013 proposal, the 

Commission also discussed the costs 

and benefits of these two paragraphs, as 

well as, paragraphs (a), (b), (d), (e), (g) 

and (h).1343

In the June 2016 Supplemental 

Position Limits Proposal, the 

Commission changed proposed 

paragraph (a). The Commission also 

explained in the 2016 cost-benefit 

section that the changes it was making 

to proposed § 150.3(a)(1) should be read 

in conjunction with proposed §§ 150.9, 

150.10, and 150.11.1344 Between the 

June 2016 changes to §§ 150.9, 150.10, 

and 150.11 and now, the Commission 

has not made additional changes to 

§ 150.3(a)(1). In general, the proposed 

changes made in the June 2016 

Supplemental Position Limits Proposal 

detailed processes that exchanges could 

offer to market participants who seek 

exemptions for positions to exchangeset and federal position limits. 

In this section, the Commission 

summarizes reproposed § 150.3, and, 

thereafter, discusses the related benefits 

and costs of the final rules. 

a. Section 150.3 Rule Summaries 

i. Section 150.3(a)—Bona Fide Hedging 

Exemption 

Among other things, reproposed 

§ 150.3(a)(1)(i) codifies the statutory 

requirement that bona fide hedging 

positions be exempt from federal 

position limits. Reproposed § 150.3(a)(2) 

authorizes other exemptions from 

position limits for financial-distress 

positions, conditional spot-month limit 

positions, spread positions, and other 

risk-reduction practices. 

ii. Section 150.3(b)—Financial Distress 

Exemption 

Reproposed § 150.3(b) provides the 

means for market participants to request 

relief from applicable position limits 

during certain financial distress 

circumstances, including the default of 

a customer, affiliate, or acquisition 

target of the requesting entity, that may 

require an entity to assume in short 

order the positions of another entity. 

iii. Section 150.3(c)—Conditional SpotMonth Position Limit Exemption 

Reproposed § 150.3(c) provides a 

conditional spot-month limit exemption 

that permits traders to acquire positions 

for natural gas up to 10,000 contracts if 

such positions are exclusively in cashsettled contracts. The natural-gas 

conditional exemption would not be 

available to traders who hold or control 

positions in the spot-month physicaldelivery referenced contract in order to 

reduce the risk that traders with large 

positions in cash-settled contracts 

would attempt to distort the physicaldelivery price to benefit such positions. 

iv. Section 150.3(d)—Pre-Enactment and 

Transition Period Swaps Exemption 

Reproposed § 150.3(d) provides an 

exemption from federal position limits 

for swaps entered into before July 21, 

2010 (the date of the enactment of the 

Dodd-Frank Act), the terms of which 

have not expired as of that date, and for 

swaps entered into during the period 

commencing July 22, 2010, the terms of 

which have not expired as of that date, 

and ending 60 days after the publication 

of final rule § 150.3—that is, its effective 

date. 

v. Section 150.3(e)—Other Exemptions 

Reproposed § 150.3(e) explains that a 

market participant engaged in riskreducing practices that are not 

enumerated in the revised definition of 

bona fide hedging in reproposed § 150.1 

may use two different methods to apply 

to the Commission for relief from 

federal position limits. The market 

participant may request an 

interpretative letter from Commission 

staff pursuant to § 140.9 concerning the 

applicability of the bona fide hedging 

position exemption, or may seek 

exemptive relief from the Commission 

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

vi. Section 150.3(f)—Previously Granted 

Exemptions 

After reviewing comments, the 

Commission has preliminarily 

determined it is best to change the 

§ 150.3(f) text proposed in December 

2013. The amended text broadens 

exemption relief to pre-existing 

financial instruments that are within 

current § 1.47’s scope, and to exchangegranted non-enumerated exemptions in 

non-legacy commodity derivatives 


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1345See, e.g., the discussion of costs related to 

non-enumerated bona fide hedging position 

determinations, anticipatory bona fide hedge 

filings, and spread exemptions below. 

outside of the spot month with other 

conditions. 

vii. Section 150.3(g) and (h)— 

Recordkeeping 

Reproposed § 150.3(g)(1) specifies 

recordkeeping requirements for market 

participants who claim any exemption 

in final § 150.3. Market participants 

claiming exemptions under reproposed 

§ 150.3 would need to maintain 

complete books and records concerning 

all details of their related cash, forward, 

futures, options and swap positions and 

transactions. Reproposed § 150.3(g)(2) 

requires market participants seeking to 

rely upon the pass-through swap offset 

exemption to obtain a representation 

from its counterparty and keep that 

representation on file. Similarly, 

reproposed § 150.3(g)(3) requires a 

market participant who makes such a 

representation to maintain records 

supporting the representation. Under 

reproposed § 150.3(h), all market 

participants would need to make such 

books and records available to the 

Commission upon request, which would 

preserve the ‘‘call for information’’ rule 

set forth in current § 150.3(b). 

b. Baseline 

The baseline is the current § 150.3 of 

the Commission’s regulations. 

c. Benefits and Discussion of Comments 

i. Section 150.3(a)—Positions Which 

May Exceed Limits 

As explained in the December 2013 

Supplemental Position Limits Proposal, 

§ 150.3 works with §§ 150.9, 150.10, and 

§ 150.11. All of these rules operate 

together within the broader positionlimits regulatory regime and provide 

significant benefits, such as regulatory 

certainty, consistency, and 

transparency. As such, the benefits of 

reproposed § 150.3 are discussed in the 

cost-benefit sections related to 

reproposed §§ 150.9, 150.10, and 

150.11. 

ii. Section 150.3(b)—Financial Distress 

Exemption 

The Commission continues to believe 

that by codifying historical practices of 

temporarily lifting position limit 

restrictions several benefits will ensue. 

Reproposed § 150.3 ensures the orderly 

transfers of positions from financially 

distressed firms to financially secure 

firms or facilitating other necessary 

remediation measures during times of 

market stress. Because of this 

Reproposal, the Commission believes it 

is less likely that positions will be 

prematurely or unnecessarily 

liquidated, and it is less likely that the 

price-discovery function of markets will 

be harmed. 

iii. Section 150.3(c)—Conditional Spot 

Month Limit Exemption 

In the December 2013 proposal, the 

Commission proposed § 150.3(c) that 

provided speculators with an 

opportunity to maintain relatively large 

positions in cash-settled contracts up to 

but no greater than 125 percent of the 

spot-month limit. The Commission 

explained that by prohibiting 

speculators using the exemption in the 

cash-settled contract from trading in the 

spot-month of the physical-delivery 

contract, the final rules should further 

protect the delivery and settlement 

process, and reduce the ability for a 

trader with a large cash settled contract 

position to attempt to manipulate the 

physical-delivery contract price in order 

to benefit his position. The Commission 

invited comment on this general 

exemption. Upon review of the 

comment letters, the Commission has 

preliminarily determined to restrict the 

conditional-spot-month-limit exemption 

to natural gas cash-settled referenced 

contracts. The reasons for this change 

are explained above. 

iv. Section 150.3(d)—Pre-Enactment and 

Transition Period Swaps Exemption 

The pre-existing swaps exemption in 

reproposed§ 150.3(d) is consistent with 

CEA section 4a(b)(2). The exemption 

promotes the smooth transition for 

previously unregulated swaps markets 

to swaps markets that will be subjected 

to position limits compliance. In 

addition, allowing netting with preenactment and transition swaps 

provides flexibility where possible in 

order to lessen the impact of the regime 

on entities with swap positions. 

v. Section 150.3(e)—Other Exemptions 

Reproposed § 150.3(e) is essentially 

clarifying and organizational in nature. 

For the most part, the Reproposal 

provides the benefit of regulatory 

certainty for those granted exemptions. 

vi. Section 150.3(f)—Other Exemptions 

and Previously Granted Exemptions 

As explained above, the Commission 

has expanded the scope of reproposed 

§ 150.3(f) exemptive relief. In December 

2013, the Commission discussed the 

benefits of proposed § 150.3(f), and 

believed that the benefits centered on 

regulatory certainty. Now that the 

Commission has increased the types of 

financial instruments that may be 

exempted from position limits under 

this rule, the Commission believes that 

it has reduced the likelihood of market 

disruption because of forced and 

unexpected liquidations. In other 

words, the Commission believes that 

reproposed § 150.3(f) will support 

market stability. 

vii. Section 150.3(g) and (h)— 

Recordkeeping and Special Calls 

The Commission believes that the 

reproposed § 150.3(g)’s recordkeeping 

requirements are critical to the 

Commission’s ability to effectively 

monitor compliance with exemption 

eligibility standards. Because the 

Commission will have access to records 

under § 150.3(h), it will be able to assess 

whether exemptions are susceptible to 

abuse and to support the position-limits 

regime, which, among other things, aims 

to prevent excessive speculation and/or 

market manipulation. 

d. Costs and Discussion of Comments 

As the Commission expressed in the 

December 2013 Supplemental Position 

Limits Proposal, the exemptions under 

reproposed § 150.3 do not increase the 

costs of complying with position limits. 

The Commission continues to believe 

that many costs will likely decrease by 

the Commission providing for relief 

from position limits in certain 

situations. The reproposed § 150.3 

exemptions are elective, so no entity is 

required to assert an exemption if it 

determines the costs of doing so do not 

justify the potential benefit resulting 

from the exemption. While the 

Commission appreciates that there will 

be compliance duties connected to the 

reproposed § 150.3, the Commission 

does not anticipate the costs of 

obtaining any of the exemptions to be 

overly burdensome.1345

i. Section 150.3(a)—Positions Which 

May Exceed Limits 

Because of the proposed changes in 

the June 2016 Supplemental Position 

Limits Proposal, reproposed § 150.3(a) 

must be read with reproposed §§ 150.9, 

150.10, and § 150.11. Moreover, the 

costs of reproposed § 150.3 are linked to 

reproposed §§ 150.9, 150.10, and 

§ 150.11, and are discussed more fully 

below. 

ii. Section 150.3(b)—Financial Distress 

Exemption 

The Commission’s view on the costs 

related to the financial distress 

exemption under reproposed § 150.3(b) 

remains unchanged. The costs are likely 

to be minimal. Market participants who 

voluntarily employ these exemptions 

will incur filing and recordkeeping 


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1346CL–ICE–59962 at 6–7 (commenter argued that 

the conditional limit for natural gas ‘‘has had no 

adverse consequences with supply constraints and 

underlying physical delivery contracts.’’) 

1347CL–ICE–59966 at 4–5, CL–ICE–59962 at 5, 

and CL–IECAssn–59679 at 30. 

1348 Dodd-Frank Act section 735(b). CEA section 

4a(e), effective prior to, and not amended by, the 

Dodd-Frank Act, likewise provides that position 

limits fixed by a board of trade not exceed federal 

limits. 7 U.S.C. 6a(e). 

1349 Dodd-Frank Act section 733 (adding CEA 

section 5h; 7 U.S.C. 7b–3). 

costs. As explained in the 2013 

proposal, the Commission cannot 

accurately estimate how often this 

exemption may be invoked because 

emergency or distressed market 

situations are unpredictable and 

dependent on a variety of firm- and 

market-specific factors as well as 

general macroeconomic indicators. The 

Commission, nevertheless, believes that 

emergency or distressed market 

situations that might trigger the need for 

this exemption will be infrequent. The 

Commission continues to assume that 

reproposed § 150.3(b) will add 

transparency to the process. Finally, the 

Commission believes that in the case 

that one firm is assuming the positions 

of a financially distressed firm, the costs 

of claiming the exemption would be 

incidental to the costs of assuming the 

position. 

iii. Section 150.3(c)—Conditional Spot 

Month Limit Exemption 

A natural gas market participant that 

elects to exercise this exemption will 

incur certain direct costs to do so. The 

natural gas market participant must file 

Form 504 in accordance with 

requirements listed in reproposed 

§ 19.01. The Commission does not 

believe that there will be additional 

costs, or at least not significant costs, 

because exchanges already have the 

exemption. Given that there has been 

experience with this type of exemption 

for natural gas market participants,1346

the Commission does not believe that 

liquidity, in the aggregate (across the 

core referenced futures contract and 

referenced contracts) will be adversely 

impacted.1347 By retaining the 

exemption for natural gas contracts, the 

Commission has heeded commenters 

concerns about disrupting market 

practices and harming liquidity in the 

cash market, thus increasing the cost of 

hedging and possibly preventing 

convergence between the physicaldelivery futures and cash markets. 

iv. Section 150.3(d)—Pre-Enactment and 

Transition Period Swaps Exemption 

The exemption offered in reproposed 

§ 150.3(d) is self-executing and will not 

require a market participant to file for 

relief. Nevertheless, as explained in the 

December 2013 proposal, a market 

participant may incur costs to identify 

positions eligible for the exemption and 

to determine if that position is to be 

netted with post-enactment swaps for 

purposes of complying with a non-spotmonth position limit. The Commission 

believes these costs will not be overly 

burdensome, and notes that market 

participants who assume such costs do 

so voluntarily. 

v. Section 150.3(e)—Other Exemptions 

and Previously Granted Exemptions 

Under the reproposed § 150.3(e), 

market participants electing to seek an 

exemption other than those specifically 

enumerated, will incur certain direct 

costs to do so. The Commission 

discussed the expected costs in the 

December 2013 proposal and continues 

to believe that the same costs will arise 

should market participants elect 

exemptive relief under reproposed 

§ 150.3(e). As explained in the 

December 2013 proposal, market 

participants will incur costs related to 

petitioning the Commission under 

§ 140.99 of the Commission’s 

regulations or under CEA section 

4a(a)(7). There also will be 

recordkeeping costs for those market 

participants who elect to pursue a 

§ 150.3(e) exemption. The Commission 

believes that these costs will be 

minimal, as participants already 

maintain books and records under a 

variety of other Commission regulations 

and as the information required in these 

sections is likely already being 

maintained. The Commission has 

estimated the costs entities might incur 

and discussed those costs in the PRA 

section of this release. 

vi. Section 150.3(f)—Previously Granted 

Exemptions 

Market participants who had 

previously relied upon the exemptions 

granted under current § 1.47 will be able 

to continue to rely on such exemptions 

for existing positions under reproposed 

§ 150.3(f). Between the December 2013 

proposal and now, the Commission has 

determined to expand the relief in 

reproposed § 150.3(f). As more fully 

discussed above, the Commission 

amended the regulatory text so that 

previously-granted exemptions may 

apply to pre-existing financial 

instruments, rather than only to preexisting swaps, and to exchangegranted, non-enumerated exemptions in 

non-legacy commodity derivatives 

outside of the spot month, with other 

conditions. The Commission believes 

that there will be recordkeeping costs 

but there also will be cost-savings in the 

form of market stability because market 

participants will not be required to 

liquidate positions prematurely, and the 

relief covers financial instruments not 

just swaps. 

vii. Section 150.3(g) and (h)— 

Recordkeeping and Special Calls 

Under reproposed § 150.3(g) and (h), 

the costs related to maintaining and 

producing records will be minimal 

because, under most circumstances, 

market participants already maintain 

books and records in compliance with 

Commission regulations and as part of 

prudent accounting and risk 

management policies and procedures. 

The Commission has estimated the costs 

entities might incur and discussed those 

costs in the PRA section of this release. 

6. Section 150.5—Exemptions From 

Exchange-Set Position Limits 

The Dodd-Frank Act scaled back the 

discretion afforded DCMs for 

establishing position limits under the 

earlier CFMA amendments. Specifically, 

among other things, the Dodd-Frank 

Act: (1) Amended DCM core principle 5 

to require that, with respect to contracts 

subject to a position limit set by the 

Commission under CEA section 4a, a 

DCM must set limits no higher than 

those prescribed by the 

Commission; 1348 and (2) added parallel 

core principle obligations on newlyauthorized SEFs, including SEF core 

principle 6 regarding the establishment 

of position limits.1349

a. Rule Summary 

In light of these Dodd-Frank Act 

statutory amendments, the Commission 

has adopted § 150.5 to specify certain 

requirements and guidance for DCMs 

and SEFs establishing exchange-set 

limits. 

Specifically, § 150.5(a)(1) requires that 

DCMs and SEFs set position limits for 

commodity derivative contracts, subject 

to federal position limits, at a level not 

higher than the Commission’s levels 

specified in § 150.2. In addition, 

exchanges with cash-settled contracts 

price-linked to contracts subject to 

federal limits must also adopt limit 

levels not higher than federal position 

limits. 

Further, § 150.5(a)(5) requires for all 

contracts subject to federal speculative 

limits, and §§ 150.5(b)(8) and 150.5(c)(8) 

suggest for other contracts not subject to 

federal speculative limits, that 

designated contract markets and swap 

execution facilities adopt aggregation 

rules that conform to § 150.4. Regulation 

§ 150.5(a)(2)(i) requires for all contracts 

subject to federal speculative limits, and 


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1350CEA section 4a(a)(3)(B) applies for purposes 

of setting federal limit levels. 7 U.S.C. 6a(a)(3)(B). 

The Commission considers the four factors set out 

in the section relevant for purposes of considering 

the benefits and costs of these amendments 

addressed to exchange-set position limits as well. 

regulations §§ 150.5(b)(5)(i)(A) and 

(c)(5)(1) suggest for other contracts not 

subject to federal speculative limits, that 

exchanges conform their bona fide 

hedging exemption rules to the § 150.1 

definition of bona fide hedging position. 

Regulation § 150.5(a)(2)(ii) requires, 

and §§ 150.5(b)(5)(iii) and (c)(5)(iii) 

suggest that exchanges condition any 

exemptive relief from federal or 

exchange-set position limits on an 

application from the trader. And, if 

granted an exemption, such trader must 

reapply for such exemption at least on 

an annual basis. As noted supra, the 

Commission understands that requiring 

traders to apply for exemptive relief 

comports with existing DCM practice; 

thus, the Commission anticipates that 

the codification of this requirement will 

have the practical effect of 

incrementally increasing, rather than 

creating, the burden of applying for 

such exemptive relief. 

Finally, under § 150.5(b) and 

§ 150.5(c) for commodity derivative 

contracts not subject to federal position 

limits, the Commission provides 

guidance for exchanges to use their 

reasonable discretion to set exchange 

position limits and exempt market 

participants from exchange-set limits. 

This includes, under § 150.5(b), 

commodity derivative contracts in a 

physical commodity as defined in 

§ 150.1, and, under § 150.5(c), excluded 

commodity derivative contracts as 

defined in section 1a(19) of the Act. 

b. Baseline 

The baseline is the current reasonable 

discretion afforded to exchanges to 

exempt market participant from their 

exchange-set position limits. 

c. Benefits and Costs 

Functioning as an integrated 

component within the broader position 

limits regulatory regime, the 

Commission expects the proposed 

changes to § 150.5 will further the four 

objectives outlined in CEA section 

4a(a)(3).1350 The Commission has 

endeavored to preserve the status quo 

baseline within the framework of 

establishing new federal position limits. 

The reproposed regulations require 

that exchange-set limits employ 

aggregation policies that conform to the 

Commission’s aggregation policy for 

contracts that are subject to federal 

limits under § 150.2, thus harmonizing 

aggregation rules for all federal and 

exchange-set speculative position limits. 

For contracts subject to federal 

speculative position limits under 

§ 150.2, the Commission anticipates that 

a harmonized approach to aggregation 

will prevent confusion that otherwise 

might result from allowing divergent 

standards between federal and 

exchange-set limits on the same 

contracts. Further, the harmonized 

approach to aggregation policies for 

limits on all levels eliminates the 

potential for exchanges to use 

permissiveness in aggregation policies 

as a competitive advantage, which 

would impair the effectiveness of the 

Commission’s aggregation policy. In 

addition, DCMs and SEFs are required 

to set position limits at a level not 

higher than that set by the Commission. 

Differing aggregation standards may 

have the practical effect of increasing a 

DCM- or SEF-set limit to a level that is 

higher than that set by the Commission. 

Accordingly, harmonizing aggregation 

standards reinforces the efficacy and 

intended purpose of §§ 150.5(a)(2)(ii), 

(b)(5)(iii) and (c)(5)(iii) by foreclosing an 

avenue to circumvent applicable limits. 

Moreover, by extending this harmonized 

approach to contracts not included in 

§ 150.2, the Commission encourages a 

common standard for all federal and 

exchange-set limits. The adopted rule 

provides uniformity, consistency, and 

certainty for traders who are active on 

multiple trading venues, and thus 

should reduce the administrative 

burden on traders as well as the burden 

on the Commission in monitoring the 

markets under its jurisdiction. 

With respect to exchange-set limits, 

DCM and SEF core principles already 

address the costs associated with the 

requirement that exchanges set position 

limits no higher than federal limits. 

Further, for commodity derivatives 

contracts subject to federal position 

limits, exchanges are provided the 

discretion to decide whether or not to 

set position-limits that are lower than 

the federal position limit. Finally, when 

an exchange grants an exemption from 

a lower exchange-set limit, it is not 

required to use the Commission’s bona 

fide hedging position definition so long 

as the exempted position does not 

exceed the federal position limit. 

To the extent that a DCM or SEF 

grants exemptions, the Commission 

anticipates that exchanges and market 

participants will incur minimal costs to 

administer the application process for 

exemption relief in accordance with 

standards set forth in the proposed rule. 

The Commission understands that 

requiring traders to apply for exemptive 

relief comports with existing DCM 

practice. Accordingly, by incorporating 

an application requirement that the 

Commission has reason to understand 

most if not all active DCMs already 

follow, the impact of the potential costs 

has been reduced because the nature of 

the exemption process is similar to what 

DCMs already have in place. For SEFs, 

the rules necessitate a compliant 

application regime, which will require 

an initial investment similar to that 

which DCMs have likely already made 

and need not duplicate. As noted above, 

the Commission considers it highly 

likely that, in accordance with industry 

best practices, to comply with core 

principles and due to the utility of 

application information in 

demonstrating compliance with core 

principles, SEFs may incur such costs 

with or without the adopted rules. 

Again, due to the new existence of these 

entities, the Commission is unable to 

estimate what costs may be associated 

with the requirement to impose an 

application regime for exemptive relief 

on the exchange level. 

Also, with respect to phasing, 

exchanges are not required to use the 

Commission’s definition of bona fide 

hedging position when setting positon 

limits on commodity derivative 

contracts in a physical commodity that 

are not subject to federal position limits 

(and when exchanges grant an 

exemption from exchange-set limits if 

such exemption does not exceed the 

federal limit) or excluded commodity 

derivative contracts. Nevertheless, 

exchanges are free to use the 

Commission’s bona fide hedging 

position definition if they so choose. 

Relative to the status quo baseline, 

this rulemaking imposes a ceiling on 

exchange-set position limits for 

referenced contracts in 25 commodities. 

The core principals already require such 

ceiling, and such costs are addressed in 

the part 37 and 38 rulemakings. As 

mandated and necessary, this rule 

adopts limits for 16 additional 

commodities. In addition, market 

participants may be facing hard position 

limits on some contract that previously 

only had accountability levels. As such, 

this rulemaking will confer any benefits 

that hard position limits have over 

accountability levels. This may include 

information gleaned from exemption 

applications that will better inform the 

supervisory functions of DCMs or SEFs 

as well as to protect markets from any 

adverse effects from market participants 

that hold positions in excess of an 

exchange set position limit. In addition, 

exchanges retain the ability to set 

accountability levels lower than the 

levels of the position limits; if an 

exchanges chooses to adopt such 

accountability levels, they would 


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1351CL–Working Group–60947 at 14. 

1352See paragraphs 3(iii), 4(i), 4(iii), 4(iv) and (5), 

respectively, of the Commission’s definition of bona 

fide hedging position in § 150.1 as discussed supra. 

1353See 17 CFR 1.48. See also definition of bona 

fide hedging transactions in current 17 CFR 

1.3(z)(2)(i)(B) and (ii)(C), respectively. 

1354The Commission understands that there will 

be costs associated with the filing of Form 704. 

Costs of filing that form are discussed in the context 

of the part 19 requirements as well as in the 

Paperwork Reduction Act section of this release. 

provide exchanges with additional 

information regarding positions of 

various market participants. 

Exchanges and market participants 

will have to adapt to new federal 

position limits. Position limits will alter 

the way that swap and futures trading 

is conducted. For many contracts that 

did not have federal limits, participants 

will be facing new exchange set position 

limits in the spot, single month, and all 

months combined. Such limits may 

impose new compliance costs on 

exchanges and market participants. 

These compliance costs may consists of 

adapting the method of aggregating 

contracts and filing for exchange 

exemptions to position limits. The 

Commission anticipates that these costs 

will be higher for contracts that have 

only had accountability levels and not 

hard exchange-set position limits. 

Exchange-set position limits may also 

deter some speculators from fully 

participating and affecting the price of 

some futures contracts. The Commission 

expects that for the most part, exchangeset position limits will not have much 

effect except for rare circumstances 

when exemptions to exchange set limits 

do not apply or other derivative 

contracts such as swap contracts (below 

the federal limit), forwards, or trade 

options are not adequate to meet a 

market participant’s needs. 

d. Response to Commenter 

A commenter asked whether the 

Supplemental Proposal’s cost-benefit 

analysis assesses the appropriateness of 

such requirement on exchange-set 

speculative position limits or includes 

the costs of processing non-enumerated 

bona fide hedging positions and Spread 

Exemptions for contracts subject only to 

exchange-set speculative position limits 

and not federal speculative position 

limits.1351

The Commission notes that if an 

exchange elects to set a position limit 

lower than a federal limit, the costs 

resulting from such choices are not 

imposed by § 150.5, because the 

exchange has made the choice not the 

Commission. The costs on market 

participants to apply for exchange set 

limits below the federal level are also 

discussed in § 150.2. The Commission is 

unable to forecast these costs, because it 

does not know when an exchange will 

set its limits lower than the federal 

limit; nor does it know how low any 

such exchange-set position limit level 

may be. 

This rulemaking maintains the status 

quo for exchange-set speculative limits 

for contracts not subject to federal 

limits. Therefore, there are no costs and 

benefits resulting from this rulemaking 

on the processing of such exemptions. 

7. Section 150.7—Reporting 

Requirements for Anticipatory Hedging 

Positions 

a. Rule Summary 

The revised definition of bona fide 

hedging position reproposed in § 150.1 

of this rule incorporates hedges of five 

specific types of anticipated 

transactions: Unfilled anticipated 

requirements, unsold anticipated 

production, anticipated royalties, 

anticipated service contract payments or 

receipts, and anticipatory crosshedges.1352 The Commission is 

reproposing new requirements in 

§ 150.7 for traders seeking an exemption 

from position limits for any of these five 

enumerated anticipated hedging 

transactions that were designed to build 

on, and replace, the special reporting 

requirements for hedging of unsold 

anticipated production and unfilled 

anticipated requirements in current 

§ 1.48.1353

The Commission proposed to add a 

new series ’04 reporting form, Form 704, 

to effectuate these additional and 

updated reporting requirements for 

anticipatory hedges. Persons wishing to 

avail themselves of an exemption for 

any of the anticipatory hedging 

transactions enumerated in the updated 

definition of bona fide hedging position 

in § 150.1 would be required to file an 

initial statement on Form 704 with the 

Commission at least ten days in advance 

of the date that such positions would be 

in excess of limits established in 

§ 150.2. 

Reproposed § 150.7(f) adds a 

requirement for any person who files an 

initial statement on Form 704 to provide 

annual updates that detail the person’s 

actual cash market activities related to 

the anticipated exemption. Reproposed 

§ 150.7(g) enables the Commission to 

review and compare the actual cash 

activities and the remaining unused 

anticipated hedge transactions by 

requiring monthly reporting on Form 

204. 

As is the case under current § 1.48, 

reproposed § 150.7(h) required that a 

trader’s maximum sales and purchases 

must not exceed the lesser of the 

approved exemption amount or the 

trader’s current actual anticipated 

transaction. 

b. Baseline 

The baseline is current § 1.48. 

c. Benefits and Costs 

The Commission remains concerned 

that distinguishing whether an over-thelimit position is entered into in order to 

reduce risk arising from anticipatory 

needs, or whether it is excess 

speculation, may be exceedingly 

difficult if anticipatory transactions are 

not well defined. The Commission is, 

therefore, reproposing the collection of 

Form 704 to collect information that is 

vital in performing this distinction. 

While there will be costs associated 

with fulfilling obligations related to 

anticipatory hedging, the Commission 

believes that advance notice of a trader’s 

intended maximum position in 

commodity derivative contracts to offset 

anticipatory risks would identify—in 

advance—a position as a bona fide 

hedging position, avoiding unnecessary 

contact during the trading day with 

surveillance staff to verify whether a 

hedge exemption application is in 

process, the appropriate level for the 

exemption and whether the exemption 

is being used in a manner that is 

consistent with the requirements. 

Market participants can anticipate 

hedging needs well in advance of 

assuming positions in derivatives 

markets and in many cases need to 

supply the same information after the 

fact; in such cases, providing the 

information in advance allows the 

Commission to better direct its efforts 

towards deterring and detecting 

manipulation. The annual updates in 

§ 150.7(d) similarly allow the 

Commission to verify on an ongoing 

basis that the person’s anticipated cash 

market transactions, estimated in good 

faith, closely track that person’s real 

cash market activities. Absent monthly 

filing pursuant to § 150.7(e), the 

Commission would need to issue a 

special call to determine why a person’s 

commodity derivative contract position 

is, for example, larger than the pro rata 

balance of her annually reported 

anticipated production. The 

Commission believes it is reproposing a 

low cost method of obtaining the 

necessary information to ensure that 

anticipatory hedges are valid.1354

d. Summary of Comments 

One commenter asserted that the 

reporting requirements for anticipatory 

hedges of an operational or commercial 


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1355CL–IECAssn–59679 at 11. 

1356CL–BG Group–59656 at 11. 

1357CL–NGFA–60941 at 7–8. 

1358 Id. 

1359CL–APGA–59722 at 10. 

1360CL–EDF–59961 at 6. 

1361CL–EEI–EPSA–60925 at 9. 

1362CL–FIA at 35–36. 

1363See December 2013 Position Limits Proposal, 

78 FR at 75746. 

1364See, supra, discussion of changes to Form 

704 and § 150.7. 

risk comprising an initial, 

supplementary and annual report are 

unduly burdensome. The commenter 

recommended that the Commission 

require either an initial and annual 

report or an initial and supplementary 

report.1355 Another commenter agreed 

that the proposed requirements to file 

Forms 204, 704 and/or 604 ‘‘are unduly 

burdensome and commercially 

impracticable,’’ and stated that the 

Commission should ‘‘scale back both 

the frequency and the content of the 

filings required to maintain bona fide 

hedge positions.’’ 1356

Another commenter suggested 

deleting Form 704 because it believes 

that no matter how extensive the 

Commission makes reporting 

requirements, the Commission will still 

need to request additional information 

on a case-by-case basis to ensure hedge 

transactions are legitimate.1357 The 

commenter suggested that the 

Commission should be able to achieve 

its goal of obtaining enough information 

to determine whether to request 

additional information using Form 204 

along with currently collected data 

sources and so the additional burden of 

the new series ’04 reports outweighs the 

benefit to the Commission.1358

Several commenters remarked on the 

cost associated with Form 704. One 

commenter stated that the additional 

reporting requirements, including new 

Form 704 to replace the reporting 

requirements under current rule 1.48, 

and annual and monthly reporting 

requirements under rules 150.7(f) and 

150.7(g) ‘‘will impose significant 

additional regulatory and compliance 

burdens on commercials;’’ the 

commenter believes that the 

Commission should consider 

alternatives, including targeted special 

calls when appropriate.1359 Another 

commenter stated the reporting 

requirements for the series 04 forms is 

overly burdensome and would impose a 

substantial cost to market participants 

because while the proposal would 

require the Commission to respond 

fairly quickly, it does not provide an 

indication of whether the Commission 

will deem the requirement accepted if 

the Commission does not respond 

within a stated time frame. The 

commenter is concerned that a market 

participant may have to refuse business 

if it does not receive an approved 

exemption in advance of a 

transaction.1360 A third commenter 

stated that Form 704 is ‘‘commercially 

impracticable and unduly burdensome’’ 

because it would require filers to 

‘‘analyze each transaction to see if it fits 

into an enumerated hedge category.’’ 

The commenter is concerned that such 

‘‘piecemeal review’’ would require a 

legal memorandum and the 

development of new software to track 

positions and, since the Commission 

proposed that Form 704 to be used in 

proposed § 150.11, the burden 

associated with the form has 

increased.1361

Finally, a commenter stated that the 

Commission significantly 

underestimated costs associated with 

reporting, and provided revised 

estimates of start-up and ongoing 

compliance costs for filing Form 

704.1362

As discussed in the December 2013 

Position Limits Proposal, the 

Commission remains concerned about 

distinguishing between anticipatory 

reduction of risk and speculation.1363

Therefore, the Commission is retaining 

the requirement to file Form 704 for 

anticipatory hedges. The Commission 

notes that most of the information 

required on Form 704 is currently 

required under § 1.48, and that such 

information is not found in any other 

Commission data source, including 

Form 204. 

The Commission is adopting the 

commenters’ suggestions, however, to 

reduce the frequency of filings by 

maintaining the requirement for the 

initial statement and annual update but 

eliminating the supplemental filing as 

proposed in § 150.7(e). After 

considering the commenter’s concerns, 

the Commission believes the monthly 

reporting on Form 204 and annual 

updates on Form 704 will provide 

sufficient updates to the initial 

statement and is deleting the 

supplemental filing provision in 

proposed § 150.7(e) to reduce the 

burden on filers. The Commission has 

made several burden-reducing changes 

to Form 704 and § 150.7(d), including 

merging the initial statement and annual 

update sections of Form 704, clarifying 

and amending the instructions to Form 

704, and eliminating redundant 

information.1364

In response to the commenter who 

suggested the Commission consider 

targeted special calls and other 

alternatives to the annual and monthly 

filings, the Commission believes these 

filings are critical to the Commission’s 

Surveillance program. Anticipatory 

hedges, because they are by definition 

forward-looking, require additional 

detail regarding the firm’s commercial 

practices in order to ensure that a firm 

is not using the provisions in proposed 

§ 150.7 to evade position limits. In 

contrast, special calls are backwardlooking and would not provide the 

Commission’s Surveillance program 

with the information needed to prevent 

markets from being susceptible to 

excessive speculation. However, the 

Commission expects the new filing 

requirements to be an improvement over 

current practice under § 1.48 because as 

facts and circumstances change, the 

Commission’s Surveillance program 

will have a more timely understanding 

of the market participant’s hedging 

needs. 

The Commission notes in response to 

the commenter that there is no 

requirement to analyze individual 

transactions or submit a memorandum. 

Finally, while costs of filing Form 704 

are discussed below in the context of 

part 19, the Commission notes that 

changes made to the frequency of the 

forms should help alleviate some of the 

cost burdens associated with filing Form 

704. 

8. Part 19—Reports 

CEA Section 4i authorizes the 

Commission to require the filing of 

reports, as described in CEA section 4g, 

when positions equal or exceed position 

limits. Current part 19 of the 

Commission’s regulations sets forth 

these reporting requirements for persons 

holding or controlling reportable futures 

and option positions that constitute 

bona fide hedging positions as defined 

in § 1.3(z) and in markets with federal 

speculative position limits—namely 

those for grains, the soy complex, and 

cotton. Since having a bona fide hedging 

position exemption affords a 

commercial market participant the 

opportunity to hold positions that 

exceed a position limit level, it is 

important for the Commission to be able 

to verify that, when an exemption is 

invoked, that it is done so for legitimate 

purposes. As such, commercial entities 

that hold positions in excess of those 

limits must file information on a 

monthly basis pertaining to owned 

stocks and purchase and sales 

commitments for entities that claim a 

bona fide hedging position exemption. 

In order to help ensure that the 

additional exemptions described in 

§ 150.3 are used in accordance with the 

requirements of the exemption 


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1365These amendments are non-substantive 

conforming amendments and do not have 

implications for the Commission’s consideration of 

costs and benefits. 

1366The Commission notes that comments related 

to costs and benefits are described in this section, 

and other comments regarding these provisions are 

discussed in the section supra that describes the 

reproposed rules for part 19. For a complete picture 

of the comments received, the Commission’s 

response to comments, and the reproposed rules, all 

sections of this preamble should be read together. 

1367See December 2013 Position Limits Proposal, 

78 FR at 75741–46. 

1368CL–COPE–59662 at 24, CL–COPE–60932 at 

10. See also CL–EEI–EPSA–60925 at 9. 

1369CL–EDF–59961 at 6–7. 

1370See CL–COPE–59662 at 24, CL–COPE–60932 

at 10; CL–ASR–60933 at 4; CL–Working Group– 

60947 at 17–18; CL–EEI–EPSA–60925 at 3. 

1371See, CL–CMC–59634 at 17. 

1372CL–Working Group–59693 at 65. 

1373See, supra, discussion of reproposed rules 

regarding series ’04 reports and part 19. 

employed, as well as obtain information 

necessary to verify that any futures, 

options and swaps positions established 

in referenced contracts are justified, the 

Commission is making conforming and 

substantive amendments to part 19. 

First, the Commission is amending part 

19 by adding new and modified crossreferences to proposed part 150, 

including the new definition of bona 

fide hedging position in reproposed 

§ 150.1.1365 Second, the Commission is 

amending § 19.00(a) by extending 

reporting requirements to any person 

claiming any exemption from federal 

position limits pursuant to reproposed 

§ 150.3. The Commission is adding three 

new series ’04 reporting forms to 

effectuate these additional reporting 

requirements. Third, the Commission is 

updating the manner of part 19 

reporting. Lastly, the Commission is 

updating both the type of data that 

would be required in series ’04 reports, 

as well as the time allotted for filing 

such reports. 

Below, the Commission describes 

each of the proposed changes; responds 

to commenters; and considers the costs 

and benefits of such changes.1366

a. Amendments to Part 19 

In the December 2013 Position Limits 

Proposal, the Commission proposed to 

amend part 19 so that it would conform 

to the Commission’s proposed changes 

to part 150.1367 The proposed 

conforming amendments included: 

Amending part 19 by adding new and 

modified cross-references to proposed 

part 150, including the new definition 

of bona fide hedging position in 

proposed § 150.1; updating § 19.00(a) by 

extending reporting requirements to any 

person claiming any exemption from 

federal position limits pursuant to 

proposed § 150.3; adding new series ’04 

reporting forms to effectuate these 

additional reporting requirements; 

updating the manner of part 19 

reporting; and updating both the type of 

data that would be required in series ’04 

reports as well as the timeframe for 

filing such reports. 

b. Baseline 

The baseline is current part 19. 

c. Summary of Comments 

The Commission received several 

comments regarding the general nature 

of series ’04 reports and/or the manner 

in which such reports are required to be 

filed. One commenter stated that the 

various forms required by the regime, 

while not lengthy, represent significant 

data collection and categorization that 

will require a non-trivial amount of 

work to accurately prepare and file. The 

commenter claimed that a 

comprehensive position limits regime 

could be implemented with a ‘‘far less 

burdensome’’ set of filings and 

requested that the Commission review 

the proposed forms and ensure they are 

‘‘as clear, limited, and workable’’ as 

possible to reduce burden. The 

commenter stated that it is not aware of 

any software vendors that currently 

provide solutions that can support a 

commercial firm’s ability to file the 

proposed forms.1368 Another commenter 

supports the Commission’s decision to 

require applications for risk 

management exemptions but requests 

the Commission to reevaluate the cost 

the forms will impose such as new 

compliance programs, training of staff, 

and purchasing or modifying data 

management systems in order to meet 

and maintain the compliance 

requirements.1369

Several commenters requested that 

the Commission create user-friendly 

guidebooks for the forms so that all 

entities can clearly understand any 

required forms and build the 

appropriate systems to file such forms, 

including providing workshops and/or 

hot lines to improve the forms.1370

Finally, two commenters 

recommended modifying or removing 

the requirement to certify series ’04 

reports as ‘‘true and correct.’’ One 

commenter suggested that the 

requirement be removed due to the 

difficulty of making such a certification 

and the fact that CEA section 6(c)(2) 

already prohibits the submission of false 

or misleading information.1371 Another 

noted that the requirement to report 

very specific information relating to 

hedges and cash market activity 

involves data that may change over 

time. The commenter suggested the 

Commission adopt a good-faith standard 

regarding ‘‘best effort’’ estimates of the 

data when verifying the accuracy of 

Form 204 submissions.1372

The Commission is reproposing the 

amendments to part 19. The 

Commission agrees with the 

commenters that the forms should be 

clear and workable, and offers several 

clarifications and amendments in other 

sections of this release in response to 

comments about particular aspects of 

the series ’04 reports.1373

The Commission notes that the 

information required on the series ’04 

reports represents a trader’s most basic 

position data, including the number of 

units of the cash commodity that the 

firm has purchased or sold, or the size 

of a swap position that is being offset in 

the futures market. The Commission 

believes this information is readily 

available to traders, who routinely make 

trading decisions based on the same 

data that is required on the series ’04 

reports. The Commission is moving to 

an entirely electronic filing system, 

allowing for efficiencies in populating 

and submitting forms that require the 

same information every month. Most 

traders who are required to file the 

series ’04 reports must do so for only 

one day out of the month, further 

lowering the burden for filers. In short, 

the Commission believes potential 

burdens have been reduced while still 

providing adequate information for the 

Commission’s Surveillance program. 

For market participants who may 

require assistance in monitoring for 

speculative position limits and 

gathering the information required for 

the series ’04 reports, the Commission is 

aware of several software companies 

who, prior to the vacation of the Part 

151 Rulemaking, produced tools that 

could be useful to market participants in 

fulfilling their compliance obligations 

under the new position limits regime. 

In response to the commenters that 

requested guidebooks for the series ’04 

reporting forms, the Commission has 

revised the series ’04 forms and the 

instructions to such forms as discussed 

supra in this release. The Commission 

believes that it is less confusing to 

ensure that form instructions are clear 

and detailed than it is to provide 

generalized guidebooks that may not 

respond to specific issues. The 

Commission’s longstanding experience 

with collecting and reviewing Form 204 

and Form 304 has shown that many 

questions about the series ’04 reports are 

specific to the circumstances and 

trading strategies of an individual 


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1374The list of data required for persons filing on 

Forms 204 and 304 has been relocated from current 

§ 19.01(a) to reproposed § 19.01(a)(3). 

1375CL–Working Group–60396 at 17–18. 

1376CL–ASR–59668 at 3. 

1377 Id. at 7. See also CL–ASR–60933 at 5. 

1378CL–FIA–59595 at 38. 

1379CL–Sen. Levin–59637 at 8. 

1380See supra the Commission’s determinations 

regarding part 19 

1381The Commission notes that advance notice is 

required for recognition of anticipatory hedging 

positions by the Commission. See supra for more 

discussion of anticipatory hedging reporting 

requirements. 

1382The Commission stated that the Form 204 

‘‘must show the trader’s positions in the cash 

market and are used by the Commission to 

determine whether a trader has sufficient cash 

positions that justify futures and option positions 

above the speculative limits’’ because the 

Commission is seeking to ‘‘ensure that any person 

who claims any exemption from federal speculative 

position limits can demonstrate a legitimate 

purpose for doing so.’’ See December 2013 Position 

Limits Proposal, 78 FR at 75741–42. 

market participant, and do not lend 

themselves to generalization that would 

be helpful to many market participants. 

The Commission notes that, should a 

market participant have questions 

regarding how to file a particular form, 

they are encouraged to contact 

Commission staff directly to get answers 

tailored to their particular 

circumstances. 

Finally, the Commission is amending 

the certification language found at the 

end of each form to clarify that the 

certification requires nothing more than 

is already required of market 

participants in CEA section 6(c)(2). The 

Commission believes the certification 

language is an important reminder to 

reporting traders of their responsibilities 

to file accurate information under 

several sections of the Act, including 

but not limited to CEA section 6(c)(2). 

d. Information Required on Series ’04 

Reports 

i. Bona Fide Hedgers Reporting on Form 

204—§ 19.01(a)(3) 

Current § 19.01(a) sets forth the data 

that must be provided by bona fide 

hedgers (on Form 204) and by 

merchants and dealers in cotton (on 

Form 304). The Commission proposed 

to continue using Forms 204 and 304, 

which will feature only minor changes 

to the types of data to be reported under 

§ 19.01(a)(3).1374 These changes include 

removing the modifier ‘‘fixed price’’ 

from ‘‘fixed price cash position;’’ 

requiring cash market position 

information to be submitted in both the 

cash market unit of measurement (e.g., 

barrels or bushels) and futures 

equivalents; and adding a specific 

request for data concerning open price 

contracts to accommodate open price 

pairs. In addition, the monthly reporting 

requirements for cotton, including the 

granularity of equity, certificated and 

non-certificated cotton stocks, would be 

moved to Form 204, while weekly 

reporting for cotton would be retained 

as a separate report made on Form 304 

in order to maintain the collection of 

data required by the Commission to 

publish its weekly public cotton ‘‘on 

call’’ report. 

One commenter suggested that the 

costs to industry participants in 

collecting and submitting Form 204 data 

and to the Commission in reviewing it 

‘‘greatly outweigh’’ the regulatory 

benefit. The commenter recommended 

that the Commission undertake a costbenefit analysis to reconsider what 

information is required to be provided 

under part 19 and on Form 204 and 

limit that information only to what will 

assist Commission staff in assessing the 

validity of claimed hedge 

exemptions.1375

One commenter stated that CFTC 

should reduce the complexity and 

compliance burden of bona fide hedging 

record keeping and reporting by using a 

model similar to the current exchangebased exemption process.1376 The 

commenter also stated that the 

requirement to keep records and file 

reports, in futures equivalents, regarding 

the commercial entity’s cash market 

contracts and derivative market 

positions on a real-time basis globally, 

will be complex and impose a 

significant compliance burden. The 

commenter noted such records are not 

needed for commercial purposes.1377

Another commenter recommended 

that the Commission should require a 

market participant with a position in 

excess of a spot-month position limit to 

report on Form 204 only the cashmarket activity related to that particular 

spot-month derivative position, and not 

to require it to report cash-market 

activity related to non-spot-month 

positions where it did not exceed a nonspot-month position limit; the 

commenter stated that the burden 

associated with such a reporting 

obligation would increase 

significantly.1378

One commenter recommended that 

reporting rules require traders to 

identify the specific risk being hedged at 

the time a trade is initiated, to maintain 

records of termination or unwinding of 

a hedge when the underlying risk has 

been sold or otherwise resolved, and to 

create a practical audit trail for 

individual trades, to discourage traders 

from attempting to mask speculative 

trades under the guise of hedges.1379

The Commission recognizes that 

market participants will incur costs to 

file Form 204; these costs are described 

in detail below. However, the 

Commission believes that the costs of 

filing Form 204 are not overly 

burdensome for market participants, 

most of whom currently file similar 

information with either the Commission 

or the exchanges in order to obtain and 

maintain exemptions from speculative 

position limits. The Commission 

believes it is reproposing requirements 

for Form 204 that provide the 

Commission with the most basic 

information possible to ascertain the 

veracity of claimed bona fide hedging 

positions. The Commission has in some 

cases accepted commenter suggestions 

to reduce or amend the information 

required in order to reduce confusion 

and alleviate burden on filers.1380

Where the Commission has retained 

required information fields, the 

Commission believes, based on its 

longstanding experience conducting 

surveillance in the markets it oversees, 

that such fields are necessary to 

determine the legitimacy of claimed 

bona fide hedging position exemptions. 

The Commission notes that, while the 

exchange referred to by the commenter 

does not have a reporting process 

analogous to Form 204, it does require 

an application prior to the 

establishment of a position that exceeds 

a position limit. In contrast, advance 

notice is not required for most federal 

enumerated bona fide hedging 

positions.1381 In the Commission’s 

experience, the series ’04 reports have 

been useful and beneficial to the 

Commission’s Surveillance program and 

the Commission finds no compelling 

reason to change the forms to conform 

to the exchange’s process. Further, the 

Commission notes that Form 204 is filed 

once a month as of the close of business 

of the last Friday of the month; it is not 

and has never been required to be filed 

on a real-time basis globally. A market 

participant only has to file Form 204 if 

it is over the limit at any point during 

the month, and the form requires only 

cash market activity (not derivatives 

market positions). 

The Commission has never 

distinguished between spot-month 

limits and non-spot-month limits with 

respect to the filing of Form 204. The 

Commission notes that, as discussed in 

the December 2013 Position Limits 

Proposal, Form 204 is used to review 

positions that exceed speculative limits 

in general, not just in the spotmonth.1382 Because of this, the 

Commission is proposing not to adopt 

the commenter’s recommendation to 


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1383See supra for discussion of the Commission’s 

Paperwork Reduction Act estimates and 

explanation. 

1384The Commission’s estimates concerning the 

wage rates are based on 2011 salary information for 

the securities industry compiled by the Securities 

Industry and Financial Markets Association 

(‘‘SIFMA’’). The Commission is using $122 per 

hour, which is derived from a weighted average of 

salaries across different professions from the SIFMA 

Report on Management & Professional Earnings in 

the Securities Industry 2013, modified to account 

for an 1800-hour work-year, adjusted to account for 

the average rate of inflation since 2013, and 

multiplied by 1.33 to account for benefits and 1.5 

to account for overhead and administrative 

expenses. The Commission anticipates that 

compliance with the provisions would require the 

work of an information technology professional; a 

compliance manager; an accounting professional; 

and an associate general counsel. Thus, the wage 

rate is a weighted national average of salary for 

professionals with the following titles (and their 

relative weight); ‘‘programmer (senior)’’ and 

‘‘programmer (non-senior)’’ (15% weight), ‘‘senior 

accountant’’ (15%) ‘‘compliance manager’’ (30%), 

and ‘‘assistant/associate general counsel’’ (40%). 

All monetary estimates have been rounded to the 

nearest hundred dollars. 

only require Form 204 when a market 

participant exceeds a spot-month limit. 

In response to the commenter who 

suggested the Commission require a 

‘‘practical audit trail’’ for bona fide 

hedgers, the Commission notes that 

other sections of the Commission’s 

regulations provide rules regarding 

detailed individual transaction 

recordkeeping as suggested by the 

commenter. 

ii. Conditional Spot-Month Limit 

Exemption Reporting on Form 504— 

§ 19.01(a)(1) 

As proposed, § 19.01(a)(1) would 

require persons availing themselves of 

the conditional spot-month limit 

exemption (pursuant to proposed 

§ 150.3(c)) to report certain detailed 

information concerning their cash 

market activities for any commodity 

specially designated by the Commission 

for reporting under § 19.03 of this part. 

In the December 2013 Position Limits 

Proposal, the Commission noted its 

concern about the cash market trading 

of those availing themselves of the 

conditional spot-month limit exemption 

and so proposed to require that persons 

claiming a conditional spot-month limit 

exemption must report on new Form 

504 daily, by 9 a.m. Eastern Time on the 

next business day, for each day that a 

person is over the spot-month limit in 

certain special commodity contracts 

specified by the Commission. 

The Commission proposed to require 

reporting on new Form 504 for 

conditional spot-month limit 

exemptions in the natural gas 

commodity derivative contracts only, 

until the Commission gains additional 

experience with the limits in proposed 

§ 150.2 in other commodities as well. 

Benefits and Costs 

The reporting requirements allow the 

Commission to obtain the information 

necessary to verify whether the relevant 

exemption requirements are fulfilled in 

a timely manner. This is needed for the 

Commission to help ensure that any 

person who claims any exemption from 

federal speculative position limits can 

demonstrate a legitimate purpose for 

doing so. In the absence of the reporting 

requirements detailed in part 19, the 

Commission would lack critical tools to 

identify abuses related to the 

exemptions afforded in § 150.3 in a 

timely manner. As such, the reporting 

requirements are necessary for the 

Commission to be able to perform its 

essential surveillance functions. These 

reporting requirements therefore 

promote the Commission’s ability to 

achieve, to the maximum extent 

practicable, the statutory factors 

outlined by Congress in CEA section 

4a(a)(3). 

The Commission recognizes there will 

be costs associated with the changes and 

additions to the report filing 

requirements under part 19. Though the 

Commission anticipates that market 

participants should have ready access to 

much of the required information, the 

Commission expects that, at least 

initially, market participants will 

require additional time and effort to 

become familiar with new and amended 

series ’04 forms, to gather the necessary 

information in the required format, and 

to file reports in the proposed 

timeframes. As described above, the 

Commission has attempted to mitigate 

the cost impacts of these reports. 

Actual costs incurred by market 

participants will vary depending on the 

diversity of their cash market positions 

and the experience that the participants 

currently have regarding filing Form 204 

and Form 304 as well as a variety of 

other organizational factors. However, 

the Commission has estimated average 

incremental burdens associated with the 

proposed rules in order to fulfill its 

obligations under the Paperwork 

Reduction Act (‘‘PRA’’).1383

For Form 204, the Commission 

estimates that approximately 425 market 

participants will file an average of 12 

reports annually at an estimated labor 

burden of 3 hours per response for a 

total per-entity hour burden of 

approximately 36 hours, which 

computes to a total annual burden of 

15,300 hours for all affected entities. 

Using an estimated hourly wage of $122 

per hour,1384 the Commission estimates 

an annual per-entity cost of 

approximately $4,392 and a total annual 

cost of $1,866,600 for all affected 

entities. These estimates are 

summarized below in Table IV–A–1. 

TABLE IV–A–1—BURDEN ESTIMATES FOR FORM 204 

Required record or report Total number 

of respondents 

Burden hours 

per response 

Annual number of responses per 

respondent 

Hourly wage 

estimate 

Per-entity 

labor cost 

Form 204 .............................................................................. 425 3 12 $122.00 $4,392 

For Form 304, the Commission 

estimates that approximately 200 market 

participants will file an average of 52 

reports annually at an estimated labor 

burden of 1 hour per response for a total 

per-entity hour burden of approximately 

52hours, which computes to a total 

annual burden of 10,400 hours for all 

affected entities. Using an estimated 

hourly wage of $122 per hour, the 

Commission estimates an annual perentity cost of approximately $6,344 and 

a total annual cost of $1,268,800 for all 

affected entities. These estimates are 

summarized below in Table IV–A–2. 


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TABLE IV–A–2—BURDEN ESTIMATES FOR FORM 304 

Required record or report Total number 

of respondents 

Burden hours 

per response 

Annual number of responses per 

respondent 

Hourly wage 

estimate 

Per-entity 

labor cost 

Form 304 .............................................................................. 200 1 52 $122.00 $6,344 

For Form 504, the Commission 

estimates that approximately 40 market 

participants will file an average of 12 

reports annually at an estimated labor 

burden of 15 hours per response for a 

total per-entity hour burden of 

approximately 180 hours, which 

computes to a total annual burden of 

7,200 hours for all affected entities. 

Using an estimated hourly wage of $122 

per hour, the Commission estimates an 

annual per-entity cost of approximately 

$21,960 and a total annual cost of 

$878,400 for all affected entities. These 

estimates are summarized below in 

Table IV–A–3. 

TABLE IV–A–3—BURDEN ESTIMATES FOR FORM 504 

Required record or report Total number 

of respondents 

Burden hours 

per response 

Annual number of responses per 

respondent 

Hourly wage 

estimate 

Per-entity 

labor cost 

Form 504 .............................................................................. 40 15 12 $122.00 $21,960 

For Form 604 filed outside of the spot 

month, the Commission estimates that 

approximately 250 market participants 

will file an average of 10 reports 

annually at an estimated labor burden of 

30 hours per response for a total perentity hour burden of approximately 

300 hours, which computes to a total 

annual burden of 75,000 hours for all 

affected entities. Using an estimated 

hourly wage of $122 per hour, the 

Commission estimates an annual perentity cost of approximately $36,600 

and a total annual cost of $9,150,000 for 

all affected entities. For Form 604 filed 

during of the spot month, the 

Commission estimates that 

approximately 100 market participants 

will file an average of 10 reports 

annually at an estimated labor burden of 

20 hours per response for a total perentity hour burden of approximately 

200 hours, which computes to a total 

annual burden of 20,000 hours for all 

affected entities. Using an estimated 

hourly wage of $122 per hour, the 

Commission estimates an annual perentity cost of approximately $24,400 

and a total annual cost of $2,440,000 for 

all affected entities. These estimates are 

summarized below in Table IV–A–4. 

TABLE IV–A–4—BURDEN ESTIMATES FOR FORM 604 

Required record or report Total number 

of respondents 

Burden hours 

per response 

Annual 

number of 

responses per 

respondent 

Hourly wage 

estimate 

Per-entity 

labor cost 

Form 604, Non-Spot-Month ................................................. 250 30 10 $122.00 $36,600 

Form 604, Spot-Month ......................................................... 100 20 10 122.00 24,400 

For initial statements filed on Form 

704, the Commission estimates that 

approximately 250 market participants 

will file an average of 1 report annually 

at an estimated labor burden of 15 hours 

per response for a total per-entity hour 

burden of approximately 15 hours, 

which computes to a total annual 

burden of 3,750 hours for all affected 

entities. Using an estimated hourly wage 

of $122 per hour, the Commission 

estimates an annual per-entity cost of 

approximately $1,830 and a total annual 

cost of $457,500 for all affected entities. 

For annual updates filed on Form 704, 

the Commission estimates that 

approximately 250 market participants 

will file an average of 1 report annually 

at an estimated labor burden of 8 hours 

per response for a total per-entity hour 

burden of approximately 8 hours, which 

computes to a total annual burden of 

2,000 hours for all affected entities. 

Using an estimated hourly wage of $122 

per hour, the Commission estimates an 

annual per-entity cost of approximately 

$976 and a total annual cost of $244,000 

for all affected entities. These estimates 

are summarized below in Table IV–A– 

5. 

TABLE IV–A–5—BURDEN ESTIMATES FOR FORM 704 

Required record or report Total number 

of respondents 

Burden hours 

per response 

Annual 

number of 

responses per 

respondent 

Hourly wage 

estimate 

Per-entity 

labor cost 

Form 704, Initial Statement ................................................. 250 15 1 $122 $1,830 

Form 704, Annual Update ................................................... 250 8 1 122 976 


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Federal Register / Vol. 81, No. 251 / Friday, December 30, 2016 / Proposed Rules 96871 

1385CL–Working Group–59693 at 65–66 

1386CL–COPE–59662 at 24 

1387See, CL–EEI–EPSA–59602 at 10. 

1388CL–FIA–59595 at 37 

1389As stated in the December 2013 Position 

Limits Proposal, the Commission will closely 

monitor the reporting requirements associated with 

conditional spot-month limit exemptions in natural 

gas to determine whether reporting on Form 504 

would be appropriate in the future for other 

commodity derivative contracts in response to 

market developments or in order to facilitate 

surveillance efforts. See December 2013 Position 

Limits Proposal, 78 FR at 75744. However, the 

Commission is not proposing a conditional spotmonth limit exemption in any other commodity at 

this time. 

1390The timeframe for filing Form 704 is included 

as part of proposed § 150.7. See supra for 

discussion regarding the filing of Form 704. 

1391 In proposed § 19.01(b)(2), the Commission 

inadvertently failed to include reports filed under 

§ 19.00(a)(1)(ii)(B) (i.e. Form 604 during the spot 

month) in the same filing timeframe as reports filed 

under § 19.00(a)(1)(i) (i.e. Form 504). The correct 

filing timeframe was described in multiple places 

on the forms published in the Federal Register as 

part of the December 2013 Position Limits Proposal. 

1392CL–DFA–59621 at 2. 

1393CL–FIA–60937 at 17. 

1394CL–Working Group–60947 at 17–18 

1395CL–FIA–59595 at 35. 

(2) Summary of Comments 

Several commenters seemed not to 

understand which market participants 

will be required to file Form 504, as 

many made comments regarding the 

burden on bona fide hedgers (who are 

not required to file Form 504). One 

commenter stated its belief that the 

information required on Form 504 is 

redundant of information required on 

Form 204 and would overly burden 

hedgers.1385 Another commenter stated 

that Form 504 creates a burden for 

hedgers to track their cash business and 

affected contracts and to create systems 

to file multiple forms. The commenter 

noted its belief that end-users/hedgers 

should never be subjected to the daily 

filing of reports.1386 Another commenter 

requested that the Commission change 

the Proposed Rule to permit market 

participants that rely on the conditional 

limit to file monthly bona fide hedging 

reports rather than a daily filing of all 

cash market positions because Form 504 

would impose significant burdens on 

commercial market participants with 

cash market positions, particularly 

when compared to purely speculative 

traders who do not hold cash market 

positions.1387

A commenter suggested that the 

Commission should modify the data 

requirements for Form 504 in a manner 

similar to the approach used by ICE 

Futures U.S. for natural gas contracts, 

that is, requiring a description of a 

market participant’s cash-market 

positions as of a specified date filed in 

advance of the spot-month.1388

The Commission notes that there is a 

key distinction between Form 504 and 

Form 204. Form 504 is required of 

speculators that are relying upon the 

conditional spot-month limit 

exemption. Form 204 is required for 

hedgers that exceed position limits. To 

the extent a firm is hedging, there is no 

requirement to file Form 504. 

In the unlikely event that a firm is 

both hedging and relying upon the 

conditional spot-month limit 

exemption, the firm would be required 

to file both forms at most one day a 

month, given the timing of the spotmonth in natural gas markets (the only 

market for which Form 504 will be 

required). In that event, however, the 

Commission believes that requiring 

similar information on both forms 

should encourage filing efficiencies 

rather than duplicating the burden. For 

example, both forms require the filer to 

identify fixed price purchase 

commitments; the Commission believes 

it is not overly burdensome for the same 

firm to report such similar information 

on Form 204 and Form 504, should a 

market participant ever be required to 

file both forms. 

The Commission does not believe that 

a description of a cash market position 

is sufficient to allow Commission staff 

to administer its Surveillance program. 

Descriptions are not as exact as reported 

information, and the Commission 

believes the information gathered in 

daily Form 504 reports would be more 

complete—and thus more beneficial—in 

determining compliance and detecting 

and deterring manipulation. The 

Commission reiterates that Form 504 

will only be required from participants 

in natural gas markets who seek to avail 

themselves of the conditional spotmonth limit exemption, limiting the 

burden to only those participants.1389

iii. Time and Place of Filing Reports— 

§ 19.01(b) 

As proposed, § 19.01(b)(1) would 

require all reports, except those 

submitted in response to special calls or 

on Form 504, Form 604 during the spotmonth, or Form 704, to be filed monthly 

as of the close of business on the last 

Friday of the month and not later than 

9 a.m. Eastern Time on the third 

business day following the last Friday of 

the month.1390 For reports submitted on 

Form 504 and Form 604 during the spotmonth, proposed § 19.01(b)(2) would 

require filings to be submitted as of the 

close of business for each day the 

person exceeds the limit during the spot 

period and not later than 9 a.m. Eastern 

Time on the next business day following 

the date of the report.1391 Finally, 

proposed § 19.01(b)(3) would require 

series ’04 reports to be transmitted using 

the format, coding structure, and 

electronic data transmission procedures 

approved in writing by the Commission 

or its designee. 

One commenter recommended an 

annual Form 204 filing requirement, 

rather than a monthly filing 

requirement. The commenter noted that 

because the general size and nature of 

its business is relatively constant, the 

differences between each monthly 

report would be insignificant. The 

commenter recommended the CFTC 

‘‘not impose additional costs of monthly 

reporting without a demonstration of 

significant additional regulatory 

benefits.’’ The commenter noted its 

futures position typically exceeds the 

proposed position limits, but such 

positions are bona fide hedging 

positions.1392 Similarly, another 

commenter suggested that if the 

Commission does not eliminate the 

forms in favor of the requirements in the 

2016 Supplemental Position Limits 

Proposal the Commission should 

require only an annual notice that 

details its maximum cash market 

exposure that justifies an exemption, to 

be filed with the exchange.1393

One commenter suggested that the 

reporting date for Form 204 should be 

the close of business on the day prior to 

the beginning of the spot period and 

that it should be required to filed no 

later than the 15th day of the month 

following a month in which a filer 

exceeded a federal limit to allow the 

market participant sufficient time to 

collect and report its information.1394

With regards to proposed 

§ 19.01(b)(2), one commenter 

recommended that the Commission 

change the proposed next-day reporting 

of Form 504 for the conditional spotmonth limit exemption and Form 604 

for the pass-through swap offsets during 

the spot-month, to a monthly basis, 

noting market participants need time to 

generate and collect data and verify the 

accuracy of the reported data. The 

commenter further stated that the 

Commission did not explain why it 

needs the data on Form 504 or Form 604 

on a next-day basis.1395

Another asserted that the daily filing 

requirement of Form 504 for 

participants who rely on the conditional 

spot-month limit exemption ‘‘imposes 

significant burdens and substantial costs 

on market participants.’’ The 

commenter urged a monthly rather than 

a daily filing of all cash market 

positions, which the commenter 

claimed is consistent with current 


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96872 Federal Register / Vol. 81, No. 251 / Friday, December 30, 2016 / Proposed Rules 

1396CL–ICE–59669 at 7. 

1397See CL–EEI–EPSA–59602 at 10. 

1398 December 2013 Position Limits Proposal, 78 

FR at 75744–45. The Commission noted that its 

experience overseeing the ‘‘dramatic instances of 

disruptive trading practices in the natural gas 

markets’’ warranted enhanced reporting for that 

commodity during the spot month on Form 504. 

The Commission noted its intent to wait until it 

gained additional experience with limits in other 

commodities before imposing enhanced reporting 

requirements for those commodities. The 

Commission further noted that it was concerned 

that a trader could hold an extraordinarily large 

position early in the spot month in the physicaldelivery contract along with an offsetting short 

position in a cash-settled contract (such as a swap), 

and that such a large position could disrupt the 

price discovery function of the core referenced 

futures contract. 

1399Should the Commission determine in the 

future to require Form 504 for other commodities, 

particularly those with longer spot month periods, 

the Commission will evaluate the daily filing 

requirement as it applies to such other 

commodities. 

exchange practices.1396 Another 

commenter agreed, claiming that by 

making the reporting requirement 

monthly rather than daily, the 

Commission would balance the costs 

and benefits associated with Form 504 

requirements on market participants 

relying on the conditional spot month 

limit.1397

In response to the commenters’ 

suggestions that Form 204 be filed 

annually, the Commission notes that 

throughout the course of a year, most 

commodities subject to federal position 

limits under proposed § 150.2 are 

subject to seasonality of prices as well 

as less predictable imbalances in supply 

and demand such that an annual filing 

would not provide the Commission’s 

Surveillance program insight into cash 

market trends underlying changes in the 

derivative markets. This insight is 

necessary for the Surveillance program 

to determine whether price changes in 

derivative markets are caused by 

fundamental factors or manipulative 

behavior. Further, the Commission 

believes that an annual filing could 

actually be more burdensome for firms, 

as an annual filing could lead to special 

calls or requests between filings for 

additional information in order for the 

Commission’s Surveillance program to 

fulfill its responsibility to detect and 

deter market manipulation. In addition, 

the Commission notes that while one 

participant’s positions may remain 

constant throughout a year, the same is 

not true for many other market 

participants. The Commission believes 

that varying the filing arrangement 

depending on a particular market or 

market participant is impractical and 

would lead to increased burdens for 

market participants due to uncertainty 

regarding when each firm with a 

position in a particular commodity 

derivative would be required to file. 

The Commission is retaining the last 

Friday of the month as the required 

reporting date in order to avoid 

confusion and uncertainty, particularly 

for those participants who already file 

Form 204 and thus are accustomed to 

that reporting date. 

The Commission is reproposing 

§ 19.01(b)(2) to require next-day, daily 

filing of Forms 504 and 604 in the spotmonth. In response to the commenter, 

the Commission notes that it described 

its rationale for requiring Forms 504 and 

604 daily during the spot-month in the 

December 2013 Position Limits 

Proposal.1398 In order to detect and 

deter manipulation during the spotmonth, concurrent information 

regarding the cash positions of a 

speculator holding a conditional spotmonth limit exemption (Form 504) or 

the swap contract underlying a large 

offsetting position in the physicaldelivery contract (Form 604) is 

necessary during the spot-month. 

Receiving Forms 504 or 604 before or 

after the spot-month period would not 

help the Surveillance program to protect 

the price discovery process of physicaldelivery contracts and to ensure that 

market participants have a qualifying 

pass-through swap contract position 

underlying offsetting futures positions 

held during the spot-month. 

The Commission notes that Form 504 

is required only for the Natural Gas 

commodity, which has a 3-day spot 

period. Daily reporting on Form 504 

during the spot-month allows the 

Surveillance program to monitor a 

market participant’s cash market 

activity that could impact or benefit 

their derivatives position. Given the 

short filing period for natural gas and 

the importance of accurate information 

during the spot-month, the Commission 

believes that requiring Form 504 to be 

filed daily provides an important benefit 

that outweighs the potential burdens for 

filers.1399

As a practical matter, the Commission 

notes that Form 604 is collected during 

the spot-month only under particular 

circumstances, i.e., for an offset of a 

cash-settled swap position with a 

physical-delivery referenced contract 

during the spot-month. Because the 

‘‘five-day rule’’ applies to such 

positions, the spot-month filing of Form 

604 would only occur in contracts 

whose spot-month period is longer than 

5 days (excluding, for example, energy 

contracts, but including many 

agricultural commodities). 

9. Sections 150.9, 150.10, and 150.11— 

Processes for Recognizing Positions 

Exempt From Position Limits 

The Commission is reproposing the 

process for recognizing certain marketparticipant positions as bona fide 

hedges (§ 150.9), spreads (§ 150.10), and 

anticipatory bona fide hedges (§ 150.11), 

so that the positions may be deemed 

exempt from federal and exchange-set 

position limits. The Commission invited 

the public to comment on the 

Commission’s consideration of the costs 

and benefits of the processes in the 2016 

Supplemental Position Limits Proposal, 

identify and assess any costs and 

benefits not discussed therein, and 

provide possible alternative proposals. 

The Commission received comment 

letters in 2013 that helped the 

Commission re-design the exemptionrecognition processes and then 

reproposrepropose them in the 2016 

Supplemental Position Limits Proposal. 

The Commission received more 

comment letters on the June 2016 

proposed exemption-recognition 

processes and a number of commenters 

remarked on the costs and benefits. 

The general theme of the costs-related 

comments is that the three, exemptionrecognition processes have overly 

burdensome reporting requirements. 

And the majority of benefits-related 

comments expressed that the exchanges 

are the best positioned entities to assess 

whether market positions fall within 

one of the categories of positions 

exempt from position limits. There also 

were a few comments asserting that the 

Commission underestimated the 

quantified costs, such as staff hours 

needed to review exemption 

applications. The Commission is 

addressing the qualitative and 

quantitative comments in the discussion 

that follows. Furthermore, the 

Commission will explain why it 

believes, after careful consideration of 

the comments, that the reproposed 

exemption-recognition processes will, 

among other things, improve 

transparency via exchange- and 

Commission-reporting, and improve 

regulatory certainty by having 

applicants submit materials for review 

to exchanges, and by having exchanges 

assess whether positions should be 

deemed exempt from position limits. 

The baseline against which the 

Commission considers the benefits and 

costs of the exemption-recognition rules 

is a combination of CEA requirements 

and Commission regulations that are 

now in effect. That is, the general 

baseline is the Commission’s part 150 

regulations and current §§ 1.47 and 


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Federal Register / Vol. 81, No. 251 / Friday, December 30, 2016 / Proposed Rules 96873 

1400See chart listing current regulations, 

December 2013 Position Limits Proposal, 78 FR 

75712, Dec. 12, 2013. 

1401For a fuller discussion of the change, see 

Section III.G.3.a.(i)–(iii). 

1402For a fuller discussion of the change, see 

Section III.G.3.b.(iii) 

1.48.1400 For greater specificity, the 

Commission has identified the specific, 

associated baseline from which costs 

and benefits are determined under each 

discussion of the reproposed exemption 

rules below. 

a. Section 150.9—Exchange Recognition 

of Non-Enumerated Bona Fide Hedging 

Positions 

Under Section III.G., above, the 

Commission summarizes the changes it 

reproposed in rule § 150.9, which 

outlines the process that exchanges may 

employ to recognize certain commodity 

derivative positions as non-enumerated 

bona fide hedging positions. The 

reproposed version of § 150.9 closely 

follows the regulatory text proposed in 

the June 2016 Supplemental Proposal. 

Most of the changes are clarifications. 

There are, however, substantive changes 

between the regulatory text proposed in 

June 2016 and the reproposed regulatory 

text in this Release; they are to the 

following subsections: 

• The exchange-application 

requirements under § 150.9(a)(1)(v) and 

§ 150.9(a)(3)(ii), (iii), and (iv); 

• the applicant-to-exchange, reporting 

requirement under § 150.9(a)(6); and 

• the exchange-to-Commission, 

reporting requirement under 

§ 150.9(c)(2). 

i. Section 150.9(a)—ExchangeAdministered Non-Enumerated Bona 

Fide Hedging Position Application 

Process 

In paragraph (a) of reproposed § 150.9, 

the Commission identifies the process 

and information required for an 

exchange to assess whether it should 

grant a market participant’s request that 

its derivative position(s) be recognized 

as an non-enumerated bona fide hedging 

position. In the reproposed version of 

§ 150.9(a), the Commission clarified a 

condition in § 150.9(a)(1)(v).1401 The 

clarification is that an exchange offering 

non-enumerated bona fide hedging 

position exemptions must have at least 

one year of experience and expertise to 

administer position limits for a 

referenced contract rather than 

experience and expertise in the 

derivative contract. In reproposed 

§ 150.9(a)(2), the Commission offers 

guidelines for exchanges to establish 

adaptable application processes by 

permitting different processes for 

‘‘novel’’ versus ‘‘substantially similar’’ 

applications for non-enumerated bona 

fide hedging position recognitions. 

Reproposed § 150.9(a)(3) describes in 

general terms the type of information 

that exchanges should collect from 

applicants. The Commission made a 

material change in reproposed 

§ 150.9(a)(3)(iv) by reducing the amount 

of cash-market data an applicant must 

submit to an exchange from three years 

to one year.1402 In addition, 

150.9(a)(3)(ii) and (iv) were both 

changed to provide that the exchange 

need require the ‘‘information’’ rather 

than ‘‘detailed information.’’ 

Reproposed § 150.9(a)(4) obliges 

applicants and exchanges to act timely 

in their submissions and notifications, 

respectively, and that exchanges retain 

revocation authority. Reproposed 

§ 150.9(a)(5) provides that the position 

will be deemed recognized as an nonenumerated bona fide hedging position 

when an exchange recognizes it. 

Reproposed § 150.9(a)(6) instructs 

exchanges to determine whether there 

should be a reporting requirement for 

non-enumerated bona fide hedging 

positions. The Commission changed 

§ 150.9(a)(6) to relieve market 

participants from an additional filing, 

and to give exchanges discretion on 

non-enumerated bona fide hedging 

position reporting. Reproposed 

§ 150.9(a)(7) requires an exchange to 

publish on their Web site descriptions 

of unique types of derivative positions 

recognized as non-enumerated bona fide 

hedging positions based on novel facts 

and circumstances. 

ii. Section 150.9(b)—Non-Enumerated 

Bona Fide Hedging Position 

Recordkeeping Requirements 

The Commission made no changes to 

the rule text in § 150.9(b) between the 

2016 supplemental proposal and this 

Reproposal. Under reproposed 

§ 150.9(b), exchanges will be required to 

maintain complete books and records of 

all activities relating to the processing 

and disposition of non-enumerated bona 

fide hedging position applications. As 

explained in reproposed § 150.9(b)(1) 

through (b)(2), the Commission instructs 

exchanges to retain applicantsubmission materials, exchange notes, 

and determination documents. 

Moreover, consistent with current 

§ 1.31, the Commission expects that 

these records will be readily accessible 

until the termination, maturity, or 

expiration date of the bona fide hedge 

recognition and during the first two 

years of the subsequent, five-year 

retention period. 

iii. Section 150.9(c)—Non-Enumerated 

Bona Fide Hedging Positions Reporting 

Requirements 

The Commission made a change to 

reporting to the rule text in § 150.9(c) 

between the 2016 supplemental 

proposal and this Reproposal. While the 

Commission is reproposing rules 

requiring weekly reporting obligations 

by exchanges for positions recognized as 

non-enumerated bona fide hedging 

positions, the Commission changed 

§ 150.9(c)(1)(i) and § 150.9(c)(2) for 

purposes of clarification. In regards to 

§ 150.9(c)(1)(i), the Commission is 

clarifying that the reports required 

under (c)(1)(i) are those for each 

commodity derivatives position that had 

been recognized that week and for any 

revocation or modification of a 

previously granted recognition. The 

change to § 150.9(c)(2) explains that 

exchanges must file monthly 

Commission reports only if the 

exchange has determined, in its 

discretion, that applicants should file 

exchange reports. The Commission also 

reproposes § 150.9(c)(1)(ii), which 

provides that exchanges post nonenumerated bona fide hedging position 

summaries on their Web sites. 

iv. Section 150.9(d) and (e)— 

Commission Review 

The Commission made no changes to 

the rule text in §§ 150.9 (d) or (e) 

between the 2016 supplemental 

proposal and this Reproposal. The 

Commission reproposes rules that states 

that market participants and exchanges 

must respond to Commission requests, 

as well as liquidated positions within a 

commercially reasonable amount of 

time if required under § 150.9(d). 

v. Section 150.9(f)—Delegation to 

Director of the Division of Market 

Oversight 

The Commission made no changes to 

the rule text in § 150.9(f) between the 

2016 supplemental proposal and this 

Reproposal. In the reproposed version of 

§ 150.9(f), the Commission delegates 

certain review authority for the nonenumerated bona fide hedging position 

recognition-process to the Director of 

the Division of Market Oversight. 

vi. Baseline 

For the non-enumerated bona fide 

hedging position process, the baseline 

for non-enumerated bona fide hedging 

positions subject to federal position 

limits is current § 1.47. For nonenumerated bona fide hedging position 

exemptions to exchange-set position 

limits, the baseline is the current 

exchange regulations and practices as 

well as the Commission’s guidance to 


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1403See, e.g., CL–CME–60926; CL–Nodal–60948. 

1404CL–AGA–60943 at 6. 

1405CL–NCGA/NGSA–60919 at 10. 

1406CL–Commercial Energy Working Group– 

60932 at 10. 

1407 It should be noted that this one-year cashmarket history is less than the three-year cashmarket history required under reproposed 

§ 150.7(d)(1)(iv) for initial statements regarding 

enumerated anticipatory bona fide hedging 

positions. 

1408For a fuller discussion, see Section III.G.1.b. 

See also the following comment letters: CL–AGA– 

60943 at p. 6 (requirement is vague and restrictive); 

CL–CCI–60935 at p. 7 (one year of data suggested); 

CL–EEI–EPSA–60925 at p. 10 (requirement is 

‘‘unduly burdensome and unnecessary’’); CL– 

NCGA/NGSA–60919 at p. 10 (same); CL–COPE– 

60932 at p. 9 (criticized the three-year data 

requirement); CL–Commercial Energy Working 

Group–60932 at p. 11 (the requirement is 

unnecessary). 

1409CL–Commercial Energy Working Group– 

60932 at 11. 

1410See also CL–Commercial Energy Working 

Group–60932 at 12 (the same conclusion applies to 

proposed 105.10(a)(6), and § 150.11(a)(5)). 

1411CL–AGA–60943 at 6. 

exchanges in current § 150.5(d). The 

current rule provides, generally, that an 

exchange may recognize bona fide 

hedging positions in accordance with 

the general definition of bona fide 

hedging position in current § 1.3(z)(1). 

vii. Benefits and Discussion of 

Comments 

The Commission continues to believe 

that the non-enumerated bona fide 

hedging position exemption-recognition 

process outlined in § 150.9 will produce 

significant benefits. As explained in the 

2016 supplemental proposal, the 

Commission recognizes that there are 

positions that reduce price risks 

incidental to commercial operations. 

For that reason, among others, such 

positions that are shown to be bona fide 

hedging positions under CEA Section 

4a(c) are not subject to position limits. 

And, therefore, it is beneficial for 

market participants to have several 

options regarding bona fide hedging 

positions. With this Reproposal, market 

participants will have three ways in 

which they may determine that 

positions are bona fide hedging 

positions. First, market participants 

could conclude that a commodity 

derivative position comports with the 

definition of bona fide hedging position 

under § 150.1. Second, market 

participants may request a staff 

interpretive letter under § 140.99 or seek 

exemptive relief under CEA section 

4(a)(7). Third, they may file an 

application with an exchange for 

recognition of an non-enumerated bona 

fide hedging position under reproposed 

§ 150.9. 

While all of the aforementioned 

options are viable, the Commission 

continues to believe that reproposed 

§ 150.9 outlines a framework similar to 

existing exchange practices that 

recognize non-enumerated bona fide 

hedge exemptions to exchange-set 

limits. These practices are familiar to 

many market participants. Moreover, a 

number of commenters agreed that 

exchanges should oversee the 

exemption-recognition process.1403

The Commission believes that under 

reproposed § 150.9, the Commission 

will be able to leverage exchanges’ 

existing practices and expertise in 

administering exemptions. Thus, 

reproposed § 150.9 should reduce the 

need to invent new procedures to 

recognize non-enumerated bona fide 

hedging positions. As explained in the 

2016 supplemental proposal, exchanges 

also may be familiar with the applicantmarket participant’s needs and practices 

so there will be an advanced 

understanding for why certain trading 

strategies are pursued. The Commission 

received comments that were consistent 

with this view. 

For example, in response to proposed 

§ 150.9(a)(3)(iv)—the rule requiring 

applicants to submit detailed 

information regarding the applicant’s 

activity in the cash market during the 

past three years—there were a few 

comments. One commenter noted that 

exchanges should have the discretion to 

determine the requisite number of years 

of data that should be collected.1404

Another commenter proposed that 

exchanges have the discretion to collect 

up to one year of data.1405 A different 

commenter remarked that proposed 

§ 150.9(a)(3)(iii) (requiring an applicant 

to identify ‘‘the maximum size of all 

gross positions in derivative contracts to 

be acquired by the applicant during the 

year after the application is submitted’’) 

is unnecessary and unduly 

burdensome.’’ 1406

These comments support the 

Commission’s determination to reduce 

filing burdens. In reproposed 

§ 150.9(a)(3)(ii) and (iv), the 

Commission changed the requirement 

that the application process require an 

applicant submit ‘‘detailed information’’ 

in regards to certain information to 

‘‘information.’’ The change provides the 

exchanges with the discretion to 

determine what level of detail is needed 

to make their determination. The 

Commission has also reduced the 

minimum cash market data requirement 

to one-year from three-years in proposed 

§ 150.9(a)(3)(iv), which will reduce 

market participants burden in 

comparison to the proposed rule.1407

Furthermore, the Commission continues 

to believe, even with this change to 

§ 150.9(a)(3)(iv), that given the 

availability of the exchange’s analysis 

and the Commission’s macro-view of 

the markets, the Commission will be 

well-informed should it become 

necessary for the Commission to review 

a determination under reproposed 

§ 150.9(d), and determine whether a 

commodity derivative position should 

be recognized as an non-enumerated 

bona fide hedging position. The 

Commission also has clarified in 

reproposed § 150.9(a)(3)(iii) that the 

filing must include the maximum size of 

all gross positions for which the 

application is submitted, which may be 

a longer time period than the proposed 

one-year period. In administering 

requests for recognition of nonenumerated bona fide hedging position 

exemptions under § 1.47, the 

Commission has found a maximum size 

statement, as required under 

§ 1.47(b)(4), to be useful both at the time 

of review of the filing (in determining 

whether the requested maximum size is 

reasonable in relation to past cash 

market activity) and at the time of 

review of a filer’s position that exceeds 

the level of the position limit (reducing 

the need for special calls to inquire as 

to the reason a position exceeds a 

position limit level). 

In general, the non-enumerated bona 

fide hedging position recognition 

process under reproposed § 150.9 

should reduce duplicative efforts 

because applicants will be saved the 

expense of applying to both an exchange 

for relief from exchange-set position 

limits and to the Commission for relief 

from federal limits. The Commission 

also seeks to collect relevant 

information. Thus, because commenters 

reasonably complained about the 

application requirement for three years 

of cash-market position information, the 

Commission changed the requirement to 

one year.1408 Once commenter stated 

that the three-year data provided ‘‘little 

practical benefit’’ for assessing whether 

an non-enumerated bona fide hedging 

position is appropriate.1409

Another section where commenters 

observed redundancy was in proposed 

§ 150.9(a)(6) regarding requirements for 

exchanges to require applicants to file 

reports.1410 One commenter stated that 

the proposal to require reports ‘‘is 

particularly problematic due to its 

vagueness in terms of the frequency that 

a cash market report must be 

provided.’’ 1411 Another commenter 

explained further that proposed 

§ 150.9(a)(6) had no ‘‘incremental 

market surveillance or other regulatory 

benefit’’ because other rules provide for 

applicants to reapply for exemptions 


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1412CL–CCI–60935 at 7–8 (the same argument 

applies to proposed §§ 150.10(a)(6) and 

150.11(a)(5)). See also CL–Commercial Energy 

Working Group–60932 at 12 (the same argument 

applies to proposed § 105.10(a)(6), and 

§ 150.11(a)(5). See also CL–FIA–60937 at 16 

(criticism of requirement to produce enhanced 

information regarding cash market activity and size 

of cash market exposure. 

1413CL–ISDA–60931 at 10. 

1414CL–Commercial Energy Working Group– 

60932 at 13. 

1415 Id. 

1416CL–ISDA–60931 at 5. 

1417CL–ICE–60929 at p 17. 

1418 Id. 

1419 Id. 

1420 Id. 

1421 Id. 

1422CL–ICE–60929 at 17. 

annually, real-time market surveillance, 

the exchanges’ abilities to make one-off 

requests for information, and the 

Commission’s special call authority.1412

There also was a commenter who stated 

that ‘‘neither exchanges nor the 

Commission are likely to have resources 

available to meaningfully review such 

reports’’ as those under § 150.9(a)(6), as 

well as those reports under 

§ 105.10(a)(6).1413 As explained above, 

the Commission changed the regulatory 

text so that exchanges may decide 

whether non-enumerated bona fide 

hedging position applicants should 

provide additional reports to exchanges. 

As a result of this change, market 

participants may have less reporting 

requirements but that assessment will 

depend on whether the exchanges— 

based on their experiences and expertise 

in position limits in general and in nonenumerated bona fide hedging positions 

specifically—decide to grant a nonenumerated bona fide hedging position 

exemption without establishing a 

reporting requirement. 

As expressed in the 2016 

supplemental proposal, the creation and 

retention of records under § 150.9 may 

be used as reference material in the 

future for similar bona fide hedge 

recognition requests either by relevant 

exchanges or the Commission. This will 

be beneficial because retained records 

will help the Commission to ensure that 

an exchange’s determinations are 

internally consistent and consistent 

with the Act and the Commission’s 

regulations thereunder. There is also the 

additional benefit that records will be 

accessible if they are needed for a 

potential enforcement action. 

The Commission continues to believe 

that the exchange-to-Commission 

reporting under § 150.9(c) will have 

surveillance benefits. The reports will 

provide the Commission with notice 

that an applicant may take a commodity 

derivative position that the exchange 

has recognized as an non-enumerated 

bona fide hedging position, and also 

will show the applicant’s underlying 

cash commodity and expected 

maximum size in the cash markets. 

Reports will facilitate the tracking of 

non-enumerated bona fide hedging 

positions recognized by the exchanges, 

and will assist the Commission in 

ensuring that a market participant’s 

activities conform to the exchange’s 

terms of recognition and to the Act. 

While there are great benefits, in 

reproposed § 150.9(c)(1)(i) and 

§ 150.9(c)(2), the Commission made 

clarifications that, as noted above, eased 

the burden on exchanges and 

applicants. Asreproposed, 

§ 150.9(c)(1)(i) clarifies that the reports 

required are only for those for each 

commodity derivatives position that had 

been recognized that week and for any 

revocation or modification of a 

previously granted recognition. In 

addition, reproposed § 150.9(c)(2) defers 

to the exchanges by clarifying that they 

have the discretion to determine 

whether a market participant must 

report under reproposed § 150.9(a)(6); 

however, if an exchange requires reports 

of a market participant, that exchange 

must forward any such report to the 

Commission under reproposed 

§ 150.9(c)(2). This gives the exchanges 

flexibility and defers to their expertise. 

The web-posting of summaries also will 

benefit market participants in general by 

providing transparency and open access 

to the non-enumerated bona fide 

hedging position recognition process. In 

addition, reporting and posting gives 

market participants seeking recognition 

of a non-enumerated bona fide hedging 

position an understanding of the types 

of commodity derivative positions an 

exchange may recognize as an nonenumerated bona fide hedging position, 

thereby providing greater administrative 

and legal certainty. 

viii. Costs and Discussion of Comments 

In the June 2016 Supplemental 

Proposal, the Commission explained 

that to a large extent, exchanges and 

market participants have incurred 

already many of the compliance costs 

associated with the proposed 

exemptions. The Commission, however, 

detailed a number of the readilyquantifiable costs for exchanges and 

market participants associated with 

processing non-enumerated bona fide 

hedging position recognitions, as well as 

spreads and anticipatory bona fide 

hedges. The Commission invited public 

comment on the estimated financial 

numbers, which were detailed in tables. 

Several commenters remarked on the 

costs the Commission quantitatively 

estimated in the June 2016 

Supplemental Proposal. One group 

commenter stated that the Commission 

underestimated costs to market 

participants.1414 The same commenter 

explained that the Commission failed to 

‘‘break out the costs for submitting an 

initial application and filing subsequent 

updates every time information in the 

application changes.’’ 1415 Another 

commenter stated that the 2016 

Supplemental Proposal has ‘‘highly 

unrealistic estimates of the time and 

cost that will be required to implement 

and maintain compliance 

programs.’’ 1416

One exchange commenter declared 

that the Commission ‘‘significantly 

underestimates the number of 

exemptions that the Exchange will be 

required to review,’’ and offered 

different numbers.1417 For example, the 

exchange commenter stated that it 

reviewed as many as 500 exemption 

requests annually as opposed to the 285 

exemption requests that the 

Commission estimated.1418 In addition, 

the exchange commenter stated that the 

Commission underestimated the 

number of staff-review hours, and that 

the number should be two additional 

hours for a total of seven hours per 

exemption review.1419 The exchange 

commenter also provided different 

hours for different exercises: (a) Seven 

hours for preparing quarterly Web site 

postings; (b) six hours for preparation 

for weekly reports; and (c) six hours for 

preparing monthly reports.1420 The 

exchange commenter also explained 

that it believed it would need to hire a 

seasoned, senior level employee to help 

comply with the proposed rules and 

three regulatory analysts.1421 Finally, 

the exchange commenter noted that the 

Commission failed to consider start-up 

costs associated with complying with 

reporting requirements.1422

In response, the Commission is 

persuaded by commenters, and is 

adjusting its estimated staff-review 

hours and costs that it believes 

exchanges and market participants will 

incur to comply with exemptionrecognition processes in this 

Reproposal. These estimates are 

reflected in the tables below. 

Even though the Commission has 

outlined three different exemptionapplication processes in this release, the 

Commission believes that aspects of the 

processes will become standardized and 

the data collected for one exemption 

will be the same as data collected for 

another exemption. As a result, it is 

likely that over time some costs will 


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1423CL–EDF–60944 at 2. 

1424 Id. 

1425 Id. 

1426CL–MGEX–90936 at 8; CL–EEI–EPSA–60925 

at 10 (one business to unwind is ‘‘unreasonable’’ in 

energy products); CL–NCGA/NGSA–60919 at 13 

(concerned about Commission’s suggestion that 

positions can be unwound in less than one business 

day); CL–NGFA–60941 at 3; CL–NCFC–60930 at 5 

(dislikes the one-day unwind period for dairy 

market). 

1427CL–MGEX–90936 at 8. See also CL–NCGA/ 

NGSA–60919 at 13 (‘‘Unwinding a position quickly 

in an illiquid market, such as in many non-spot 

month contracts, could create a significant market 

disruption.’’); CL–NGFA–60941 at 3 (commented 

that a one-day liquidation ‘‘in thinly traded 

contracts without broad liquidity’’ could be 

extremely disruptive); CL–NCFC–60930 at 5 

(‘‘Requiring the same time period and the same 

process to unwind the dairy transactions could lead 

to a market disruption, disorderly trading and 

regulatory-influence and unnecessary price 

volatility.’’). 

1428CL–MGEX–90936 at 8. 

1429 Id. 

1430See 2016 Supplemental Position Limits 

Proposal, 81 FR at 38488–89. 

decrease. Some commenters, however, 

expressed different views. One 

commenter stressed that the 

Commission’s proposed exemption 

processes triggered greater oversight, 

increased scope of monitoring, and need 

for additional staff; whereas a 

standardized application might reduce 

market-entry barriers.1423 The same 

commenter remarked that increased 

compliance costs and capital 

investments might lead to decreased 

market participation and liquidity.1424

The commenter then suggested the 

development of a standardized hedge 

exemption application to minimize 

monitoring and compliance costs.1425

Finally, the same commenter asserted 

that a standardized application might 

drive efficiency and minimize 

regulatory risk exposure via innovation. 

The Commission continues to believe 

that there are costs that are not easily 

quantified. These are qualitative costs 

that are related to the specific attributes 

and needs of individual market 

participants that are hedging. Given that 

qualitative costs are highly specific, the 

Commission continues to believe that 

market participants will choose to incur 

§ 150.9-related costs only if doing so is 

less costly than complying with position 

limits and not executing the desired 

hedge position. Thus, by providing 

market participants with an option to 

apply for relief from speculative 

position limits under reproposed 

§ 150.9, the Commission continues to 

believe it is offering market participants 

a way to ease overall compliance costs 

because it is reasonable to assume that 

entities will seek recognition of nonenumerated bona fide hedging positions 

only if the outcome of doing so justifies 

the costs. This is because the 

Commission appreciates that the costs 

of not trading might be substantially 

higher. The Commission also believes 

that market participants will consider 

how the costs of applying for 

recognition of an non-enumerated bona 

fide hedging position under reproposed 

§ 150.9 will compare to the costs of 

requesting a staff interpretive letter 

under § 140.99, or seeking exemptive 

relief under CEA section 4a(a)(7). 

Likewise, exchanges must consider 

qualitative costs in their decision to 

create an non-enumerated bona fide 

hedging position application process or 

revise an existing program. 

The Commission acknowledges that 

there may also be other costs to market 

participants if the Commission disagrees 

with an exchange’s decision to 

recognize an non-enumerated bona fide 

hedging position under reproposed 

§ 150.9 or under an independent 

Commission request or review under 

reproposed § 150.9(d) or (e). These costs 

will include time and effort spent by 

market participants associated with a 

Commission review, which the 

Commission addresses in the tables 

below. There also is the possibility that 

market participants will lose amounts 

that the Commission can neither predict 

nor quantify if it became necessary to 

unwind trades or reduce positions were 

the Commission to conclude that an 

exchange’s disposition of an nonenumerated bona fide hedging position 

application is inconsistent with section 

4a(c) of the Act and the general 

definition of bona fide hedging position 

in § 150.1. 

A few commenters remarked on this 

concern and pointed to the term that the 

Commission would provide applicants a 

‘‘commercially reasonable amount of 

time’’ to unwind positions that the 

Commission determined did not fall 

within the categories of exempted 

positions under § 150.9(d)(4), 

150.10(d)(4), and 150.11(d)(3).1426 One 

commenter explained that if a market 

participant is required to unwind a 

position in the middle of its green-lit 

hedging activity, the unwind could 

cause ‘‘significant harm to the 

participant,’’ and the ‘‘rapid 

unanticipated liquidation of positions 

could result in market disruption’’.1427

The commenter also highlighted that the 

less-than-24-hours, commerciallyreasonable period compels market 

participants to seek pre-approval of 

positions by the Commission or not 

engage in risk mitigation.1428 The 

commenter also added that market 

participants might restrict trading to 

some exchanges and concentrate market 

risk on a single exchange.1429

The Commission recognizes that costs 

may result if the Commission disagrees 

with an exchange’s disposition of a nonenumerated bona fide hedging position 

application under reproposed § 150.9 

(or other exempt position under 

§§ 150.10 or 150.11). The Commission, 

however, believes such situations will 

be limited based on the history of 

exchanges approving similar 

applications for exemptions to 

exchange-set limits. Moreover, as 

explained in the 2016 supplemental 

proposal, exchanges have incentives to 

protect market participants from the 

harms that position limits are intended 

to prevent, such as manipulation, 

corners, and squeezes. In addition, an 

exchange that recognizes a market 

participant’s non-enumerated bona fide 

hedging position (or other exempt 

position) that enables the participant to 

exceed position limits must then deter 

the same market participant from 

trading in a manner that causes adverse 

price impacts on the market; such 

adverse price impacts may cause 

financial harm to market participants, or 

even reputational risk or economic 

disadvantage to the exchange.1430

ix. Costs To Create or Amend Exchange 

Rules for Non-Enumerated Bona Fide 

Hedging Position Application Programs 

The Commission believes that 

exchanges electing to process nonenumerated bona fide hedging position 

applications under reproposed 

§ 150.9(a) are likely to already 

administer similar processes and will 

need to file with the Commission 

amendments to existing exchange rules 

rather than create new rules. The 

exchanges will only have to file 

amendments once. As discussed in the 

Paperwork Reduction Act discussion 

below, the Commission forecasts an 

average annual filing cost of $1,220 per 

exchange that files new rules or 

modifications per final process that an 

exchange adopts. Under the Paperwork 

Reduction Act, these costs are reported 

as an average annual cost over a fiveyear period. 


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1431Assuming that exchanges administer 

exemptions to exchange-set limits, these costs are 

incrementally higher. 

TABLE IV–A–6—BURDEN ESTIMATES FOR FILING NEW OR AMENDED RULES

Required record or report 

Total 

number of 

respondents 

Burden hours 

per response 

Annual 

number of 

responses per 

respondent 

Hourly wage 

estimate 

Per-entity 

labor cost 

New or amended rule filings under part 40 per 

§ 150.9(a)(1), (a)(6) ...................................... 6 5 2 $122.00 $1,220 

x. Costs To Review Applications Under 

Reproposed Processes 

An exchange that elects to process 

applications also will incur costs related 

to the review and disposition of such 

applications pursuant to reproposed 

§ 150.9(a). For example, exchanges will 

need to expend resources on reviewing 

and analyzing the facts and 

circumstances of each application to 

determine whether the application 

meets the standards established by the 

Commission. Exchanges also will need 

to expend effort in notifying applicants 

of the exchanges’ disposition of 

recognition or exemption requests. The 

Commission believes that exchanges 

electing to process non-enumerated 

bona fide hedging position applications 

under reproposed § 150.9(a) are likely to 

have processes for the review and 

disposition of such applications 

currently in place. The Commission has 

adjusted the costs in Table IV–A–7 

based on information submitted by 

commenters. Thus, the Commission has 

forecast that the average annual cost for 

each exchange to process applications 

for non-enumerated bona fide hedging 

position recognitions is $277,500. 

TABLE IV–A–7—BURDEN ESTIMATES FOR REVIEWING APPLICATIONS

Required record or report Total number 

of respondents 

Burden hours 

per response 

Annual 

number of 

responses per 

respondent 

Hourly wage 

estimate 

Per-entity 

labor cost 

Collection, review, and disposition of application per § 150.9(a) ........................................ 6 7 325 $122.00 $277,550 

xi. Costs To Post Summaries for NonEnumerated Bona Fide Hedging Position 

Recognitions 

Exchanges that elect to process the 

applications under reproposed § 150.9 

will incur costs to publish on their Web 

sites summaries of the unique types of 

non-enumerated bona fide hedging 

position positions. The Commission has 

estimated an average annual cost of 

$25,620 for the web-posting of nonenumerated bona fide hedging position 

summaries. 

TABLE IV–A–8—BURDEN ESTIMATES FOR POSTING SUMMARIES

Required record or report Total number 

of respondents 

Burden hours 

per response 

Annual 

number of 

responses per 

respondent 

Hourly wage 

estimate 

Per-entity 

labor cost 

Summaries Posted Online per § 150.9(a) ....... 6 7 30 $122.00 $25,620 

xii. Costs To Market Participants Who 

Will Seek Non-Enumerated Bona Fide 

Hedging Position Relief From Position 

Limits 

Under reproposed § 150.9(a)(3), 

market participants must submit 

applications that provide sufficient 

information to allow the exchanges to 

determine, and the Commission to 

verify, whether it is appropriate to 

recognize such position as an nonenumerated bona fide hedging position. 

These applications will be updated 

annually. Reproposed § 150.9(a)(6) will 

require applicants to file a report with 

the exchanges when an applicant owns, 

holds, or controls a derivative position 

that has been recognized as an nonenumerated bona fide hedging position. 

The Commission estimates that each 

market participant seeking relief from 

position limits under reproposed § 150.9 

will likely incur approximately $976 

annually in application costs.1431

TABLE IV–A–9—BURDEN ESTIMATES FOR MARKET PARTICIPANTS TO APPLY

Required record or report Total number 

of respondents 

Burden hours 

per response 

Annual 

number of 

responses per 

respondent 

Hourly wage 

estimate 

Per-entity 

labor cost 

§ 150.9(a)(3) Application .................................. 325 4 2 $122.00 $976 


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xiii. Costs for Non-Enumerated Bona 

Fide Hedging Position Recordkeeping 

The Commission believes that 

exchanges that currently process 

applications for spread exemptions and 

bona fide hedging positions maintain 

records of such applications as required 

pursuant to other Commission 

regulations, including § 1.31. The 

Commission, however, also believes that 

the reproposed rules may confer 

additional recordkeeping obligations on 

exchanges that elect to process 

applications for non-enumerated bona 

fide hedging positions. The Commission 

estimates that each exchange electing to 

administer the reproposed nonenumerated bona fide hedging position 

process will likely incur approximately 

$3,660 annually to retain records for 

each process. 

TABLE IV–A–10—BURDEN ESTIMATES FOR RECORDKEEPING

Required record or report Total number 

of respondents 

Burden hours 

per response 

Annual 

number of 

responses per 

respondent 

Hourly wage 

estimate 

Per-entity 

labor cost 

§ 150.9(b) Recordkeeping ................................ 6 30 1 $122.00 $3,660 

xiv. Costs for Weekly and Monthly NonEnumerated Bona Fide Hedging Position 

Reporting to the Commission 

The Commission anticipates that 

exchanges that elect to process nonenumerated bona fide hedging position 

applications will be required to file two 

types of reports. The Commission is 

aware that five exchanges currently 

submit reports each month, on a 

voluntary basis, which provide 

information regarding exchangeprocessed exemptions of all types. The 

Commission believes that the content of 

such reports is similar to the 

information required of the reports in 

proposed rule § 150.9(c), but the 

frequency of such required reports will 

increase under the reproposed rule. The 

Commission estimates an average cost of 

approximately $38,064 per exchange for 

weekly reports under reproposed 

§ 150.9(c). 

TABLE IV–A–11—BURDEN ESTIMATES FOR SUBMITTING WEEKLY REPORTS

Required record or report Total number 

of respondents 

Burden hours 

per response 

Annual 

number of 

responses per 

respondent 

Hourly wage 

estimate 

Per-entity 

labor cost 

§ 150.9(c)(1) Weekly Report ............................ 6 6 52 $122.00 $38,064 

For the monthly report, the 

Commission anticipates a minor cost for 

exchanges because the reproposed rules 

will require exchanges essentially to 

forward to the Commission notices 

received from applicants who own, 

hold, or control the positions that have 

been recognized or exempted. The 

Commission estimates an average cost of 

approximately $8,784 per exchange for 

monthly reports under reproposed 

§ 150.9(c). 

TABLE IV–A–12—BURDEN ESTIMATES FOR SUBMITTING MONTHLY REPORTS

Required record or report Total number 

of respondents 

Burden hours 

per response 

Annual 

number of 

responses per 

respondent 

Hourly wage 

estimate 

Per-entity 

labor cost 

§ 150.9(c)(2) Monthly Report ........................... 6 6 12 $122.00 $8,784 

xv. Costs Related to Subsequent 

Monitoring 

Exchanges will have additional 

surveillance costs and duties with 

respect to non-enumerated bona fide 

hedging position that the Commission 

believes will be integrated with their 

existing self-regulatory organization 

surveillance activities as an exchange. 

b. Section 150.10—Spread Exemptions 

Since the Commission issued the June 

2016 Supplemental Proposal, the 

Commission made very few changes to 

the provisions authorizing exchanges to 

exempt spread positions from federal 

position limits under reproposed 

§ 150.10. In addition to non-substantive 

changes for purposes of clarification, 

substantive changes were made in 

subsections s of paragraphs (a) and (c) 

of § 150.10: §§ 150.10(a)(1)(ii); 

150.10(a)(3)(ii) and (iii); 150.10(a)(6); 

150.10(c)(2); The Commission did not 

make changes to paragraphs (b), (d), (e), 

or (f) of reproposed § 150.10. 

i. Section 150.10(a)—ExchangeAdministered Spread Exemption 

In paragraph (a) of reproposed 

§ 150.10, the Commission identifies the 

process and information required for an 

exchange to grant a market participant’s 

request that its derivative position(s) be 

recognized as an exempt spread 

position. 

As an initial step under reproposed 

§ 150.10(a)(1), exchanges that 

voluntarily elect to process spread 

exemption applications are required to 

notify the Commission of their intention 

to do so by filing new rules or rule 

amendments with the Commission 

under part 40 of the Commission’s 

regulations. The Commission clarified 

reproposed § 150.10(a)(1)(ii) to explain 

that an exchange may offer spread 

exemptions if the contract, which is 

either a component of the spread or a 

referenced contract that is related to the 

spread, in a particular commodity is 

actively traded. The Commission 

reduced the burden of proposed 

§ 150.10(a)(1)(ii) (that would require an 


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exchange to have applied position limits 

for at least one year), by providing in 

reproposed § 150.10(a)(1) that an 

exchange must have at least one year of 

experience and expertise administering 

position limits for such referenced 

contract. As explained above, the 

exchange may gain such experience and 

expertise, for example, through 

employing experienced staff. 

In reproposed § 150.10(a)(2), the 

Commission identifies four types of 

spreads that an exchange may approve. 

Reproposed § 150.10(a)(3) describes in 

general terms the type of information 

that exchanges should collect from 

applicants. In reproposed 

§ 150.10(a)(3)(ii), similar to the change 

made in § 150.9(a)(3), the Commission 

changed the requirement that the 

application process require an applicant 

submit ‘‘detailed information’’ in 

regards to certain information to 

‘‘information.’’ The change provides the 

exchanges with the discretion to 

determine what level of detail is needed 

to make their determination. The 

Commission clarified the reproposed 

requirements to explain that applicant 

must report its maximum size of all 

gross positions in the commodity 

related to the spread-exemption 

application. Reproposed § 150.10(a)(4) 

obliges applicants and exchanges to act 

timely in their submissions and 

notifications, respectively, and require 

exchanges to retain revocation 

authority. Reproposed § 150.10(a)(6) 

was modified and authorizes exchanges 

to determine whether enhanced 

reporting is necessary. Reproposed 

§ 150.10(a)(7) requires exchanges to 

publish on its Web site a summary 

describing the type of spread position 

and explaining why it was exempted. 

ii. Section 150.10(b)—Spread 

Exemption Recordkeeping 

Requirements 

The Commission made no changes to 

the regulatory text in § 150.10(b) that 

was proposed in June 2016. Under the 

reproposed rule, exchanges must 

maintain complete books and records of 

all activities relating to the processing 

and disposition of spread exemption 

applications under reproposed 

§ 150.10(b). This is similar to the record 

retention obligations of exchanges for 

positions recognized as non-enumerated 

bona fide hedging positionss. 

iii. Section 150.10(c)—Spread 

Exemption Reporting Requirements 

The Commission amended 

§ 150.10(c)(2) and kept the rest of 

regulatory text in § 150.10(c) the same as 

the text proposed in the 2016 

supplemental proposal. Under the 

reproposed rule exchanges will have 

weekly reporting obligations for spread 

exemptions. The change in subsection 

(c)(2) clarifies that exchanges have the 

discretion to determine whether 

applicants should have monthly reports 

that must ultimately be sent to the 

Commission. These reporting 

obligations are similar to the reporting 

obligations of exchanges for positions 

recognized as non-enumerated bona fide 

hedging positions. 

iv. Baseline 

For the reproposed spread exemption 

process for positions subject to federal 

limits, the baseline is CEA section 

4a(a)(1). In that statutory section, the 

Commission is authorized to recognize 

certain spread positions. That statutory 

provision is currently implemented in a 

limited calendar-month spread 

exemption in § 150.3(a)(3). For 

exchange-set position limits, the 

baseline for spreads is the guidance in 

current § 150.5(a), which provides 

generally that exchanges may recognize 

exemptions for positions that are 

normally known to the trade as spreads. 

v. Benefits 

CEA section 4a(a)(1) authorizes the 

Commission to exempt certain spreads 

from speculative position limits. In 

exercising this authority, the 

Commission recognizes that spreads can 

have considerable benefits for market 

participants and markets. The 

Commission now proposes a spread 

exemption framework that utilizes 

existing exchanges—resources and 

exchanges—expertise so that fair access 

and liquidity are promoted at the same 

time market manipulations, squeezes, 

corners, and any other conduct that will 

disrupt markets are deterred and 

prevented. Building on existing 

exchange processes preserves the ability 

of the Commission and exchanges to 

monitor markets and trading strategies 

while reducing burdens on exchanges 

that will administer the process, and 

market participants, who will utilize the 

process. 

In addition to these benefits, there are 

other benefits related to reproposed 

§ 150.10 that will inure to markets and 

market participant. Yet, there is 

difficulty in quantifying these benefits 

because benefits are dependent on the 

characteristics, such as operational size 

and needs, of the market participants 

that will seek spread exemptions, and 

the markets in which the participants 

trade. Accordingly, the Commission 

considers the qualitative benefits of 

reproposed § 150.10. 

For both exchanges and market 

participants, reproposed § 150.10 will 

likely alleviate compliance burdens to 

the status quo. Exchanges will be able 

to build on established procedures and 

infrastructure. As stated earlier, many 

exchanges already have rules in place to 

process and grant applications for 

spread exemptions from exchange-set 

position limits pursuant to part 38 of the 

Commission’s regulations (in particular, 

current § 38.300 and § 38.301) and 

current § 150.5. In addition, exchanges 

may be able to use the same staff and 

electronic resources that will be used for 

reproposed § 150.9 and § 150.11. Market 

participants also may benefit from 

spread-exemption reviews by exchanges 

that are familiar with the commercial 

needs and practices of market 

participants seeking exemptions. Market 

participants also might gain legal and 

regulatory clarity and consistency that 

will help in developing trading 

strategies. Moreover, the Commission 

has reduced burdens by making changes 

to proposed §§ 150.10(a)(1) and (3). In 

the reproposed § 150.10(a)(1), the 

Commission changed the rule so that 

exchanges may employ experienced 

staff to satisfy the requirement that an 

exchange have at least one year of 

experience and expertise in 

administering position limits for 

referenced contracts related to spread 

exemptions. In reproposed 

§ 150.10(a)(3)(ii), the Commission gave 

exchanges greater discretion in 

determining the level of detail needed 

from spread-exemption applicants. 

Reproposed § 150.10 will authorize 

exchanges to approve spread 

exemptions that permit market 

participants to continue to enhance 

liquidity, rather than being restricted by 

a position limit. For example, by 

allowing speculators to execute 

intermarket and intramarket spreads in 

accordance with reproposed 

§ 150.3(a)(1)(iv) and § 150.10, 

speculators will be able to hold a greater 

amount of open interest in underlying 

contract(s), and, therefore, bona fide 

hedgers may benefit from any increase 

in market liquidity. Spread exemptions 

might lead to better price continuity and 

price discovery if market participants 

who seek to provide liquidity (for 

example, through entry of resting orders 

for spread trades between different 

contracts) receive a spread exemption 

and, thus, will not otherwise be 

constrained by a position limit. 

Here are two examples of positions 

that could benefit from the spread 

exemption in reproposed § 150.10: 

• Reverse crush spread in soybeans 

on the CBOT subject to an intermarket 

spread exemption. In the case where 

soybeans are processed into two 

different products, soybean meal and 


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1432CL–Nodal–60948 at 2. 

1433 Id. 

1434 Id. at 3. 

1435 Id. at 4. 

1436CL–ISDA–60931 at 10. 

1437CL–Working Group–60947 at 10. 

soybean oil, the crush spread is the 

difference between the combined value 

of the products and the value of 

soybeans. There are two actors in this 

scenario: The speculator and the 

soybean processor. The spread’s value 

approximates the profit margin from 

actually crushing (or mashing) soybeans 

into meal and oil. The soybean 

processor may want to lock in the 

spread value as part of its hedging 

strategy, establishing a long position in 

soybean futures and short positions in 

soybean oil futures and soybean meal 

futures, as substitutes for the processor’s 

expected cash market transactions 

(purchase of the anticipated inputs for 

processing and sale of the anticipated 

products). On the other side of the 

processor’s crush spread, a speculator 

takes a short position in soybean futures 

against long positions in soybean meal 

futures and soybean oil futures. The 

soybean processor may be able to lock 

in a higher crush spread, because of 

liquidity provided by such a speculator 

who may need to rely upon a spread 

exemption. It is important to understand 

that the speculator is accepting basis 

risk represented by the crush spread, 

and the speculator is providing liquidity 

to the soybean processor. The crush 

spread positions may result in greater 

correlation between the futures prices of 

soybeans and those of soybean oil and 

soybean meal, which means that prices 

for all three products may move up or 

down together in a closer manner. 

• Wheat spread subject to intermarket 

spread exemptions. There are two actors 

in this scenario: The speculator and the 

wheat farmer. In this example, a farmer 

growing hard wheat will like to reduce 

the price risk of her crop by shorting 

MGEX wheat futures. There, however, 

may be no hedger, such as a mill, that 

is immediately available to trade at a 

desirable price for the farmer. There 

may be a speculator willing to offer 

liquidity to the hedger; the speculator 

may wish to reduce the risk of an 

outright long position in MGEX wheat 

futures through establishing a short 

position in CBOT wheat futures (soft 

wheat). Such a speculator, who 

otherwise will have been constrained by 

a position limit at MGEX or CBOT, may 

seek exemptions from MGEX and CBOT 

for an intermarket spread, that is, for a 

long position in MGEX wheat futures 

and a short position in CBOT wheat 

futures of the same maturity. As a result 

of the exchanges granting an intermarket 

spread exemption to such a speculator, 

who otherwise may be constrained by 

limits, the farmer might be able to 

transact at a higher price for hard wheat 

than might have existed absent the 

intermarket spread exemptions. Under 

this example, the speculator is accepting 

basis risk between hard wheat and soft 

wheat, reducing the risk of a position on 

one exchange by establishing a position 

on another exchange, and potentially 

providing liquidity to a hedger. Further, 

spread transactions may aid in price 

discovery regarding the relative protein 

content for each of the hard and soft 

wheat contracts. 

Finally, the Commission is allowing 

exchanges to recognize and exempt 

spreads during the five-day spot month. 

There may be considerable benefits that 

evolve from spreads exempted during 

the spot month, in particular. Besides 

enhancing the opportunity for market 

participants to use strategies involving 

spread trades into the spot month, this 

relief may improve price discovery in 

the spot month for market participants. 

And, as in the intermarket wheat 

example above, the spread relief in the 

spot month may better link prices 

between two markets, e.g., the price of 

MGEX wheat futures and the price of 

CBOT wheat futures. Put another way, 

the prices in two different but related 

markets for substitute goods may be 

more highly correlated, which benefits 

market participants with a price 

exposure to the underlying protein 

content in wheat generally, rather than 

that of a particular commodity. 

vi. Costs and Discussion of Comments 

As discussed in the 2016 

supplemental proposal, the Commission 

has been able to quantify some costs, 

but other costs related to reproposed 

§ 150.10 are not easily quantifiable. The 

Commission continues to believe that 

some costs are more dependent on 

individual markets and market 

participants seeking a spread 

exemption, and, thus, are more readily 

considered qualitatively. In general, the 

Commission believes that reproposed 

§ 150.10 should provide exchanges and 

market participants greater regulatory 

and administrative certainty and that 

costs will be small relative to the 

benefits of having an additional trading 

tool under reproposed § 150.10. 

The Commission comes to this 

conclusion even though the most 

common complaint about the spreadexemption process is that it requires 

excessive reporting. One exchange 

commenter focused specifically on the 

spread-exemption-recognition process, 

and stated that it is ‘‘overly prescriptive 

as to the information that must be 

provided by the applicant, especially 

when the exchange may have superior 

information regarding intramarket 

spreads.’’ 1432 The exchange commenter 

criticized the proposed intramarket 

spread exemption application as 

possibly being ‘‘inefficient and time 

consuming thereby hindering the 

exchange from effectively supporting its 

bona fide hedgers.’’ 1433 And the 

exchange commenter suggested that the 

Commission grant the exchanges the 

‘‘flexibility and discretion to establish’’ 

application processes.1434 The exchange 

commenter further explained that 

exchanges are best positioned to assess 

liquidity for bona fide hedgers and 

perform the price discovery function for 

granting exemptions, which, in turn 

protects market participants and the 

public.1435

The Commission recognizes that 

spread-exemption application 

requirements and reporting 

requirements are detailed. Moreover, 

these costs will be borne by exchanges 

and market participants. But, the 

Commission continues to believe that 

the qualitative costs will be reasonable 

in view of the benefits to exchanges and 

market participants of being able to use 

spread exemptions. Furthermore, the 

benefits of having an application 

process and reporting regime will create 

cost-savings to the public in the form of 

enhanced regulatory oversight. 

The Commission, however, did 

respond to comments about proposed 

§ 150.10(a)(3)(iii), which requires an 

applicant to identify ‘‘the maximum size 

of all gross positions in derivative 

contracts to be acquired by the applicant 

during the year after the application is 

submitted.’’ The comment was that the 

requirement was too broad and almost 

impossible because of the inability to 

predict trading activity over the next 

year.1436 Another commenter described 

the proposed rule as ‘‘unnecessary and 

unduly burdensome.’’ 1437 The 

Commission, as discussed above 

regrading reproposed § 150.9(a)(3)(iii), 

has clarified in reproposed 

§ 150.10(a)(3)(iii) that the filing must 

include the maximum size of all gross 

positions for which the application is 

submitted, which may be a longer time 

period that the proposed one-year 

period. As noted above, in 

administering requests for recognition of 

non-enumerated bona fide hedging 

position exemptions under § 1.47, the 

Commission has found a maximum size 

statement, as required under 

§ 1.47(b)(4), to be useful both at the time 


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of review of the filing and at the time 

of review of a filer’s position that 

exceeds the level of the position limit. 

Finally, like the discussion about 

quantified costs related to reproposed 

§ 150.9, exchanges and market 

participants may have already many of 

the financial outlays for administering 

the application process and applying for 

spread exemptions, respectively. Yet, as 

commenters have asserted, the 

Commission might have underestimated 

the costs. In deference to the comments, 

the Commission has adjusted its 

estimates of quantified costs that will 

arise from reproposed § 150.10 in Tables 

IV–A–13 through IV–A–19, below. The 

Commission’s new estimates are based 

on commenters noting that the 

Commission estimated staff hours, as 

well as the number of exemption 

requests, were low. 

Note: The activities priced in Tables 

A2 to G2 are similar to the activities 

discussed in the section affiliated with 

Tables A1 through G1, above. 

TABLE IV–A–13—BURDEN ESTIMATES FILING NEW OR AMENDED RULES

Required record or report 

Total 

number of 

respondents 

Burden 

hours per 

response 

Annual 

number of 

responses per 

respondent 

Hourly wage 

estimate 

Per-entity 

labor cost 

New or amended rule filings under part 40 per 

§ 150.10(a)(1), (a)(6) .................................... 6 5 2 $122.00 $1,220 

TABLE IV–A–14—BURDEN ESTIMATES FOR REVIEWING APPLICATIONS

Required record or report 

Total 

number of 

respondents 

Burden 

hours per 

response 

Annual 

number of 

responses per 

respondent 

Hourly wage 

estimate 

Per-entity 

labor cost 

Collection, review, and disposition of application per § 150.10(a) ...................................... 6 7 85 $122.00 $72,590 

TABLE IV–A–15—BURDEN ESTIMATES FOR POSTING SUMMARIES

Required record or report 

Total 

number of 

respondents 

Burden 

hours per 

response 

Annual 

number of 

responses per 

respondent 

Hourly wage 

estimate 

Per-entity 

labor cost 

Summaries Posted Online per § 150.10(a) ..... 6 7 10 $122.00 $8,540 

Regarding the following Table D2, 

note that reports are also required to be 

sent to the Commission in the case of 

exempt spread positions under 

§ 150.10(a)(5). 

TABLE IV–A–16—BURDEN ESTIMATES FOR MARKET PARTICIPANTS TO APPLY

Required record or report 

Total 

number of 

respondents 

Burden 

hours per 

response 

Annual 

number of 

responses per 

respondent 

Hourly wage 

estimate 

Per-entity 

labor cost 

§ 150.10(a)(3) Spread Exemption Application 85 3 2 $122.00 $732 

TABLE IV–A–17—BURDEN ESTIMATES FOR RECORDKEEPING

Required record or report 

Total 

number of 

respondents 

Burden 

hours per 

response 

Annual 

number of 

responses per 

respondent 

Hourly wage 

estimate 

Per-entity 

labor cost 

§ 150.10(b) Recordkeeping .............................. 6 30 1 $122.00 $3,660 

TABLE IV–A–18—BURDEN ESTIMATES FOR SUBMITTING WEEKLY REPORTS

Required record or report 

Total 

number of 

respondents 

Burden 

hours per 

response 

Annual 

number of 

responses per 

respondent 

Hourly wage 

estimate 

Per-entity 

labor cost 

§ 150.10(c)(1) Weekly Report .......................... 6 6 52 $122.00 $38,064 


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1438See discussion in December 2013 Position 

Limits Proposal, 78 FR 75745–46, Dec. 12, 2013. 

TABLE IV–A–19—BURDEN ESTIMATES FOR SUBMITTING MONTHLY REPORTS

Required record or report 

Total 

number of 

respondents 

Burden 

hours per 

response 

Annual 

number of 

responses per 

respondent 

Hourly wage 

estimate 

Per-entity 

labor cost 

§ 150.10(c)(2) Monthly Report ......................... 6 6 12 $122.00 $8,784 

Other costs to exchanges will include 

those related to surveillance. For 

example, exchanges that elect to grant 

spread exemptions will have to adapt 

and develop procedures to determine 

whether a particular spread exemption 

furthers the goals of CEA section 

4a(a)(3)(B) as well as monitor whether 

applicant speculators are, in fact, 

providing liquidity to other market 

participants. There will likely also be 

costs related to disagreements between 

the Commission and exchanges over 

exchanges’ disposition of a spread 

applications, or costs from a 

Commission request or review under 

reproposed § 150.11(d) or (e). As 

expressed in the 2016 supplemental 

proposal, these costs are not easily 

quantified because they depend on the 

specifics of the Commission’s request or 

review. 

c. Section 150.11—Enumerated 

Anticipatory Bona Fide Hedges 

Between the 2016 Supplemental 

Proposal and now, the Commission is 

making two changes in the following 

regulatory text: § 150.11(a)(1)(v) and 

§ 150.11(a)(6). 

i. Section 150.11(a)—ExchangeAdministered Enumerated Anticipatory 

Bona Fide Hedge Process 

Under reproposed § 150.11(a)(1), 

exchanges that voluntarily elect to 

process enumerated anticipatory bonafide hedge applications are required to 

notify the Commission of their intention 

to do so by filing new rules or rule 

amendments with the Commission 

under part 40 of the Commission’s 

regulations. In reproposed 

§ 150.11(a)(1)(v), the Commission 

clarified that exchanges that elect to 

offer a § 150.11 exemption, must have at 

least one year of experience and 

expertise in the referenced contract, 

rather than the derivative contract. In 

reproposed § 150.11(a)(2), the 

Commission identifies certain types of 

information necessary for the 

application, including information 

required under reproposed § 150.7(d). In 

reproposed § 150.11(a)(3), the 

Commission states that applications 

must be updated annually and that the 

exchanges have ten days in which to 

recognize an enumerated anticipatory 

bona fide hedge. In addition, exchanges 

must retain authority to revoke 

recognitions. reproposed § 150.11(a)(4) 

states that once an enumerated 

anticipatory bona fide hedging position 

has been recognized by an exchange, the 

position will be deemed to be 

recognized by the Commission. 

Reproposed § 150.11(a)(5) discusses 

reports that must be filed by an 

applicant holding an enumerated 

anticipatory bona fide hedging position, 

as required under reproposed § 150.7(e). 

The Commission clarified those 

reporting requirements, which were also 

proposed in § 150.11(a)(3)(i), and 

eliminated language that was confusing 

to commenters regarding updating and 

maintaining the accuracy of such 

reports. Reproposed 150.11(a)(6) 

explains that exchanges may choose to 

seek Commission review of an 

application and the Commission has ten 

days in which to respond. 

ii. Section 150.11(b)—Enumerated 

Anticipatory Bona Fide Hedge 

Recordkeeping Requirements 

The Commission did not make any 

changes to § 150.11(b) as proposed in 

the 2016 supplemental proposal. 

Exchanges must maintain complete 

books and records of all activities 

relating to the processing and 

disposition of anticipatory hedging 

applications under reproposed 

§ 150.11(b). 

iii. Section 150.11(c)—Enumerated 

Anticipatory Bona Fide Hedge 

Reporting Requirements 

The Commission did not make any 

changes to § 150.11(c) as proposed in 

the 2016 supplemental proposal. 

Exchanges will have weekly reporting 

obligations under reproposed 

§ 150.11(c). 

iv. Baseline 

The baseline is the same as it was in 

the December 2013 Position Limits 

Proposal: The current filing process 

detailed in current § 1.48. 

v. Benefits 

There are significant benefits that will 

likely accrue should § 150.11 be 

finalized. Recognizing anticipatory 

positions as bona fide hedging positions 

under § 150.11 will provide market 

participants with potentially a more 

expeditious recognition process than the 

Commission proposal for a 10-day 

Commission recognition process under 

reproposed § 150.7. The benefit of 

prompter recognitions, though, is not 

readily quantifiable, and, in most 

circumstances, is subject to the 

characteristics and needs of markets as 

well as market participants. So it is 

challenging to quantify the benefits that 

will likely be associated with 

reproposed § 150.11. 

For example, exchanges will be able 

to use existing resources and knowledge 

in the administration and assessment of 

enumerated anticipatory bona fide 

hedging positions. The Commission and 

exchanges have evaluated these types of 

positions for years (as discussed in the 

December 2013 Position Limits 

Proposal). Utilizing this experience and 

familiarity will likely produce such 

benefits as prompt but reasoned 

decision making and streamlined 

procedures. In addition, reproposed 

§ 150.11 permits exchanges to act in less 

than ten days—a timeframe that will be 

less than the Commission’s process 

under current § 1.48, or under 

reproposed § 150.7.1438 This could 

potentially enable commercial market 

participants to pursue trading strategies 

in a more timely fashion to advance 

their commercial and hedging needs to 

reduce risk. 

Reproposed § 150.11, similar to 

reproposed § 150.9 and § 150.10, also 

will provide the benefit of enhanced 

record-retention and reporting of 

positions recognized as enumerated 

anticipatory bona fide hedging 

positions. As previously discussed, 

records retained for specified periods 

will enable exchanges to develop 

consistent practices and afford the 

Commission accessible information for 

review, surveillance, and enforcement 

efforts. Likewise, weekly reporting 

under § 150.11 will facilitate the 

tracking of positions by the 

Commission. 

vi. Costs and Discussion of Comments 

The § 150.11-related comments in 

response to the 2016 supplement 

proposal’s request for comments 


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centered on the claim that the 

exemption process and reporting 

requirements are burdensome. 

Nevertheless, as explained above, the 

Commission made a few changes to 

clarify application and reporting 

requirements. 

The costs for reproposed § 150.11 are 

similar to the costs for reproposed 

§§ 150.9 and 150.10, and have been 

quantified are in Tables A3 through G3. 

As mentioned earlier, the Commission 

has increased the number of staff hours 

and exemption requests based on 

commenters stating that the 

Commission underestimated costs. 

Other costs associated with reproposed 

§ 150.11, like those for reproposed 

§§ 150.9 and 150.10, are more 

qualitative in nature and hinge on 

specific market and participant 

attributes. Other costs could arise from 

reproposed § 150.11 if the Commission 

disagrees with an exchange’s 

disposition of an enumerated 

anticipatory bona fide hedging position 

application, or costs from a Commission 

request or review under reproposed 

§ 150.11(d). These costs will include 

time and effort spent by market 

participants associated with a 

Commission review. In addition, market 

participants will lose amounts that the 

Commission can neither predict nor 

quantify if it became necessary to 

unwind trades or reduce positions were 

the Commission to conclude that an 

exchange’s disposition of an 

enumerated anticipatory bona fide 

hedging position application is not 

appropriate or is inconsistent with the 

Act. This concern was raised by 

commenters as discussed above. The 

Commission believes that such 

disagreements will be rare based on the 

Commission’s past experience and 

review of exchanges’ efforts. 

Nevertheless, the Commission notes that 

assessing whether a position is for the 

reduction of risk arising from 

anticipatory needs or excessive 

speculation is complicated. 

Note: For a general description of 

reproposed rules identified in the following 

Tables IV–A–20 to IV–A–24, see discussion 

above. 

TABLE IV–A–20—BURDEN ESTIMATES FOR FILING NEW OR AMENDED RULES

Required record or report 

Total 

number of 

respondents 

Burden 

hours per 

response 

Annual 

number of 

responses per 

respondent 

Hourly wage 

estimate 

Per-entity 

labor cost 

New or amended rule filings under part 40 per 

§ 150.11(a)(1), (a)(5) ........................................................ 6 5 2 $122.00 $1,220 

TABLE IV–A–21—BURDEN ESTIMATES FOR REVIEWING APPLICATIONS

Required record or report 

Total 

number of 

respondents 

Burden 

hours per 

response 

Annual 

number of 

responses per 

respondent 

Hourly wage 

estimate 

Per-entity 

labor cost 

Collection, review, and disposition of application per 

§ 150.11(a) ........................................................................ 6 7 90 $122.00 $76,860 

TABLE IV–A–22—BURDEN ESTIMATES FOR MARKET PARTICIPANTS TO APPLY

Required record or report 

Total 

number of 

respondents 

Burden 

hours per 

response 

Annual 

number of 

responses per 

respondent 

Hourly wage 

estimate 

Per-entity 

labor cost 

§ 150.11(a)(2) Application on Form 704 .............................. 90 3 2 $122.00 $732 

TABLE IV–A–23—BURDEN ESTIMATES FOR RECORDKEEPING

Required record or report 

Total 

number of 

respondents 

Burden 

hours per 

response 

Annual 

number of 

responses per 

respondent 

Hourly wage 

estimate 

Per-entity 

labor cost 

§ 150.11(b) Recordkeeping .................................................. 6 30 1 $122.00 $3,660 

TABLE IV–A–24—BURDEN ESTIMATES FOR SUBMITTING WEEKLY REPORTS

Required record or report 

Total 

number of 

respondents 

Burden 

hours per 

response 

Annual 

number of 

responses per 

respondent 

Hourly wage 

estimate 

Per-entity 

labor cost 

§ 150.11(c) Weekly Report .................................................. 6 6 52 $122.00 $38,064 

Exchanges will have additional 

surveillance costs and duties that the 

Commission believes will be integrated 

with their existing self-regulatory 

organization surveillance activities as an 

exchange. 


asabaliauskas on DSK3SPTVN1PROD with PROPOSALS
96884 Federal Register / Vol. 81, No. 251 / Friday, December 30, 2016 / Proposed Rules 

1439Most futures contracts do not ultimately 

result in physical delivery. Instead, most positions 

are eliminated by a trader taking an offsetting 

position in the contract. 

10. Summary of CEA Section 15(a) 

Factors 

CEA section 15(a) requires the 

Commission to consider the costs and 

benefits of its actions in light of five 

factors. 

a. Protection of Market Participants and 

the Public 

The imposition of position limits is 

intended to protect the markets and 

market participants from manipulation 

and excessive speculation. Position 

limits may serve as a prophylactic 

measure that reduces market volatility 

due to a participant otherwise engaging 

in large trades that induce price 

impacts. Such price impacts may occur 

when a party who is holding large open 

interest is not willing or is unable to 

meet a call for additional margin. In 

such an instance, a substantial amount 

of open interest may have to be 

liquidated in a short time interval. In 

addition, price impacts could also occur 

from a large trader establishing or 

liquidating large positions. 

There are additional benefits to 

imposing position limits in the spot 

month. Spot month position limits are 

designed to deter and prevent corners 

and squeezes as well as promote a more 

orderly liquidation process at 

expiration.1439 Spot month position 

limits may also make it more difficult to 

mark the close of a futures contract to 

possibly benefit other contracts that 

settle on the closing futures price. 

Marking the close harms markets by 

spoiling convergence between futures 

prices and spot prices at expiration. 

Convergence is desirable, because many 

market participants want to hedge the 

spot price of a commodity at expiration. 

In addition, since many other contracts, 

including cash market contracts, settle 

based on the futures price at expiration, 

the mispricing might affect a larger 

amount of the commodity than the 

deliverable supply of the futures 

contract. 

The CEA provides that position limits 

do not apply to positions shown to be 

bona fide hedging positions, as defined 

by the Commission, or spread positions, 

as recognized by the Commission. 

Exemptions from federal position limits 

for bona fide hedging positions of 

qualified market participants help 

ensure the hedging utility of the futures 

markets while protecting market 

participants from excess speculation. 

The Commission believes that the 

reproposed rules will preserve the 

important protections of the federal 

position limit regime while maintaining 

the hedging function of the futures or 

swaps markets. 

The Commission believes the 

exemption provisions of these 

reproposed rules will have a negligible 

effect on the protection afforded market 

participants and the public, as 

compared to the level of protection that 

is provided by the exemptions policy 

reflected currently in § 150.3. Moreover, 

by expanding current § 150.3 to allow 

exchanges to review applications for 

exemptions from federal limits, the 

Commission will be able to rely on the 

exchanges’ experience and expertise in 

monitoring their own contract markets, 

with Commission supervision, to help 

ensure that any exemptions do not 

detract from the protection of market 

participants and the public. Because 

exchanges have experience and 

expertise, including as part of their SRO 

functions, the Commission believes they 

will be able to carefully design 

exemptions under which position limits 

will continue to protect market 

participants while meeting needs for 

bona fide hedging. Moreover, exchanges 

have strong incentives—such as 

maintaining credibility of their markets 

through protecting against the harms of 

excessive speculation and 

manipulation—to appropriately 

administer exemptions. 

b. Efficiency, Competitiveness, and 

Financial Integrity of Futures Markets 

There is a potential market integrity 

issue with excess speculation. People 

may not be willing to participate in a 

futures market if they perceive that 

there is a participant with an unusually 

large speculative position exerting what 

they believe is unreasonable market 

power. A lack of participation may harm 

liquidity, and consequently, may harm 

market efficiency. 

On the other hand, traders who find 

position limits binding may have to 

trade in substitute instruments—such as 

futures contracts that are similar but not 

the same as the core referenced futures 

contract, forward contracts, trade 

options, or futures on a foreign board of 

trade—in order to meet their demand for 

speculative instruments. These traders 

may also decide to not trade beyond the 

federal speculative position limit. 

Trading in substitute instruments may 

be less effective that trading in 

referenced contracts and, thus, may 

raise the transaction costs for such 

traders. In these circumstances, futures 

prices might not fully reflect all the 

speculative demand to hold the futures 

contract, because substitute instruments 

may not fully influence prices the same 

way that trading directly in the futures 

contract does. Thus, market efficiency 

might be harmed. 

c. Price Discovery 

Reduced liquidity may have a 

negative impact on price discovery. In 

the absence of position limits, market 

participants might elect to trade less as 

a result of a perception that the market 

pricing is unfair as a consequence of 

what they perceive is the exercise of too 

much market power by a larger 

speculator. On the other hand, liquidity 

may also be harmed by a speculator 

being restricted from additional trading 

by a position limit. The Commission has 

set the levels of position limits at high 

levels, to avoid harming liquidity that 

may be provided by speculators that 

would establish large positions, while 

restricting speculators from establishing 

extraordinarily large positions. The 

Commission believes that the 

recognition and exemption processes 

will foster liquidity and potentially 

improve price discovery by making it 

easier for market participants to have 

their bona fide hedging exemptions and 

spread exemptions recognized, 

however. 

Position limits may serve as a 

prophylactic measure that reduces 

market volatility due to a participant 

otherwise engaging in large trades that 

induce price impacts which interrupt 

price discovery. Spot month position 

limits make it more difficult to mark the 

close of a futures contract to possibly 

benefit other contracts that settle on the 

closing futures price. Marking the close 

harms markets by spoiling convergence 

between futures prices and spot prices 

at expiration and damaging price 

discovery. 

d. Sound Risk Management Practices 

The Commission believes that traders 

knowing their positions and ensuring 

that they do not exceed a position limit 

or exempted level is a sound risk 

management practice. Under the 

exemption processes, market 

participants must explain and document 

the methods behind their hedging or 

spreading strategies to exchanges, and 

the Commission or exchanges would 

have to evaluate them. As a result, the 

Commission believes that the evaluation 

processes should help market 

participants, exchanges, the 

Commission, and the public to 

understand better the risk management 

techniques and objectives of various 

market participants. 

e. Other Public Interest Considerations 

The Commission has not identified 

any other public interest considerations. 


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1440See reproposed §§ 150.9(a)(1), 150.10(a)(1), 

and 150.11(a)(1). 

1441 In the case of qualifications to exempt certain 

spread positions, the contract may be either a 

referenced contract that is a component of the 

spread or another contract that is a component of 

the spread. See reproposed § 150.10(a)(1)(i). 

1442The Commission recognizes that in certain 

circumstances it might be in an exchange’s 

economic interest to deny processing a particular 

trader’s application for hedge recognition or a 

spread exemption. For example, this might occur in 

a circumstance in which a trader has reached the 

exchange-set limit and the exchange determines 

that liquidity is insufficient to maintain a fair and 

orderly contract market if the trader’s position 

increases. 

1443See, e.g., Brown Shoe Co. v. U.S., 370 U.S. 

294, 324–25 (1962) (‘‘The outer boundaries of a 

product market are determined by the reasonable 

interchangeability of use or the cross-elasticity of 

demand between the product itself and the 

substitutes for it’’); U.S. v. E.I. du Pont de Nemours 

& Co., 353 U.S. 586, 593 (1957)(‘‘Determination of 

the relevant market is a necessary predicate to 

finding a violation’’); Rebel Oil v. Atl. Richfield Co., 

51 F. 3d 1421, 1434 (9th Cir. 1995) (‘‘A ‘market’ is 

any grouping of sales whose sellers, if unified by 

a monopolist or a hypothetical cartel will have 

market power in dealing with any group of buyers,’’ 

quoting Phillip Areeda & Herbert Hovenkamp, 

Antitrust Law ¶518.1b, at 534 (Supp. 1993)). 

1444CL–Nodal–60948 at 4. 

1445 Id. at 4. 1446 Id. at 4. 

The Commission declined to treat the 

goal of fostering innovation and growth 

for the betterment of markets as an 

additional public interest consideration, 

because these objectives are amorphous 

and likely difficult to accomplish with 

a position limit. Instead, exchanges have 

proper incentives and a variety of tools, 

including financial innovation, with 

which to increase liquidity on their 

exchanges. 

9. CEA Section 15(b) Considerations 

Section 15(b) of the CEA requires the 

Commission to consider the public 

interest to be protected by the antitrust 

laws and to endeavor to take the least 

anticompetitive means of achieving the 

objectives, policies and purposes of the 

CEA, before promulgating a regulation 

under the CEA or issuing certain orders. 

The Commission believes that the rules 

and guidance in this notice are 

consistent with the public interest 

protected by the antitrust laws. 

The Commission acknowledges that, 

with respect to exchange qualifications 

to recognize or grant non-enumerated 

bona fide hedging positions, spread 

exemptions, and anticipatory bona fide 

hedging position exemptions for federal 

position limit purposes, the threshold 

experience requirements that it is 

reproposing will advantage certain 

more-established incumbent DCMs 

(‘‘incumbent DCMs’’) over smaller 

DCMs seeking to expand or future 

entrant DCMs (collectively ‘‘entrant 

DCMs’’) or SEFs.1440 Specifically, 

incumbent DCMs—based on their past 

track records of: (1) Listing actively 

traded referenced contracts or actively 

traded components of spreads; and (2) 

setting and administering exchange-set 

position limits applicable to those 

contracts for at least a year, or having 

otherwise hired staff with such position 

limit experience gained elsewhere—will 

be immediately eligible to submit rules 

to the Commission under part 40 of the 

Commission’s regulations to process 

trader applications for recognition of 

non-enumerated bona fide hedging 

positions, spread exemptions,1441 and 

anticipatory bona fide hedges; in 

contrast, entrant DCMs and SEFs will be 

foreclosed from doing so until such time 

as they have met the eligibility criteria, 

although the Commission has clarified 

in the reproposed rule that any 

exchange may meet the experience 

requirement, but not the actively traded 

contract requirement, by hiring staff 

with appropriate experience. However, 

in the absence of any comments 

supporting a contrary view, the 

Commission does not perceive that an 

ability to process applications for nonenumerated bona fide hedging 

positions, spread exemptions and/or 

anticipatory bona fide hedging positions 

is a necessary function for a DCM or 

SEF to compete effectively as a trading 

facility. In the event an incumbent DCM 

declines to process a trader’s request for 

hedging recognition or a spread 

exemption,1442 the trader may seek the 

recognition or exemption directly from 

the Commission in order to trade on an 

entrant DCM or SEF. Accordingly, the 

Commission does not view the 

reproposed threshold experience 

requirements as establishing a barrier to 

entry or competitive restraint likely to 

facilitate anticompetitive effects in any 

relevant antitrust market for contract 

trading.1443

The Commission invited comment on 

any considerations related to the public 

interest to be protected by the antitrust 

laws and potential anticompetitive 

effects of the proposal, as well as data 

or other information to support such 

considerations. One exchange 

commenter responded that it was 

concerned that the overly prescriptive 

intramarket spread exemption 

application process might diminish 

spread trading on all exchanges.1444

More specifically, the exchange 

commenter stated that it believed it 

would be adversely affected by the 

proposed spread exemption rule 

because it is an exchange that offers a 

certain type of spread trading.1445

Moreover, the exchange commenter 

relies on intramarket spread trading to 

enhance liquidity on less actively traded 

contracts and believes the publication 

requirement under § 150.10(a)(7) would 

have an anti-competitive effect.1446

In response, the Commission notes 

that it has the responsibility to review 

the record of the exchange in granting 

spread exemptions. For example, a 

spread trader, who is a speculator, may 

amass a large position in a referenced 

contract and a corresponding large 

position in a non-referenced contract. 

Such a speculator has an incentive to 

mark the close of the core referenced 

futures contract to benefit their large 

position in a referenced contract. The 

Commission is concerned that it has an 

adequate record to review timely a grant 

of a spread exemption, which would 

allow a speculator to build a large 

position in a referenced contract, 

exempt from position limits. Regarding 

the publication requirement, the 

Commission reiterates that the 

publication requirement is only for a 

summary describing the type of spread 

position and why it was exempted and, 

thus, does not require details of all 

components of spread trading within 

low liquidity non-referenced contract 

markets to be revealed; the Commission 

notes it would not expect such a 

summary would reveal identifying 

information for any trader, but, rather, 

would reveal, at a minimum, the 

referenced contract and a generic 

description of the type of nonreferenced contract that is a component 

of the spread. In addition, the 

Commission notes that spread trades 

may qualify as bona fide hedging 

positions, obviating the need for a 

spread exemption. Finally, the 

Commission notes an exchange may 

petition the Commission for an 

exemption under CEA section 4a(a)(7) 

or the Commission staff for a no-action 

letter under § 140.99. 

B. Paperwork Reduction Act 

1. Overview 

The Paperwork Reduction Act 

(‘‘PRA’’), 44 U.S.C. 3501 et seq., imposes 

certain requirements on Federal 

agencies, including the Commission, in 

connection with their conducting or 

sponsoring any collection of 

information as defined by 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 issued by the Office of 

Management and Budget (‘‘OMB’’). This 

reproposed rulemaking would result in 

the collection of information within the 

meaning of the PRA, as discussed 


asabaliauskas on DSK3SPTVN1PROD with PROPOSALS
96886 Federal Register / Vol. 81, No. 251 / Friday, December 30, 2016 / Proposed Rules 

1447Part 19—Reports by persons holding bona 

fide hedge positions—currently covered by OMB 

control number 3038–0009, is being proposed for 

inclusion in OMB control number 3038–0013. 1448 7 U.S.C. 12(a)(1). 1449 5 U.S.C. 552a. 

1450The Commission also described this 

information in the 2016 Supplemental Position 

below. Specifically, if adopted, it would 

amend previously-approved collection 

of information requirements. Therefore, 

the Commission is submitting this 

reproposal to OMB for review in 

accordance with 44 U.S.C. 3507(d) and 

5 CFR 1320.11. The information 

collection requirements reproposed 

herein will be an amendment to the 

previously-approved collection 

associated with OMB control number 

3038–0013.1447

If the reproposed changes to 

regulations are adopted, responses to 

this collection of information would be 

mandatory. Several of the reporting 

requirements would be mandatory in 

order to obtain exemptive relief, and, 

therefore, would be mandatory under 

the PRA to the extent a market 

participant elects to seek such relief. 

The Commission will protect any 

proprietary information received in 

accordance with the Freedom of 

Information Act and 17 CFR part 145, 

titled ‘‘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.’’ 1448 The Commission also is 

required to protect certain information 

contained in a government system of 

records pursuant to the Privacy Act of 

1974.1449

In December 2013, the Commission 

proposed a number of modifications to 

its speculative position limits regime. 

Under that proposal, market 

participants with positions in a 

‘‘referenced contract,’’ as defined in 

§ 150.1, would be subject to the position 

limit framework established in parts 19 

and 150 of the Commission’s 

regulations. Proposed changes to part 19 

would prescribe new forms and 

reporting requirements for persons 

claiming exemptions to speculative 

position limits and update reporting 

obligations and required information on 

existing forms. In proposed part 150, the 

Commission changed reporting 

requirements for DCMs listing a core 

referenced futures contract as well as for 

traders who wish to apply for an 

exemption from exchange-set position 

limits. The Commission also proposed 

to update and change recordkeeping 

requirements for market participants 

and exchanges. 

In June 2016, the Commission 

published in the Federal Register a 

supplemental notice of proposed 

rulemaking to update and revise the 

regulations proposed in the December 

2013 Position Limits Proposal. The 

Commission proposed to allow a 

participant to exceed speculative 

position limits to the extent that the 

participant’s position is recognized as a 

non-enumerated bona fide hedging 

position, an exempt spread position, or 

an enumerated anticipatory bona fide 

hedge, by a DCM or SEF. The 

Commission proposed to require new or 

amended rule filings under part 40 of its 

regulations that comply with certain 

conditions set forth in the revisions to 

part 150. Further, the proposed changes 

stated that in order to seek exemptive 

relief market participants would need to 

file applications with a DCM or SEF that 

met criteria established under the 

proposal. 

In this Reproposal, the Commission is 

reproposing its changes to parts 1, 15, 

17, 19, 37, 38, 140, 150, and 151 of the 

Commission’s regulations. Specifically, 

with regard to the PRA, the Commission 

is reproposing the following: New and 

amended series ’04 forms under part 19 

and § 150.7; submission of deliverable 

supply estimates under § 150.2(a)(3); 

recordkeeping obligations under 

§ 150.3(g); revised special call authority 

under § 150.3(h); exchange set limit 

exemption application requirements 

under § 150.5(a)(2); and requirements 

for recognition of non-enumerated bona 

fide hedging positions, certain spread 

positions, and enumerated anticipatory 

bona fide hedging positions under 

§ 150.9, § 150.10, and § 150.11, 

respectively. 

The Commission proposes 

reorganizing the information found in 

the OMB Collection Numbers associated 

with this rule. In particular, the 

Commission proposes that the burdens 

related to series ’04 forms be moved 

from OMB Collection #3038–0009 to 

OMB Collection #3038–0013. This 

change is non-substantive but allows for 

all information collections related to 

exemptions from speculative position 

limits to be housed in one collection, 

making it simpler for market 

participants to know where to find the 

relevant PRA burdens. If adopted, OMB 

Collection #3038–0009 would hold 

collections of information related to 

parts 15, 17, and 21 while OMB 

Collection #3038–0013 would hold 

collections of information related to 

parts 19 and 150. 

2. Methodology and Assumptions 

It is not possible at this time to 

accurately determine the number of 

respondents that will be affected by the 

these rules. Many of the regulations that 

impose PRA burdens are exemptions 

that a market participant may elect to 

take advantage of, meaning that without 

intimate knowledge of the day-to-day 

business decisions of all its market 

participants, the Commission could not 

know which participants, or how many, 

may elect to obtain such an exemption. 

Further, the Commission is unsure of 

how many participants not currently in 

the market may be required to or may 

elect to incur the estimated burdens in 

the future. 

The provisions under § 150.9–11 

permits designated contract markets and 

swap execution facilities to elect to 

process applications for recognition of 

non-enumerated bona fide hedging 

positions, exempt spread positions, or 

enumerated anticipatory bona fide 

hedges; accordingly the Commission 

does not know which, or how many, 

designated contract markets and swap 

execution facilities may elect to offer 

such recognition processes, or which, or 

how many market participants may 

submit applications. The Commission is 

unsure of how many designated contract 

markets, swap execution facilities, and 

market participants not currently active 

in the market may elect to incur the 

estimated burdens in the future. 

Finally, many of the regulations 

proposed herein are applying to 

participants in swaps markets for the 

first time, and the Commission’s lack of 

experience enforcing speculative 

position limits for such markets and for 

many of the participants therein hinders 

its ability to determine with precision 

the number of affected entities. These 

limitations notwithstanding, the 

Commission has made best-effort 

estimations regarding the likely number 

of affected entities for the purposes of 

calculating burdens under the PRA. 

3. Information Provided by Reporting 

Entities/Persons 

To determine the number of entities 

who may file series ’04 forms with the 

Commission and/or exemption 

applications with DCMs that elect to 

process such applications, the 

Commission used its proprietary data 

collected from market participants as 

well as information provided by DCMs 

regarding the number of exemptions 

processed by exchange surveillance 

programs each year.1450 As discussed 


asabaliauskas on DSK3SPTVN1PROD with PROPOSALS
Federal Register / Vol. 81, No. 251 / Friday, December 30, 2016 / Proposed Rules 96887 

Limits Proposal. See 2016 Supplemental Position 

Limits Proposal, 81 FR 38500. 

1451See supra discussion of number of traders 

over the limit levels. 

1452The Commission also used this analysis to 

determine the number of entities subject to the 

Commission’s recordkeeping and special call rules 

in § 150.3. 

1453CL–ICE–60929 at 17. 

1454The Commission computed the alternative 

wage rate as a weighted national average of salary 

for professionals with the following titles (and their 

relative weight); ‘‘compliance manager’’ (25 percent 

weight), 3 ‘‘compliance examiner, intermediate’’ (15 

percent each) and ‘‘assistant/associate general 

counsel’’ (30 percent). After adjusting for inflation, 

overhead, and benefits, the wage rate was $107. 

These titles appeared to best represent the 

commenter’s suggestion but without additional 

input from the commenter it is impossible to 

ascertain the commenter’s original intent regarding 

titles of necessary staffing. 

1455This estimate was based upon an average 

wage rate of $51 per hour. Adjusted to the hourly 

wage rate used for purposes of this PRA estimate, 

the previous total labor cost would have been 

$202,500. 

1456The Commission’s Weekly Cotton On-Call 

Report can be found here: http://www.cftc.gov/ 

MarketReports/CottonOnCall/index.htm. 

1457See supra, discussion of conditional spot 

month limit exemption (§ 150.3(c)). 

supra,1451 the Commission analyzed 

data covering a two-year period of July 

1, 2014–June 30, 2016 to determine how 

many participants would have been 

over 60, 80, 100, 125, 150, 175, 200, and 

500 percent of the limit levels in each 

of the 25 commodities subject to limits 

under § 150.2 had such levels been in 

effect during the covered period.1452

The Commission determined that in that 

period, 409 unique entities would have 

exceeded any of the limits in any 

commodities; the Commission is using a 

figure of 425 entities to account for any 

additional entities which may be 

required to comply with limits. The 

Commission assumes that only entities 

over such levels—or close to being over 

such levels—will file the necessary 

forms and applications. The 

Commission’s analysis does not account 

for persons holding hedging or other 

exemptions from position limits, and 

the figures provided by DCMs account 

for exemptions filed for all 

commodities, not just the 25 subject to 

limits under § 150.2. Accordingly, the 

Commission believes the estimates of 

the number of 425 respondents used 

herein are highly conservative. 

To determine the number of 

exchanges who would be affected by the 

reproposal, the Commission analyzed 

how many exchanges currently list 

actively traded contracts in the 

commodities for which federal position 

limits will be set, as the proposed rules 

in § 150.5 as well as in §§ 150.9, 150.10, 

and 150.11 will all apply to exchanges 

that list commodity derivative contracts 

that may be subject federal limits under 

§ 150.2(d). 

The Commission’s estimates 

concerning wage rates are based on 2013 

salary information for the securities 

industry compiled by the Securities 

Industry and Financial Markets 

Association (‘‘SIFMA’’). The 

Commission is using a figure of $122 

per hour, which is derived from a 

weighted average of salaries across 

different professions from the SIFMA 

Report on Management & Professional 

Earnings in the Securities Industry 

2013, modified to account for an 1800- 

hour work-year, adjusted to account for 

the cumulative rate of inflation since 

2013. This figure was then multiplied 

by 1.33 to account for benefits, and 

further by 1.5 to account for overhead 

and administrative expenses. The 

Commission anticipates that compliance 

with the provisions would require the 

work of an information technology 

professional; a compliance manager; an 

accounting professional; and an 

associate general counsel. Thus, the 

wage rate is a weighted national average 

of salary for professionals with the 

following titles (and their relative 

weight); ‘‘programmer (average of senior 

and non-senior)’’ (15% weight), ‘‘senior 

accountant’’ (15%) ‘‘compliance 

manager’’ (30%), and ‘‘assistant/ 

associate general counsel’’ (40%). All 

monetary estimates below have been 

rounded to the dollar. 

A commenter estimated that for an 

exchange to promulgate the regulations 

required of them under this part such an 

exchange would need a senior level 

regulation employee and three 

regulatory analysts.1453 When the 

Commission estimated a per-hour wage 

rate using these professions, however, 

the average hourly wage rate was lower 

than the $122 estimated above.1454 In 

this reproposal, the Commission is 

therefore estimating all burdens with 

the higher wage rate. The Commission 

notes that the wage rate used for PRA 

calculations is an average rate, and that 

some entities may face a higher or lower 

wage rate based on individual 

circumstances. 

4. Collections of Information 

(a) Recordkeeping and Reporting 

Obligations for Market Participants 

(i) Forms 204 and 304 

Previously, the Commission estimated 

the combined annual labor hours for 

both Form 204 and Form 304 to be 1,350 

hours, which amounted to a total labor 

cost to industry of $68,850 per 

annum.1455 Below, the Commission has 

estimated the costs for each form 

separately. 

As proposed, Form 204 would be 

required to be filed when a trader 

accumulates a net long or short 

commodity derivative position that 

exceeds a federal limit in a referenced 

contract. Form 204 would inform the 

Commission of the trader’s cash 

positions underlying those commodity 

derivative contracts for purposes of 

claiming bona fide hedging exemptions. 

The Commission estimates that 

approximately 425 traders would be 

required to file Form 204 once a month 

(12 times per year) each. At an 

estimated 3 labor hours to complete and 

file each Form 204 report for a total 

annual burden to industry of 15,300 

labor hours, the Form 204 reporting 

requirement would cost industry 

$1,866,600 in labor costs. 

As proposed, Form 304 would be 

required to be filed by merchants and 

dealers in cotton and contains 

information on the quantity of call 

cotton bought or sold on a weekly basis. 

Form 304 would be required in order for 

the Commission to produce its weekly 

cotton ‘‘on call’’ report.1456

The Commission estimates that 

approximately 200 traders would be 

required to make a Form 304 

submission for call cotton 52 times per 

year each. At 1 hour to complete each 

submission for a total annual burden to 

industry of 10,400 labor hours, the Form 

304 reporting requirement would 

impose upon industry $1,268,800 in 

labor costs. 

(ii) Form 504 

As proposed, § 19.01(a)(1) would 

require persons claiming a conditional 

spot month limit exemption pursuant to 

§ 150.3(c) to file Form 504. Unlike other 

series ’04 forms, Form 504 would apply 

only to commodity derivative contracts 

in natural gas markets.1457 A Form 504 

filing would show the composition of 

the natural gas cash position underlying 

a referenced contract that is held or 

controlled for which the exemption is 

claimed. The Commission notes that 

this form should be submitted daily for 

each day of the 3-day spot period for the 

core referenced futures contract in 

natural gas. The Commission estimates 

that approximately 40 traders would 

claim a conditional spot month limit 12 

times per year, and each corresponding 

submission would take 15 labor hours to 

complete and file. Therefore, the 

Commission estimates that the proposed 

Form 504 reporting requirement would 

result in approximately 7,200 total 

annual labor hours for an additional 

industry-wide labor cost of $878,400. 


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The Commission requests comment on 

its estimates regarding new Form 504. 

(iii) Form 604 

Persons claiming a pass-through swap 

exemption pursuant to § 150.3(a) would 

be required to file proposed Form 604 

showing various data (depending on 

whether the offset is for non-referenced 

contract swaps or spot-month swaps) 

including, at a minimum, the 

underlying commodity or commodity 

reference price, the applicable clearing 

identifiers, the notional quantity, the 

gross long or short position in terms of 

futures-equivalents in the core 

referenced futures contracts, and the 

gross long or short positions in the 

referenced contract for the offsetting risk 

position. For proposed Form 604 reports 

filed for positions held outside of the 

spot month, the Commission estimates 

that approximately 250 traders would 

claim a pass-through swap exemption 

an average of 10 times per year each. At 

approximately 30 labor hours to 

complete each corresponding 

submission for a total burden to traders 

of 75,000 annual labor hours, 

compliance with the proposed Form 604 

filing requirements industry-wide 

would impose an additional $9,150,000 

in labor costs. 

(iv) Form 704 

Traders claiming anticipatory bona 

fide hedging exemptions would be 

required to file proposed Form 704 for 

the initial statement/application 

pursuant to § 150.7(d), along with an 

annual update on the same form. 

Because annual update requires mostly 

the same information as the initial 

statement, allowing market participants 

to update only fields that have changed 

since the initial statement was filed 

rather than having to update the entire 

form, the Commission anticipates the 

annual update requiring about half the 

time to complete. The Commission 

estimates that approximately 250 traders 

would claim anticipatory exemptions by 

filing an initial statement approximately 

once per year. At an estimated 15 labor 

hours to complete and file an initial 

statement on Form 704 for a total annual 

burden to traders of 3,750 labor hours, 

the anticipatory exemption filing 

requirement would cost industry an 

additional $457,500 in labor costs. The 

annual update to proposed Form 704 is 

estimated to be required of the same 250 

traders once a year, at an estimated 8 

hours to complete and file, for an 

industry-wide burden of 2,000 hours 

and $244,000 in labor costs. 

(v) Recordkeeping and Other Provisions 

Any person claiming an exemption 

from federal position limits under part 

150 would be required to keep and 

maintain books and records concerning 

all details of their related cash, forward, 

futures, options and swap positions and 

transactions to serve as a reasonable 

basis to demonstrate reduction of risk 

on each day that the exemption was 

claimed. These records would be 

required to be comprehensive, in that 

they must cover anticipated 

requirements, production and royalties, 

contracts for services, cash commodity 

products and by-products, pass-through 

swaps, cross-commodity hedges, and 

more. 

The Commission estimates that 

approximately 425 traders would claim 

an average of 50 exemptions each per 

year that fall within the scope of the 

recordkeeping requirements of proposed 

§ 150.3(g). At approximately one hour 

per exemption claimed to keep and 

maintain the required books and 

records, the Commission estimates that 

industry would incur a total of 20,000 

annual labor hours amounting to 

$2,592,500 in additional labor costs. 

In addition, proposed § 150.3(h) 

would provide that upon call from the 

Commission any person claiming an 

exemption from speculative position 

limits under proposed § 150.3 must 

provide to the Commission any 

information as specified in the call. It is 

difficult to determine in advance of any 

such call who may be required to 

submit information under proposed 

§ 150.3(h), how that information may be 

submitted, or how many labor hours it 

may take to prepare and submit such 

information. However, for the purposes 

of the PRA, the Commission has made 

estimates regarding the potential 

burden. 

The Commission estimates that 

approximately 425 traders would be 

eligible to be called upon for additional 

information under proposed § 150.3(h) 

each year. At approximately two hours 

per exemption claimed to keep and 

maintain the required books and 

records, the Commission estimates that 

industry would incur a total of 850 

annual labor hours amounting to 

$103,700 in additional labor costs. 

(vi) Exchange-Set Limits and ExchangeRecognized Exemptions 

Traders who wish to avail themselves 

of any exemption from a DCM or SEF’s 

speculative position limit rules would 

need to submit an application to the 

DCM or SEF explaining how the 

exemption would be in accord with 

sound commercial practices and would 

allow for a position that could be 

liquidated in an orderly fashion. As 

noted supra, the Commission 

understands that requiring traders to 

apply for exemptive relief comports 

with existing DCM practice; thus, the 

Commission anticipates that the 

proposed codification of this 

requirement would have the practical 

effect of incrementally increasing, rather 

than creating, the burden of applying for 

such exemptive relief. The Commission 

estimates that approximately 425 traders 

would claim exemptions from DCM or 

SEF-established speculative position 

limits each year, with each trader on 

average making 1 application to the 

DCM or SEF each year. Each submission 

is estimated to take 2 hours to complete 

and file, meaning that these traders 

collectively would incur a total burden 

of 850 labor hours per year for an 

industry-wide additional labor cost of 

$39,976. 

Under proposed §§ 150.9(a)(3), 

150.10(a)(3), and 150.11(a)(2), 

designated contract markets and swap 

execution facilities that elect to process 

applications to establish an application 

process that elicits sufficient 

information to allow the designated 

contract market or swap execution 

facility to determine, and the 

Commission to verify, whether it is 

appropriate to recognize a commodity 

derivative position as an nonenumerated bona fide hedging position, 

exempt spread position or enumerated 

anticipatory bona fide hedge, 

respectively. Pursuant to proposed 

§§ 150.9(a)(4)(i), 150.10(a)(4), and 

150.11(a)(3), an applicant would be 

required to update an application at 

least on an annual basis. Further, DCMs 

and SEFs have authority under 

§§ 150.9(a)(6), 150.10(a)(6), and 

150.11(a)(5) to require that any such 

applicant file a report with the 

designated contract market or swap 

execution facility pertaining to the use 

of any exemption that has been granted. 

The Commission anticipates that 

market participants would be mostly 

familiar with the non-enumerated bona 

fide hedging position application 

provided by exchanges that currently 

process such applications, and thus 

believes that the burden for applying to 

an exchange would be minimal. 

Information included in the application 

would be required to be sufficient to 

allow the exchange to determine, and 

the Commission to verify, whether the 

position meets the requirements of CEA 

section 4a(c), but specific data fields are 

left to the exchanges to determine. The 

Commission notes that there would be 

a slight additional burden for market 

participants to submit the notice 


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1458Table IV–B–1 at the end of this section 

provides a more detailed breakdown of costs. 

regarding the use of any exemption 

granted, should the DCM or SEF require 

such a report. 

The Commission estimates that 325 

entities would file an average of 2 

applications each year to obtain 

recognition of certain positions as nonenumerated bona fide hedges and that 

each application, including any usage 

report that may be required by the DCM 

or SEF, would require approximately 4 

burden hours to complete and file. 

Thus, the Commission estimates an 

average per entity burden of 8 labor 

hours and an industry-wide burden of 

2,600 labor hours annually. The 

Commission estimates an average cost of 

approximately $976 per entity or 

$317,200 for the industry as a whole for 

applications under § 150.9(a)(3). 

The Commission anticipates that 

market participants would be mostly 

familiar with the spread exemption 

application provided by exchanges that 

currently process such applications, and 

thus believes that the burden for 

applying to an exchange would be 

minimal. Information included in the 

application is required to be sufficient 

to allow the exchange to determine, and 

the Commission to verify, whether the 

position fulfills the objectives of CEA 

section 4a(a)(3)(B), but specific data 

fields are left to the exchanges to 

determine. The Commission notes that 

there would be a slight additional 

burden for market participants to submit 

the notice regarding the use of any 

exemption granted should the DCM or 

SEF require such a report. 

The Commission estimates that 85 

entities would file an average of 2 

applications each year to obtain an 

exemption for certain spread positions 

and that each application, including any 

usage report required by the DCM or 

SEF, would require approximately 3 

burden hours to complete and file. 

Thus, the Commission approximates an 

average per entity burden of 6 labor 

hours and an industry-wide burden of 

510 labor hours annually. The 

Commission estimates an average cost of 

approximately $732 per entity or 

$62,220 for the industry as a whole for 

applications under § 150.10(a)(2). 

The Commission anticipates that 

market participants would be mostly 

familiar with the enumerated 

anticipatory bona fide hedge application 

provided by exchanges that currently 

process such applications, and thus 

believes that the burden for applying to 

an exchange would be minimal. The 

application is required to include, at a 

minimum, the information required 

under § 150.7(d). The Commission 

estimates that 90 entities would file an 

average of 2 applications each year to 

obtain recognition that certain positions 

are enumerated anticipatory bona fide 

hedges and that each application would 

require approximately 3 burden hours to 

complete and file. Thus, the 

Commission estimates an average per 

entity burden of 6 labor hours and an 

industry-wide burden of 510 labor hours 

annually. The Commission estimates an 

average cost of approximately $732 per 

entity or $65,880 for the industry as a 

whole for applications under proposed 

§ 150.11(a)(2). The Commission invites 

comments on any these proposed 

estimates. 

(b) Recordkeeping and Reporting 

Obligations for DCMs and SEFs 

(i) Submission of Estimates of 

Deliverable Supply 

For purposes of assisting the 

Commission in resetting spot-month 

limits, proposed § 150.2(e)(3)(ii) would 

require DCMs to supply the Commission 

with an estimated spot-month 

deliverable supply for each core 

referenced futures contract listed. The 

estimate must include documentation as 

to the methodology used in deriving the 

estimate, including a description and 

any statistical data employed. The 

Commission estimates that the 

submission would require a labor 

burden of approximately 20 hours per 

estimate. Thus, a DCM that submits one 

estimate may incur a burden of 20 hours 

for a cost of approximately $2,440. 

DCMs that submit more than one 

estimate may multiply this per-estimate 

burden by the number of estimates 

submitted to obtain an approximate 

total burden for all submissions, subject 

to any efficiencies and economies of 

scale that may result from submitting 

multiple estimates. 

The Commission notes that, in 

response to comments, the Commission 

proposes to allow a DCM that does not 

wish a spot-month limit level to be 

changed to petition the Commission to 

not change the limit level and, if the 

petition is approved, the DCM would 

not need to submit deliverable supply 

estimates for such a commodity. A DCM 

that submits one petition may incur a 

burden of one hour, resulting in an 

estimated per-petition cost of 

approximately $488. Again, DCMs that 

submit more than one petition may 

multiply this per-petition burden by the 

number of petitions submitted. 

(ii) Filing New or Amended Rules 

Pursuant to Part 40 

Designated contract markets and swap 

execution facilities that elect to process 

the recognition of non-enumerated bona 

fide hedging positions, exempt spread 

positions, or enumerated anticipatory 

bona fide hedging positions would be 

required to file new rules or rule 

amendments pursuant to Part 40 of this 

chapter, establishing or amending its 

application process for recognition of 

the above-referenced positions, 

consistent with the requirements of 

proposed §§ 150.9, 150.10, and 150.11. 

The Commission estimates that, at 

most, 6 entities would file new rules or 

rule amendments pursuant to Part 40 to 

elect to process non-enumerated bona 

fide hedging, spread, or enumerated 

anticipatory hedging applications. The 

Commission determined this estimate 

by analyzing how many exchanges 

currently list actively traded contracts 

for the 28 commodities for which 

federal position limits would be set, 

because proposed §§ 150.9(a), 150.10(a), 

and 150.11(a) would require a 

referenced contract to be listed by and 

actively traded on any exchange that 

elects to process applications for 

recognition of positions in such 

referenced contract. The Commission 

anticipates that the exchanges that 

would elect to process applications 

under these sections are likely to have 

processes for recognizing such 

exemptions currently, and so would 

need to file amendments to existing 

exchange rules rather than adopt new 

rules. Thus, the Commission 

approximates an average per entity 

burden of 10 labor hours.1458 The 

Commission estimates an average cost of 

approximately $1,220 per entity for 

filing revised rules under part 40 of the 

Commission’s regulations. 

(iii) Review and Disposition of 

Applications 

An exchange that elects to process 

applications may incur a burden related 

to the review and disposition of such 

applications pursuant to proposed 

§§ 150.9(a), 150.10(a), and 150.11(a). 

The review of an application would be 

required to include analysis of the facts 

and circumstances of such application 

to determine whether the application 

meets the standards established by the 

Commission. Exchanges would be 

required to notify the applicant 

regarding the disposition of the 

application, including whether the 

application was approved, denied, 

referred to the Commission, or requires 

additional information. 

In the 2016 Supplemental Proposal, 

the Commission noted that the 

exchanges that would elect to process 

non-enumerated bona fide hedging 

position, exempt spread position, and 


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96890 Federal Register / Vol. 81, No. 251 / Friday, December 30, 2016 / Proposed Rules 

1459See CL–ICE–60929 at 17. 

1460 Id. 

1461See CL–ICE–60929 at 17. 

1462The Commission has combined the burdens 

for summaries published in accordance with 

§ 150.9(a)(7) and § 150.10(a)(7) in order to make the 

text clearer. Table IV–B–1 at the end of this section 

provides a more detailed breakdown of costs by 

regulation. 

1463The Commission has combined the burdens 

for recordkeeping under §§ 150.9(b), 150.10(b), and 

150.11(b). Table IV–B–1 at the end of this section 

provides a more detailed breakdown of costs by 

regulation. 

enumerated anticipatory bona fide 

hedging position applications are likely 

to have processes for the review and 

disposition of such applications 

currently in place. The Commission 

noted its preliminary belief that in such 

cases, complying with the rules would 

be less burdensome because the 

exchange would already have staff, 

policies, and procedures established to 

accomplish its duties under the rules. 

One exchange submitted a comment 

requesting the Commission alter its 

estimates of the burdens to exchanges 

for reviewing such submissions, noting 

that the proposed rules ‘‘provide[d] for 

the collection of considerably more 

documents than are currently required 

for Exchange exemption requests.’’ The 

commenter continued that the ‘‘review 

and consideration of these documents 

will result in additional time spent on 

each exemption request’’ and suggested 

the Commission increase its estimate 

from five hours to seven hours per 

review.1459 The commenter also 

suggested the Commission increase the 

number of applications that exchanges 

are estimated to process, stating that the 

Commission’s estimate of 285 

exemption requests (for all three types 

of applications) paled in comparison to 

the exchange’s estimate of 500 

applications.1460

The Commission notes that it is 

unclear whether the exchange’s estimate 

of 500 applications includes 

applications in commodities outside of 

the commodities subject to the proposed 

rules. If so, the exchange may have 

overestimated the number of new 

applications the exchange may process 

per year. Further, the estimates of one 

exchange may not be representative of 

the number of applications received by 

the other five exchanges. However, in an 

abundance of caution, the Commission 

proposes to use the exchange’s estimate 

for the number of applications. Since 

the commenter did not suggest the 

proportion of applications was 

improperly distributed amongst the 

sections regarding non-enumerated bona 

fide hedging positions, exempt spread 

positions, and enumerated anticipatory 

hedging positions, the Commission has 

estimated the costs resulting from each 

type of application using roughly the 

same proportion as originally proposed. 

Thus, the Commission estimates that 

each exchange would process 

approximately 325 non-enumerated 

bona fide hedging position applications 

per year and that each application 

would require 7 hours to process, for an 

average per entity burden of 2,275 labor 

hours annually. The Commission 

estimates an average cost of 

approximately $277,500 per entity 

under § 150.9(a). 

The Commission estimates that each 

exchange would process about 85 

spread exemption applications per year 

and that each application would require 

7 hours to process, for an average per 

entity burden of 595 labor hours 

annually. The Commission estimates an 

average cost of approximately $72,590 

per entity under proposed § 150.10(a). 

The Commission invites comments on 

these estimates. 

The Commission estimates that each 

entity would process about 90 

anticipatory hedging applications per 

year and that each application would 

require 7 hours to process, for an 

average per entity burden of 630 labor 

hours annually. The Commission 

estimates an average cost of 

approximately $76,860 per entity under 

proposed § 150.11(a). 

(iv) Publication of Summaries 

Exchanges that would elect to process 

the applications under proposed 

§§ 150.9 and 150.10 may incur burdens 

to publish on their Web sites summaries 

of the unique types of non-enumerated 

bona fide hedging position positions 

and spread positions, respectively. This 

requirement would be new even for 

exchanges that already have a similar 

process under exchange-set limits. 

The Commission estimated in the 

2016 Supplemental Position Limits 

Proposal that a single summary would 

require 5 hours to write, approve, and 

post. An exchange also commented that 

these summaries would likely require 

seven hours per summary to 

prepare.1461 Thus, the Commission now 

estimates that each exchange would 

post approximately 40 summaries per 

year, with an average per summary 

burden of 7 labor hours.1462 The 

Commission estimates an average cost of 

approximately $34,160 per entity, 

representing the combined burdens of 

§ 150.9(a)(7) and § 150.10(a)(7). The 

Commission invites comments on these 

estimates. 

(v) Recordkeeping 

Designated contract markets and swap 

execution facilities that elect to process 

applications are required under 

proposed §§ 150.9(b), 150.10(b), and 

150.11(b) to keep full, complete, and 

systematic records, which include all 

pertinent data and memoranda, of all 

activities relating to the processing and 

disposition of applications for 

recognition of non-enumerated bona 

fide hedging positions, exempt spread 

positions, and enumerated anticipatory 

bona fide hedges. The Commission 

believes that exchanges currently 

process applications for recognition of 

non-enumerated bona fide hedging 

positions, exempt spread positions, and 

enumerated anticipatory bona fide 

hedges maintain records of such 

applications as required pursuant to 

other Commission regulations, 

including § 1.31. However, the 

Commission also believes that the rules 

may confer additional recordkeeping 

obligations on exchanges that elect to 

process applications for recognition of 

non-enumerated bona fide hedging 

positions, exempt spread positions, and 

enumerated anticipatory bona fide 

hedges. 

The Commission estimates that 6 

entities would have recordkeeping 

obligations pursuant to proposed 

§§ 150.9(b), 150.10(b), and 150.11(b). 

Thus, the Commission approximates an 

average per entity burden of 90 labor 

hours annually for all three sections. 

The Commission estimates an average 

cost of approximately $10,980 per entity 

for records and filings under §§ 150.9(b), 

150.10(b), and 150.11(b).1463 The 

Commission invites comments on its 

estimates. 

(vi) Reporting 

The Commission anticipates that 

exchanges that elect to process 

applications for recognition of nonenumerated bona fide hedging 

positions, spread exemptions, and 

enumerated anticipatory bona fide 

hedges would be required to file two 

types of reports. In particular, proposed 

§§ 150.9(c) and 150.10(c) would require 

a designated contract market or swap 

execution facility that elects to process 

applications for non-enumerated bona 

fide hedging positions and exempt 

spread positions to submit to the 

Commission (i) a summary of any nonenumerated bona fide hedging position 

and exempt spread position newly 

published on the designated contract 

market or swap execution facility’s Web 

site; and (ii) no less frequently than 

monthly, any report submitted by an 

applicant to such designated contract 

market or swap execution facility 

pursuant to rules authorized under 


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Federal Register / Vol. 81, No. 251 / Friday, December 30, 2016 / Proposed Rules 96891 

1464See CL–ICE–60929 at 17. 1465The Commission has combined the burdens 

for recordkeeping under §§ 150.9(c), 150.10(c), and 

150.11(c). Table IV–B–1 at the end of this section 

provides a more detailed breakdown of costs by 

regulation. 1466The Commission has combined the burdens 

for recordkeeping under §§ 150.9(c)(2) and 

150.10(c)(2). Table IV–B–1 at the end of this section 

provides a more detailed breakdown of costs by 

regulation. 

proposed §§ 150.9(a)(6)and 150.10(a)(6), 

respectively. Further, proposed 

§§ 150.9(c), 150.10(c), and 150.11(c) 

would require designated contract 

markets and swap execution facilities 

that elect to process relevant 

applications to submit to the 

Commission a report for each week as 

of the close of business on Friday 

showing various information concerning 

the derivative positions that have been 

recognized by the designated contract 

market or swap execution facility as an 

non-enumerated bona fide hedging 

position, exempt spread position, or 

enumerated anticipatory bona fide 

hedge position, and for any revocation, 

modification or rejection of such 

recognition. 

The Commission understands that 5 

exchanges currently submit reports, on 

a voluntary basis each month, which 

provide information regarding 

exchange-recognized exemptions of all 

types. The Commission stated in the 

2016 Supplemental Position Limits 

Proposal its preliminary belief that the 

content of such reports is similar to the 

information required of the reports in 

§§ 150.9(c), 150.10(c), and 150.11(c), but 

the frequency of such reports would 

increase under the proposed rules. The 

Commission estimated that the weekly 

report would require approximately 3 

hours to complete and submit and that 

the monthly report would require 2 

hours to complete and submit. 

An exchange commented that the 

Commission ‘‘significantly understated’’ 

the time required to prepare, review, 

and submit the weekly and monthly 

reports based on the amount of time the 

exchange currently spends to prepare 

and submit the reports it already 

submits. The commenter suggested the 

Commission revise its estimates to 

reflect the exchange’s estimates of six 

hours to prepare the weekly report and 

six hours to prepare the monthly 

report.1464

The Commission estimates that 6 

entities would have weekly reporting 

obligations pursuant to reproposed 

§§ 150.9(c)(1), 150.10(c)(1), and 

150.11(c).1465 The Commission is 

revising its estimate to reflect the 

commenter’s assertion that the weekly 

report will require a burden of 

approximately 6 hours to complete and 

submit. Thus, the Commission estimates 

an average per entity burden of 936 

labor hours annually. The Commission 

estimates an average cost of 

approximately $114,192 per entity for 

weekly reports pursuant to all three 

related sections. The Commission 

invites comments on its estimates. 

The Commission also estimates that 6 

entities would have monthly reporting 

obligations pursuant to reproposed 

§§ 150.9(c)(2) and 150.10(c)(2).1466 The 

Commission also estimates that the 

monthly report would require a burden 

of approximately 6 hours to complete 

and submit. Thus, the Commission 

approximates an average per entity 

burden of 144 labor hours annually. The 

Commission estimates an average cost of 

approximately $17,568 per entity for 

monthly reports under both sections. 

TABLE IV–B–1—BREAKDOWN OF BURDEN ESTIMATES BY REGULATION AND TYPE OF RESPONDENT

Type of 

respondent Required record or report Total number of respondents 

Annual number of responses per 

respondent 

Total annual 

responses 

Estimated 

number of burden hours per 

response 

Annual burden 

A B C D E1467 F G 1468

Exchange .. New or amended rule filings under part 40 

per § 150.9(a)(1), (a)(6).

6 2 12 5 60 

Exchange .. New or amended rule filings under part 40 

per § 150.10(a)(1), (a)(6).

6 2 12 5 60 

Exchange .. New or amended rule filings under part 40 

per § 150.11(a)(1), (a)(5).

6 2 12 5 60 

Exchange .. Collection, review, and disposition of application per § 150.9(a).6 325 1,950 7 13,650 

Exchange .. Collection, review, and disposition of application per § 150.10(a).6 85 510 7 3,570 

Exchange .. Collection, review, and disposition of application per § 150.11(a).6 90 540 7 3,780 

Exchange .. Summaries Posted Online per § 150.9(a) .... 6 30 180 7 1,260 

Exchange .. Summaries Posted Online per § 150.10(a) .. 6 10 60 7 420 

Exchange .. § 150.9(b) Recordkeeping ............................ 6 1 6 30 180 

Exchange .. § 150.10(b) Recordkeeping .......................... 6 1 6 30 180 

Exchange .. § 150.11(b) Recordkeeping .......................... 6 1 6 30 180 

Exchange .. § 150.9(c)(1) Weekly Report ........................ 6 52 312 6 1,872 

Exchange .. § 150.10(c)(1) Weekly Report ...................... 6 52 312 6 1,872 

Exchange .. § 150.11(c) Weekly Report ........................... 6 52 312 6 1,872 

Exchange .. § 150.9(c)(2) Monthly Report ....................... 6 12 72 6 432 

Exchange .. § 150.10(c)(2) Monthly Report ..................... 6 12 72 6 432 

Exchange .. § 150.2(a)(3)(ii) DS Estimate Submission 

Petition.

6 4 24 1 24 

Exchange .. § 150.2(a)(3)(ii) DS Estimate Submission .... 6 4 24 20 480 

Exchange .. § 150.5(a)(2)(ii) Exchange-Set Limit Exemption Application.6 425 2,550 2 5,100 

Market Participant.§ 150.5(a)(2)(ii) Exchange-Set Limit Exemption Application.425 1 425 2 850 

Market Participant.§ 150.9(a)(3) NEBFH Application ................. 325 2 650 4 2,600 


asabaliauskas on DSK3SPTVN1PROD with PROPOSALS
96892 Federal Register / Vol. 81, No. 251 / Friday, December 30, 2016 / Proposed Rules 

1469See CL–FIA–59595 at 35–36. 

TABLE IV–B–1—BREAKDOWN OF BURDEN ESTIMATES BY REGULATION AND TYPE OF RESPONDENT—Continued 

Type of 

respondent Required record or report Total number of respondents 

Annual number of responses per 

respondent 

Total annual 

responses 

Estimated 

number of burden hours per 

response 

Annual burden 

A B C D E1467 F G 1468

Market Participant.§ 150.10(a)(3) Spread Exemption Application.85 2 170 3 510 

Market Participant.§ 150.11(a)(2) Application On Form 704 ..... 90 2 180 3 540 

Market Participant.§ 150.3(g) Recordkeeping ............................ 425 50 21,250 1 21,250 

Market Participant.§ 19.01(a)(1) Form 504 ................................ 40 12 480 15 7,200 

Market Participant.§ 19.01(a)(2)(i) Form 604 Non Spot Month 250 10 2,500 30 75,000 

Market Participant.§ 19.01(a)(2)(ii) Form 604 Spot Month ........ 100 10 1,000 20 20,000 

Market Participant.§ 19.02 Form 304 ......................................... 200 52 10,400 1 10,400 

Market Participant.§ 19.01(a)(3) Form 204 ................................ 425 12 5,100 3 15,300 

Market Participant.§ 150.3(h) Special Call ................................. 425 1 425 2 850 

Market Participant.§ 150.7(a) Form 704 Initial Statement ......... 250 1 250 15 3,750 

Market Participant.§ 150.7(a) Form 704 Annual Update ........... 250 1 250 8 2,000 

Totals ....................................................................... 431 116.13 50,052 3.91 195,734 

1467 Column C times column D. 1468 Column E times column F. 

4. Initial Set-Up and Ongoing 

Maintenance Costs 

In documents submitted to OMB in 

accordance with the requirements of the 

Paperwork Reduction Act, the 

Commission estimated that the total 

annualized capital, operational, and 

maintenance costs associated with 

complying with the proposed rules 

amending part 150 would be 

approximately $11.6 million across 

approximately 400 firms. Of this $11.6 

million, the Commission estimated that 

$5 million would be from annualized 

capital and start-up costs and $6.6 

million would be from operating and 

maintenance costs. These cost estimates 

were based on Commission staff’s 

estimated costs to develop the reports 

and recordkeeping required in the 

proposed part 150. 

The Commission explained that the 

proposed expansion of the number of 

contract markets with Commission-set 

position limits, and the Congressional 

determination that such limits be 

applied on an aggregate basis across all 

trading venues and all economicallyequivalent contracts, might increase 

operational costs for traders to monitor 

position size to remain in compliance 

with federal position limits. The 

Commission further explained that as 

such limits have been in place in the 

futures markets for over 70 years, the 

Commission believed that traders in 

those markets would have already 

developed means of compliance and 

thus would not require additional 

capital or start-up costs. The 

Commission stated its expectation that, 

while affected futures entities would be 

able to significantly leverage existing 

systems and faculties to comply with 

the extended regime, entities trading 

only or primarily in swaps contracts 

may not have developed such means. 

One commenter provided specific 

estimates of the start-up costs to develop 

new systems to track and report 

positions, stating that per-entity costs 

will range from $750,000 to $1,500,000. 

The commenter also stated that ongoing 

annual costs would range from $100,000 

to $550,000 per entity.1469 The 

Commission notes that the commenter 

did not provide data underlying its cost 

estimates from which the Commission 

could duplicate the commenter’s 

estimates. 

The Commission maintains its belief 

that market participants will be able to 

leverage existing systems and strategies 

for tracking and reporting positions. As 

noted above, the Commission recognizes 

that expanding the federal speculative 

position limits regime into additional 

commodities beyond the legacy 

agricultural commodities will increase 

monitoring costs for firms. However, the 

Commission continues to expect that 

firms trading in the commodities subject 

to federal limits under § 150.2 do 

currently monitor for exchange-set and/ 

or federal limits, and submit reports to 

claim exemptions in contracts for future 

delivery in such commodities. The 

Commission therefore continues to 

believe that costs for futures market 

participants resulting from the rules 

adopted herein are marginal increases 

upon existing costs, rather than entirely 

new burdens. Further, the Commission 

notes that it is difficult to ascertain an 

estimate of the average cost to market 

participants, as, depending on its size 

and complexity, a market participant 

could comply with position limits using 

anything from an Excel spreadsheet to 

multiple transaction capture systems. 

The Commission is increasing its 

estimates to respond to the commenter. 

For swaps market participants unused 

to speculative position limits on swaps 

contracts, the Commission continues to 

estimate a greater cost to start and 

continue monitoring for and complying 

with speculative position limits. 

Specifically, the Commission 

estimates that 441 entities would incur 

annualized start-up costs across all 

affected entities of $47,800,000. The 


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1470 44 U.S.C. 601 et seq. 

1471 5 U.S.C. 601(2), 603–05. 

1472See Policy Statement and Establishment of 

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

Regulatory Flexibility Act, 47 FR 18618–19, Apr. 

30, 1982 (DCMs, FCMs, and large traders) (‘‘RFA 

Small Entities Definitions’’); Opting Out of 

Segregation, 66 FR 20740–43, Apr. 25, 2001 

(eligible contract participants); Position Limits for 

Futures and Swaps; Final Rule and Interim Final 

Rule, 76 FR 71626, 71680, Nov. 18, 2011 (clearing 

members); Core Principles and Other Requirements 

for Swap Execution Facilities, 78 FR 33476, 33548, 

Jun. 4, 2013 (SEFs); A New Regulatory Framework 

for Clearing Organizations, 66 FR 45604, 45609, 

Aug. 29, 2001 (DCOs); Registration of Swap Dealers 

and Major Swap Participants, 77 FR 2613, Jan. 19, 

2012, (swap dealers and major swap participants); 

and Special Calls, 72 FR 50209, Aug. 31, 2007 

(foreign brokers). 

1473The NFP Electric Entities is a group of trade 

associations related to electricity entities comprised 

of the National Rural Electric Cooperative 

Association, the American Public Power 

Association, and the Large Public Power Council, 

with the support of ACES and The Energy 

Authority. 

1474See CL–NFP–59690 at 26–27. 

1475See the Between NFP Electrics Exemptive 

Order (Order Exempting, Pursuant to Authority of 

the Commodity Exchange Act, Certain Transactions 

Between Entities Described in the Federal Power 

Act, and Other Electric Cooperatives, 78 FR 19670 

(Apr. 2, 2013) (‘‘Federal Power Act 201(f) Order’’). 

Continued 

Commission also estimates that 441 

entities would incur ongoing operating 

and maintenance costs of $12,075,000 

across all affected entities. The 

Commission invites comments on its 

estimates. Table IV–B–2 breaks down 

the start-up and annual operating and 

maintenance costs by affected entities. 

TABLE IV–B–2—BREAKDOWN OF START-UP AND ANNUAL OPERATING AND MAINTENANCE COSTS

Total number 

of respondents 

Total 

annualized 

capital/start-up 

costs 

Average 

annualized 

capital/start-up 

costs 

Total annual 

operating & 

maintenance 

costs 

Average 

annual (operating & maintenance costs) 

Total 

annualized 

cost requested 

§§ 19 and 150—Futures & Swaps Participants ..................................................... 425 42,500,000 100,000 10,625,000 25,000 53,125,000 

§§ 19 and 150—Swaps Only Participants 10 5,000,000 500,000 1,000,000 100,000 6,000,000 

§ 150—Exchanges ................................... 6 300,000 50,000 450,000 75,000 750,000 

Total .................................................. ........................ 47,800,000 ........................ 12,075,000 ........................ 59,875,000 

5. Request for Comment 

The Commission invites the public 

and other Federal agencies to comment 

on any aspect of the reproposed 

information collection requirements 

discussed above. The Commission will 

consider public comments on this 

reproposed collection of information in: 

(1) Evaluating whether the reproposed 

collection of information is necessary 

for the proper performance of the 

functions of the Commission, including 

whether the information will have a 

practical use; 

(2) evaluating the accuracy of the 

estimated burden of the reproposed 

collection of information, including the 

degree to which the methodology and 

the assumptions that the Commission 

employed were valid; 

(3) enhancing the quality, utility, and 

clarity of the information proposed to be 

collected; and 

(4) minimizing the burden of the 

reproposed information collection 

requirements on registered entities, 

including through the use of appropriate 

automated, electronic, mechanical, or 

other technological information 

collection techniques, e.g., permitting 

electronic submission of responses. 

Copies of the submission from the 

Commission to OMB are available from 

the CFTC Clearance Officer, 1155 21st 

Street NW., Washington, DC 20581, 

(202) 418–5160 or from http://

RegInfo.gov. Organizations and 

individuals desiring to submit 

comments on the reproposed 

information collection requirements 

should send those comments to: 

• The Office of Information and 

Regulatory Affairs, Office of 

Management and Budget, Room 10235, 

New Executive Office Building, 

Washington, DC 20503, Attn: Desk 

Officer of the Commodity Futures 

Trading Commission; 

• (202) 395–6566 (fax); or 

• OIRAsubmissions@omb.eop.gov 

(email). 

Please provide the Commission with 

a copy of submitted comments so that 

all comments can be summarized and 

addressed in the final rulemaking, and 

please refer to the ADDRESSES section of 

this rulemaking for instructions on 

submitting comments to the 

Commission. OMB is required to make 

a decision concerning the proposed 

information collection requirements 

between 30 and 60 days after 

publication of this Release in the 

Federal Register. Therefore, a comment 

to OMB is best assured of receiving full 

consideration if OMB receives it within 

30 calendar days of publication of this 

Release. Nothing in the foregoing affects 

the deadline enumerated above for 

public comment to the Commission on 

the Reproposal. 

C. Regulatory Flexibility Act 

The Regulatory Flexibility Act 

(‘‘RFA’’) requires that agencies consider 

whether the rules they propose will 

have a significant economic impact on 

a substantial number of small entities 

and, if so, provide a regulatory 

flexibility analysis respecting the 

impact.1470 A regulatory flexibility 

analysis or certification typically is 

required for ‘‘any rule for which the 

agency publishes a general notice of 

proposed rulemaking pursuant to’’ the 

notice-and-comment provisions of the 

Administrative Procedure Act, 5 U.S.C. 

553(b).1471 The requirements related to 

the proposed amendments fall mainly 

on registered entities, exchanges, FCMs, 

swap dealers, clearing members, foreign 

brokers, and large traders. The 

Commission has previously determined 

that registered DCMs, FCMs, swap 

dealers, major swap participants, 

eligible contract participants, SEFs, 

clearing members, foreign brokers and 

large traders are not small entities for 

purposes of the RFA.1472

One commenter, the NFP Electric 

Entities,1473 stated that the Commission 

‘‘ignore[d] its responsibilities under the 

RFA’’ because it did not account for the 

impact on the members of the trade 

associations. The commenter states that 

the rules impose costs on ‘‘small 

entities’’ that ‘‘should not be swept up 

in the Commission’s new speculative 

position limits.’’ 1474 The Commission 

notes, however, that under the Between 

NFP Electrics Exemptive Order certain 

delineated non-financial energy 

transactions between certain specifically 

defined entities were exempted, 

pursuant to CEA sections 4(c)(1) and 

4(c)(6), from all requirements of the CEA 

and Commission regulations issued 

thereunder, subject to certain anti-fraud, 

anti-manipulation, and record 

inspection conditions.1475 All entities 


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See also CL–NFP–59690 at 14–15. The Federal 

Power Act 201(f) Order exempted all ‘‘Exempt NonFinancial Energy Transactions’’ (as defined in the 

Federal Power Act 201(f) Order) that are entered 

into solely between ‘‘Exempt Entities’’ (also as 

defined in the Federal Power Act 201(f) Order, 

namely ‘‘any electric facility or utility that is wholly 

owned by a government entity as described in the 

Federal Power Act (‘FPA’) section 201(f) . . .; (ii) 

any electric facility or utility that is wholly owned 

by an Indian tribe recognized by the U.S. 

government pursuant to section 104 of the Act of 

November 2, 1994 . . .; (iii) any electric facility or 

utility that is wholly owned by a cooperative, 

regardless of such cooperative’s status pursuant to 

FPA section 201(f), so long as the cooperative is 

treated as such under Internal Revenue Code 

section 501(c)(12) or 1381(a)(2)(C), . . . and exists 

for the primary purpose of providing electric energy 

service to its member/owner customers at cost; or 

(iv) any other entity that is wholly owned, directly 

or indirectly, by any one or more of the foregoing.’’). 

See Federal Power Act 201(f) Order at 19688. 

1476See December 2013 Position Limits Proposal, 

78 FR at 75784. 

1477See 2016 Supplemental Position Limits 

Proposal, 81 FR at 38499. 

1478Earlier this year, a draft literature review 

written by staff was released prematurely. Although 

there are similarities between the analysis in that 

document and the analysis herein, that document 

did not represent the final views of the Commission 

or the Office of the Chief Economist. 

1479February 10, 2014, comment letter by Markus 

Henn of World Economic, Ecology & Development, 

including an attachment, a November 26, 2013 list 

entitled ‘‘Evidence on the Negative Impact of 

Commodity Speculation by Academics, Analysis 

and Public Institutions.’’ See http://

comments.cftc.gov/PublicComments/ 

ViewComment.aspx?id=59628&SearchText=henn. 

As noted, of the various economic studies and 

papers in the administrative record, some were 

cited in the December 2013 Position Limits 

Proposal. Others were substantially relied upon in 

comment letters or mentioned in a list submitted by 

commenter Markus Henn (CL–WEED–59628); these 

studies are available in the comment letter file 

through the Commission’s Web site at http://

comments.cftc.gov/PublicComments/ 

CommentList.aspx?id=1708. 

1480Speculation is a natural market phenomenon 

in a market with differing investor expectations. 

Harrison and Kreps, Speculative Investor Behavior 

in a Stock Market with Heterogeneous Expectations, 

Quarterly Journal of Economics (Oxford University 

Press 1978). 1481Bahattin Bu ̈ yu ̈ ks ̧ahin and Jeffrey H. Harris, 

The Role of Speculators in the Crude Oil Futures 

Market (working paper 2009). 1482 7 U.S.C. 6a(a)(1). 1483 Id. 1484What may be ‘‘natural’’ volatility in one 

commodity futures market may be unexpected in 

that meet the requirements for the 

exemption provided by the Federal 

Power Act 201(f) Order are, therefore, 

already exempt from position limits 

compliance for all transactions that 

meet the Order’s conditions. 

Further, while the requirements under 

this rulemaking may impact nonfinancial end users, the Commission 

notes that position limits levels apply 

only to large traders. Accordingly, the 

Chairman, on behalf of the Commission, 

hereby certifies, on behalf of the 

Commission, pursuant to 5 U.S.C. 

605(b), that the actions proposed to be 

taken herein would not have a 

significant economic impact on a 

substantial number of small entities. 

The Chairman made the same 

certification in the December 2013 

Position Limits Proposal 1476 and the 

2016 Supplemental Position Limits 

Proposal.1477

V. Appendices 

A. Appendix A—Review of Economic 

Studies 1478

Introduction 

There are various statistical 

techniques for testing various 

hypotheses about position limits and 

related matter. Many of these techniques 

are deployed to determine whether 

speculative positions influence price, 

price changes, or volatility. The 

Commission has engaged in a 

comprehensive review and analysis of 

the various economic studies and 

papers in the administrative record. 

These economic studies bearing on 

the proposed rule arrived in the 

administrative record in various ways. 

They include studies cited in the 

Commission’s notice of proposed 

rulemaking; studies substantially relied 

upon in comment letters; and studies 

mentioned in a list submitted by 

commenter Markus Henn (‘‘Henn 

Letter’’).1479 Those studies that were 

submitted formally for the record 

receive focused discussion in Section IV 

below. 

As a group, these studies do not show 

a consensus in favor of or against 

position limits. Many studies limited 

themselves to subsidiary questions and 

did not direct address the desirability or 

utility of position limits themselves. 

The quality of the studies varies. Some 

studies are written by esteemed 

economists and published in academic, 

peer-reviewed journals. For other 

studies, that is not the case. Those 

studies that did at least touch on 

position limits had disparate 

conclusions on the ability economists to 

use market fundamentals to explain 

commodity prices; the existence of 

‘‘excessive speculation’’ in various 

futures markets; and the utility of 

position limits. Section 4a(a)(1) of the 

CEA provides for position limits as a 

means to address certain specified 

burdens on interstate commerce. 

Studies that dispute the utility of 

position limits for the purposes 

Congress identified are less helpful than 

studies addressing other questions. 

Preliminary Matters 

1. Defining ‘‘Speculation’’ and Use of 

Proxies To Measure Speculation 

It can be difficult to distinguish 

between ordinary speculation that is 

permitted and desirable, because it 

facilitates the transfer of risk and 

provides liquidity for hedgers, and 

harmful or ‘‘excessive’’ speculation. 

Ideally, speculation may better align 

prices with market fundamentals.1480

Speculators in the commodity futures 

market can generally enhance liquidity 

and reduce a hedger’s cost associated 

with searching for a counterparty who 

wants to take an opposition position. 

Speculators facilitate the needs of 

hedgers to transfer price risk and 

increase overall trading volume, all of 

which can generally contribute to the 

well-being of a marketplace.1481

Congress has found ‘‘excessive 

speculation’’ in futures contracts to be 

‘‘an undue and unnecessary burden on 

interstate commerce.’’ 1482 In accordance 

with that finding, Congress has 

provided for position limits in order to 

‘‘diminish, eliminate, or prevent such 

burden.’’ This paper evaluates economic 

studies concerning how position limits 

can diminish unreasonable price 

fluctuations and changes. 

a.’’Excess Speculation’’ and Volatility 

Although volatility may be an 

indicator of excess speculation, as 

Congress has determined, price 

volatility, in itself, does not establish 

‘‘excess speculation.’’ 1483 Changes in 

fundamentals of supply and demand 

can create substantial volatility, and 

some commodities are, based on their 

nature, more prone to price volatility. 

Changes in these fundamentals may 

induce disagreement between market 

participants on the appropriate price, 

causing some measure of price 

volatility, but this does not necessarily 

imply the existence of excess 

speculation. 

One of the main functions of the 

swaps and futures markets is to permit 

parties with structural exposure to price 

risk (hedgers such as buyers or sellers of 

commodity-related products) to manage 

price changes or price volatility by 

transferring price risk to others. 

Speculators in these markets often, in 

effect, shield hedgers from some forms 

of price volatility by accepting this price 

risk. The nation’s futures and swaps 

markets helps producers and suppliers 

of these commodities, and the 

customers they serve, hedge price risk to 

avoid price uncertainty when desired. 

In this way, volatility and speculation 

are not per se unwelcome phenomena in 

these markets. They are natural events 

in these markets. It is the nature of 

markets to fluctuate.1484


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another. Some critics of the proposed rule 

emphasize that different commodity markets 

behave differently, and that not all of the 

commodity markets referenced in the rule are likely 

to behave as the crude oil markets did in the 2006– 

2009 time period. On the other hand, some 

economic studies suggest there can be ‘‘spillovers’’ 

or transmission of volatility from one commodity 

market to the next. See, e.g., Du, Yu, and Hayes, 

Speculation and Volatility Spillover in the Crude 

Oil and Agricultural Commodity Markets: A 

Bayesian Analysis, Energy Economics (2012). 

1485Brunetti and Bu ̈ yu ̈ ks ̧ahin, Is Speculation 

Destabilizing? (working paper 2009). The 

Commission cited this study in particular in its 

December 2013 Position Limits Proposal. In 

addition, a copy of this economic study was 

formally submitted by the CME Group, Inc., as part 

of the administrative record in a March 28, 2011 

comment. 

1486 Id. at 3. 

1487 Id. at 5. 

1488 7 U.S.C. 6a(a)(1). 

1489See Bahattin Bu ̈ yu ̈ ks ̧ahin and Jeffrey H. 

Harris, The Role of Speculators in the Crude Oil 

Futures Market, at 9 n.7, 10–11 & 24 (working paper 

2009) (employing this technique). 

1490The Working speculative index is 

‘‘predicated on the fact that long and short hedgers 

do not always trade simultaneously or in the same 

quantity, so that speculators fill the role of 

satisfying unmet hedging demand in the 

marketplace. Id. at 1. 

1491 Id. at 10. 

1492See id. at 9–10 (a speculative index of 1.41 

for crude oil futures contracts in 2008 meant that 

share of speculation beyond what was minimally 

necessary to meeting short and long hedging needs, 

was 41 percent: while such a percentage may seem 

on its face ‘‘potentially alarming,’’ it is comparable 

historically with agricultural commodity markets). 

1493 Dwight R. Sanders & Scott H. Irwin, A 

speculative bubble in commodity futures prices? 

Cross-sectional evidence, 41 Agricultural 

Economics 25–32 (2010) (arguing that while 

‘‘bubble’’ explanations ‘‘are deceptively appealing, 

they do not generally withstand close 

examination’’). Because commodity index fund 

buying is very predictable, it seems highly unlikely 

that in ordinary market environment traders would 

fail to trade against an index fund if the fund were 

driving prices away from fundamental values. 

Just as volatility is not a per se 

harmful or unexpected event in the 

commodity futures markets, speculation 

in those markets is welcome and will 

often actually reduce volatility. A wellreasoned 2009 economic study (by 

economists who were then CFTC 

employees) concluded that speculative 

trading in the futures market is not, in 

and of itself, destabilizing.1485 This 

frequently cited study concludes that 

normal speculative trading activity 

actually reduces volatility levels, as a 

general rule, while acknowledging that 

there are limited empirical studies on 

the subject. ‘‘The limited nature of the 

previous literature on the market impact 

of speculators can be attributed to the 

difficulty of obtaining data on their 

trading activities.’’ 1486 There is, 

however, substantial theoretical 

literature that predicts that profitable 

speculation has a stabilizing effect, 

‘‘since speculators buy when the price 

is low, therefore, increasing depressed 

prices, and sell when the price is high, 

therefore, decreasing inflated 

prices.’’ 1487

Some economic studies attempt to 

distinguish between normal and helpful 

speculative activity and excessive 

speculation: between normal volatility 

and, in the words of the Commodity 

Exchange Act, ‘‘unreasonable 

fluctuations’’ in price.1488 Part of the 

research task before any economist 

studying markets for excessive 

speculation is to model and interpret 

excessive speculation and unwanted 

volatility so as to distinguish between 

unwanted phenomena and the proper 

workings of a well-functioning market. 

b. Working’s Speculative T Index 

While there is no well-established 

economic definition of ‘‘excess 

speculation,’’ many economists 

studying commodity futures 

marketplace have used a proxy for 

speculation in commodity futures 

marketplace known in the economic 

literature as the Working’s speculative T 

index. Economist Holbrook Working 

devised in 1960 a ratio to measure the 

adequacy or excessiveness of 

speculation. As applied to commodity 

futures positions, the speculative T 

index is used to assess the amount of 

speculative positions in the marketplace 

beyond the amount of speculative 

positions necessary to provide liquidity 

for hedgers in the marketplace.1489

It is calculated by computing the ratio 

of long and short positions for all trades 

in the commodity market, including 

those of hedgers and those of 

speculators.1490 A high ratio indicates 

many speculators are holding 

commodity futures positions. When this 

speculative T-index is included as an 

economic variable in economist’s 

models to explain prices, economists 

may interpret the T index to be a proxy 

for the relative amount of speculation in 

the marketplace. 

A high Working T index is one way 

to quantify excess speculation in 

technical terms, but even then that may 

not translate into excessive speculation 

in ‘‘economic terms.’’1491 Additional 

economic analysis or historical 

comparisons are useful to understand 

the meaning and impact of a relatively 

high number of speculators in a market 

place.1492

c. Absence of Consensus on ‘‘Price 

Bubbles’’ 

There are several published studies 

on the effect of speculation on prices 

and price volatility, as well as studies 

on speculation generally. These studies 

employ various statistical 

methodologies. Some of these find the 

existence of ‘‘price bubbles,’’ meaning 

somehow artificially high prices that 

last longer than they should. These 

studies are analyzed below, but there is 

no academic consensus on what a 

‘‘price bubble’’ is and how it can be 

detected. Thus many of the 

interpretations set forth in the ‘‘price 

bubble’’ studies are not the only 

plausible explanation for their statistical 

findings. 

As further detailed below, there is no 

broad academic consensus on the 

economic definition of ‘‘excess 

speculation’’ or ‘‘price bubble’’ in 

commodity futures markets. There is 

also no broad academic consensus on 

the best statistical model to test for the 

existence of excess speculation. There is 

open skepticism in many economic 

quarters that there can even exist a 

significant ‘‘price bubble’’ in commodity 

futures markets.1493

A large measure of the difficulty 

stems from the difficulties of secondguessing the market’s determination of 

the price of a commodity contract: 

Experts may express opinions about what 

the fundamental price should be, given 

current supply and demand conditions, but 


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1494 D. Andrew Austin & Mark Jickling, Hedge 

Fund Speculation and Oil Prices (1 ed. 2011). 

1495P is price and t is a particular time, with t+1 

being the point in time that is one fixed increment 

away over which the return is being computed. 

1496As noted above, however, CEA section 4a(a) 

reflects the underlying assumption that position 

limits may be useful for that purpose. 1497 International Monetary Fund, IMF Global 

Financial Stability Report: Financial Stress and 

Deleveraging: Macrofinancial Implications and 

Policy (Oct. 2008). 1498 Id. 1499 Julien Chevallier, Price relationships in crude 

oil futures: new evidence from CFTC disaggregated 

data, 15 Environmental Economics and Policy 

Studies 135 (2012). 

a basic axiom of classical economics is that 

free markets do a better job of weighing 

information and determining prices that any 

group of experts.1494

Nonetheless, there are statistical 

techniques, and theoretical models, that 

economists have employed to attempt to 

discern whether recent behavior in the 

nation’s commodity futures markets has 

deviated from what can be reasonably 

ascribed to the fundamentals of supply 

and demand. 

d. The Project: Studying Whether 

Speculative Positions Causing 

Unwarranted Price Moves 

In order to test for the presence of 

‘‘excessive’’ speculation, many of these 

economic studies look to whether the 

existence of substantial positions by 

speculative traders causes price 

volatility or a semi-permanent change in 

price. The idea underlying these studies 

is that if the presence of sufficiently 

large positions can induce such price 

behavior, it is ‘‘excessive.’’ Economists 

use various statistical tools, including 

correlation analysis, to determine 

whether there is price behavior caused 

by speculative positions that is 

‘‘unwarranted.’’ ‘‘Unwarranted’’ price 

movements are those not associated 

with fundamentals of supply and 

demand, the inherent volatility of 

market prices, or other factors 

independent of position. 

In these studies, economists discuss 

whether positions have caused 

movements in price. Technically, 

economists will study ‘‘price returns’’ 

for a class of commodity, rather than 

just ‘‘price’’ (the nominal price level). 

Price return gives one the change in 

price over time, divided by price.1495

Price return measures price changes 

over the scale of the underlying price. 

That is, different commodities may have 

entirely different scales for prices; by 

dividing by the underlying price, price 

returns put different commodity classes 

on the same percentage scale for 

comparison purposes. 

The conclusions of these various 

economic analyses, discussed in detail 

in Section III below, have achieved a 

reasonable measure of academic 

consensus on some subsidiary matters 

bearing on the ultimate question of 

whether excessive speculation has had 

an impact on the commodity futures 

markets. However, there is no academic 

consensus on the ultimate question of 

the extent and breadth of the impact, 

and there is no singular economic study 

of compelling persuasiveness. 

2. Dearth of Compelling Empirical 

Studies on the Effect of Position Limits 

on Prices or Price Volatility 

There are not many compelling, peerreviewed economic studies engaging in 

quantitative, empirical analysis of the 

impact of position limits on prices or 

price volatility, and thus on whether 

position limits are useful in curbing 

excessive speculation.1496 The 

limitations that inhere in empirical 

analysis of this complex question are set 

forth below. 

a. Trader Identity and Role: Incomplete 

Data 

As many economic researchers 

observe in their studies, there is no 

decisive accounting on whether a 

particular trade or set of trades is 

speculative or hedging. In practice, 

researchers often use a rough proxy 

based on the nature of the trader: 

Whether they are commercial or noncommercial. However, in both practice 

and theory, this proxy may fail: 

Commercial traders may speculate and 

non-commercial traders may well 

hedge. For example, a commercial 

trader might speculate and take an 

outsize position, in the sense that it 

exceeds a given hedging business need, 

in a commodity on the belief that the 

price will go up and down. Thus 

‘‘traders sometimes may be 

misclassified between commercial and 

noncommercial positions, and some 

traders classified as commercial may 

have speculative motives.’’ 1497

Further compounding these 

classification problems, the publicly 

available data also aggregates traders’ 

positions across maturity dates for 

futures contracts, while the price for any 

given commodity futures contract is not 

aggregated by maturity.1498 In addition, 

section 8 of the Commodity Exchange 

Act limits the distribution of detailed 

trade positon data to academic 

researchers. The identity of individual 

traders for specific trades, and their 

position in the market at the time of 

name, is not disseminated publicly to 

economic researchers.1499 Thus, even 

when a position limit breach occurs, it 

is difficult to measure the impact on 

individual participants in the 

marketplace. 

Even when an economic researcher 

can find detailed information on 

specific trades and the nature of the 

traders, that might not be sufficient to 

characterize an individual trade as 

hedging or speculative. A market 

participant may have business needs it 

hedges with derivatives and also engage 

in speculative trading. Thus the identity 

of the market participant purchasing the 

commodity futures contracts alone does 

not accurately capture the motivation 

for or purpose of the trade. Thus, an 

economic researcher faces significant 

data constraints in reliably 

characterizing trades as speculative or 

hedging, making it difficult to determine 

whether position limits are useful in 

curbing certain speculative activity. 

b. Limitations on Studying Markets 

With Pre-Existing Position Limits 

Designing an economic study of the 

effect of position limits is complicated 

by the fact that for many commodity 

markets, position limits are already in 

place. There is therefore not reliable 

empirical data for how certain modern 

commodity futures markets would 

operate in the absence of position limits. 

For all the agricultural commodities 

referenced in the rule, the futures 

markets have already had in place spotmonth position limits at least as strict as 

those proposed in the rule. For energy 

commodities such as crude oil, there 

have been pre-existing ‘‘accountability 

levels,’’ meaning an exchange has the 

option (but not the requirement) to ask 

a trader to reduce its position if it 

exceeds a certain level. For crude oil, 

the current all-months-combined 

accountability level is 20,000 contracts. 

The position limit in the proposed rule 

for the all-months-combined limit is 

109,200 contracts. 

The existence of binding position 

limits in agricultural commodities and 

accountability levels in the energy 

markets does not mean that traders do 

not transgress these limits in current 

markets and take outsized market 

positions for speculative reasons. But 

the existence of current limits does 

make the economist’s task of measuring 

position limit impact more difficult. 

When an economist studies an 

agricultural futures market and attempts 

to assess the economic advantages and 

disadvantages of imposing position 

limits, he or she does not have a dataset 

of market prices in a marketplace 


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1500CFTC, A Study of the Silver Market, Report 

To The Congress In Response To Section 21 Of The 

Commodity Exchange Act, Part Two, 123 (May 19, 

1981) (observing that the imposition of a position 

limit in silver futures contracts by the Chicago 

Board of Trade in 1979 did not raise prices); id. at 

123–24 (observing that price reaction to position 

limits involves a variety of factors and ‘‘it is not 

possible to predict in advance the effect of 

imposition of position limits’’). 

1501See Analysis, Section III(B), infra (discussing 

an economic analysis of these reports). 

1502Permanent Subcomm. on Investigations of the 

U.S. Senate, Comm. on Homeland Sec. & 

Governmental Affairs, Excessive Speculation in the 

Wheat Market, (2009), available at http://

hsgac.senate.gov/public/_files/REPORTExcessive

SpecullationintheWheatMarketwoexhibits

chartsJune2409.pdf. 

1503Permanent Subcomm. on Investigations of the 

U.S. Senate, Comm. on Homeland Sec. & 

Governmental Affairs, Excessive Speculation in the 

Natural Gas Market, (2007), available at http://

www.hsgac.senate.gov//imo/media/doc/

REPORTExcessiveSpeculationintheNatural

GasMarket.pdf?attempt=2. 

1504Permanent Subcomm. on Investigations of the 

U.S. Senate, Comm. on Homeland Sec. & 

Governmental Affairs, The Role of Market 

Speculation in Rising Oil and Gas Prices: A Need 

to Put the Cop Back on the Beat, at 19–32 (2006) 

available at http://www.hsgac.senate.gov//imo/

media/doc/REPORTExcessiveSpeculationinthe

NaturalGasMarket.pdf?attempt=2 (finding 

increased speculation in energy commodities and 

an effect of speculation on prices). 

1505 7 U.S.C. 6a(a)(1). 

1506The remaining 27 papers fall into two groups. 

Two additional papers presented unique 

methodologies involving volatility are interwoven 

into the analysis below. The remaining twenty-five 

papers were not ultimately susceptible to 

meaningful economic analysis. These papers 

included pure opinion pieces, studies written in 

foreign languages, press releases, background 

documents on basic points of economics or law, 

studies unavailable due to broken hyperlinks that 

could not be resolved, or studies founded on 

methodologies too suspect to warrant extensive 

discussion. In the latter category, for example, was 

an unpublished study purported to use a ‘‘novel 

source of information’’—Google metrics involving 

user searches—as a proxy for the demand 

associated with ‘‘corn price dynamics.’’ Massimo 

Peri, Daniela Vandone & Lucia Baldi, Internet, noise 

trading and commodity futures prices, 33 

International Review of Economics & Finance 82– 

89 (2014) (cited by Henn Letter). See also, Letter 

from Markus Henn, World Economic, Ecology & 

Development, to CFTC (Feb. 10, 2014). See also, 

Markus Henn, Evidence on the Negative Impact of 

Commodity Speculation by Academics, Analysis 

and Public Institutions, (Nov. 26, 2013). 

without position limits. Thus 

economists are dependent upon 

economic models and model 

interpretation when they attempt to 

describe how a marketplace without 

position limits would function. Many 

economic studies do not account in 

their models for pre-existing position 

limits or accountability levels. In fact, 

many economic studies that bear on the 

rulemaking do not endeavor to reach the 

ultimate question of the impact of 

position limits on prices and market 

dynamics at all. 

There may be fewer instances of 

dramatic, large-scale ‘‘excessive 

speculation’’ because position limits 

have been in place in many of these 

commodity futures markets since 1938. 

There have thus been few opportunities 

to study the effect of the imposition of 

a position limits rule.1500

c. Inherent Difficulties of Modelling 

Complex Economic Phenomena 

There is no singularly persuasive 

study, because these studies use 

economic models that are, by nature, 

simplifications of a complex reality. 

Each of the various models and 

statistical methods used in these diverse 

studies has advantages and 

disadvantages, but they deploy 

imperfect market data to answer 

ambitious and complex economic 

questions. Given the data and modeling 

limitations, it is unreasonable to expect 

an economic model that is fulsome 

(extending to position limits and market 

speculation), accurate (accommodating 

and reflecting economic history), and 

predictive. This is particularly true in 

the context of market data involving 

volatile and complex events. 

Some studies are better-designed and 

better-executed than others, which 

means that they used defensible models 

with transparent source data. These are 

discussed throughout this review. Much 

of the analysis below highlights the 

flexibility of model design choices and 

the sensitivity of the results to these 

modelling choices. 

3. Staff-Level Congressional 

Determinations 

There have been findings by 

policymakers that excessive speculation 

exists in various commodity futures 

markets, as the Commission observed in 

its notice of proposed rulemaking. For 

example, the Staff of the Permanent 

Subcommittee on Investigations of the 

Homeland Security and Government 

Affairs found 1501 that excessive 

speculation has had ‘‘undue’’ influence 

on wheat price movements,1502 the 

natural gas market,1503 and oil 

prices.1504 Congress itself found 

‘‘excessive speculation’’ in futures 

contracts to be ‘‘an undue and 

unnecessary burden on interstate 

commerce.’’ 1505

These studies, like all the studies 

analyzed here, were undertaken in an 

absence of definitive economic 

definitions and tests for excessive 

speculation; limitations on data quality 

and availability; and the inherent 

difficulty of modelling complex 

phenomena. 

Discussion 

1. Empirical Studies: Economic Studies 

with Statistical Analysis Bearing on 

Speculative Positions in the Commodity 

Markets or Speculation Generally 

Economic studies presented in the 

context of this rulemaking may involve 

theoretical models; statistical analysis 

based upon market data; and, most 

commonly, a combination of both. The 

economic studies using statistical 

methods can be categorized into basic 

statistical methods, such as models of 

fundamental supply and demand (and 

related methods), Granger causality, or 

other methods. The economic studies 

presented or cited in the comment 

letters in this rulemaking are best 

grouped and analyzed by the statistical 

method they employ, for there are 

advantages and disadvantages particular 

to each statistical method. 

This discussion evaluates 244 papers 

in connection with the position limits 

rule: 133 studies submitted as 

comments or mentioned in the 

December 2013 Position Limits 

Proposal; over 100 additional studies or 

articles listed in the Henn Letter; and 

ten additional studies submitted by 

commenters not included in the above 

sets. 

This group of 244 papers can be 

categorized below by statistical 

methodology: 36 Granger causality 

analyses; 25 comovement or 

cointegration analyses; 46 studies 

creating models of fundamental supply 

and demand; 8 switching regressions or 

similar analyses; 3 studies using 

eigenvalue stability analysis; 26 papers 

presenting theoretical models; and 73 

papers that were primarily surveys of 

the economic literature, perhaps with 

some aspect of empirical testing or 

analysis.1506

a. Granger ‘‘Causality’’ 

i. Overview of the Granger Method 

Below is a discussion of the 36 

analyses employing the ‘‘Granger’’ or 

‘‘Granger causality’’ method of 

statistical analysis. This discussion 

includes a description of the method 

and its advantages and disadvantages. 

The Granger method seeks to find 

whether a linear correlation exists 

between two sets of data that are known 

as ‘‘time series.’’ An example of a time 

series would be a pair of numbers 

constituting future prices and time, with 

the time between the different future 

prices being a fixed amount of time. 

This fixed time is known as the ‘‘time 

step.’’ The Granger method takes two 

time series, such as Series A (futures 

price returns, each for a different time, 

for a fixed time step) and Series B 


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1507See generally Grosche, Limitations of Granger 

Causality Analysis To Assess the Price Effects From 

the Financialization of Agricultural Commodity 

Markets Under Bounded Rationality, at 2–5 

(Agricultural and Resource Economics 2012). 

1508See, e.g., Grosche, Limitations of Granger 

Causality Analysis To Assess the Price Effects From 

the Financialization of Agricultural Commodity 

Markets Under Bounded Rationality (Agricultural 

and Resource Economics 2012); Williams, Dodging 

Dodd-Frank: Excessive Speculation, Commodities 

Markets, and the Burden of Proof, Law & Policy 

Journal of the University of Denver (2015). 

1509Antoshin, Canetti, and Miyajima, IMF Global 

Financial Stability Report: Financial Stress and 

Deleveraging: Macrofinancial Implications and 

Policy, Annex 1.2, Financial Investment in 

Commodities Markets at p. 65 (October 2008) 

(footnote and citation omitted). 

1510Singleton, The 2008 Boom/Bust in Oil Prices, 

at 15 (working paper March 23, 2011) (‘‘Of more 

relevance is whether flows affect returns and risk 

premiums over weeks and months.’’) (footnote 

omitted). 

(changes in speculative positions over 

the same time step). It then seeks to 

determine whether there is a linear 

correlation between Series A and Series 

B. This is done by using position data 

that is lagged over time. 

For example, for the time of 12:00 

p.m. and the price of $20 for a May 

cotton futures contract, the researcher 

using Granger ‘‘causality’’ would 

associate a position in May cotton 

futures from a set time prior to 12:00 

p.m. If the time step were one minute, 

that time would be 11:59 a.m. The 

researcher performs a regression 

analysis on these two time series (price 

and time on the one side of the 

equation, and position and lagged time 

on the other). They estimate the 

correlation (technically, they look at the 

coefficient of the regression) through 

this analysis to come to a conclusion of 

whether, over that minute-interval, it 

can be said that there is a linear 

correlation between futures prices and 

positions. 

While the Granger test is referred to 

as the ‘‘Granger causality test,’’ it is 

important to note that, notwithstanding 

this shorthand, ‘‘Granger causality’’ 

does not establish an actual cause-andeffect relationship. What the Granger 

method gives as a result is evidence of 

the existence of a linear correlation 

between the two time series or a lack 

thereof. 

Moreover, the Granger method only 

tests for linear correlations. It cannot 

exclude causation associated with other 

statistical relationships. 

The persuasiveness of a Granger study 

often turns on the soundness of the 

modelling choices, as discussed further 

in subsection 3 below.1507

ii. Advantages of the Granger Method 

At the highest level, the Granger 

method is based on well-credentialed 

statistical methodology. It has been used 

for several decades by economists and 

its properties are well-established and 

well-debated in the economic literature. 

In that sense, unlike some of the other 

methods employed in this context, it 

has stood the test of time. It has been 

deployed in macroeconomics and 

financial economics. 

The Granger test has several 

advantages. It is auditable in the sense 

that it can be fully replicated by a third 

party. The method is relatively simple 

to apply. It need not depend on complex 

mathematics. The method’s 

straightforward approach permits a great 

deal of transparency in analyzing both 

inputs and results. Although the results 

can be highly sensitive to modelling 

choices, the modelling choices are made 

explicitly. That is, the equations that are 

used for the linear regression can easily 

be viewed together with the definitions 

for the variables. 

iii. Disadvantages of the Granger 

Method 

Not all statistical methods apply well 

to all situations. In the particular 

context of speculation and positions 

limits, application of the Granger 

methodology has some disadvantages 

and causes for concern. While the 

statistical answers are, by their nature, 

fairly precise, the drafting of the 

question and the economic 

interpretation of the results can cause 

problems. This limitation of the Granger 

method of course is shared with some 

other statistical methods. However, we 

discuss below why this is particularly 

true of Granger in the context of these 

studies on speculation and prices. Many 

of the potential problems in these 

studies do not so inhere so much in the 

method itself as in the modelling 

choices, other operational choices such 

as the length of time step and time lag, 

and the interpretation of the results.1508

Below, we analyze why this is so. 

First, the typical application of the 

Granger method in the studies review 

assumes a linear relation between the 

variables of interest: For example, prices 

and positions. The technique is useful 

for describing statistical patterns in data 

among variables ordered in time. But 

Granger does not claim to discuss 

simultaneous events. It is a statistical 

test which, in rough terms, says that if 

event A typically precedes event B, then 

event A ‘‘Granger-causes’’ event B. 

Granger is a statistical method for 

analyzing data for correlations, and 

‘‘Granger causation’’ is not ‘‘causation’’ 

per se. It does not illustrate the method 

and means of actual causation nor does 

it claim to establish actual causation in 

reality. 

For example, the Granger method 

cannot explain what causal mechanism 

links two events, events A and B, and 

a Granger model cannot detect all realworld causation. For example, an 

individual Granger model cannot 

conclude whether there is a relation 

between event A and event B that is 

‘‘hidden’’ because the time step chosen 

is so long that the events look to occur 

simultaneously over the observed 

interval (be it a day or a week). 

A second disadvantage concerns the 

sensitivity of the test to the time period 

studied. Especially in the context of the 

Granger method, the selection of the 

particular time internal is important to 

obtain the most useful results: Selection 

of too large a time period may hide 

correlations. Some of the position 

studies use daily price data, while 

others use weekly price data. When 

commodity prices are quite volatile, and 

positions are more gradual in changes, 

daily time steps may have greater 

unexplained variation in the commodity 

prices than when the time series for 

price data is constructed based on 

weekly sampling. A study by 

International Monetary Fund 

economists, using weekly data, observed 

that this time interval ‘‘may hamper the 

identification of very short-run effects, 

given that the transmission from 

positions to prices may happen at 

higher frequency. Indeed, some market 

participants anecdotally suggest that 

there are short-run effects that may last 

only a matter of days.’’ 1509

Another potential problem is picking 

a time lag that is too short to detect 

possible market phenomenon. 

‘‘[K]nowing whether price changes lead 

or lag position changes over short 

horizons (a few days) is of limited value 

for assessing the price pressure effects of 

flows into commodity derivatives 

markets.’’ 1510

In the statistical calculations 

underlying the Granger method, this 

greater volatility may lead to a larger 

denominator in what is called the ‘‘tstatistic,’’ and that will in turn lead to 

a lower t-statistic (in absolute value). 

The t-statistic is used in the Granger 

method to assess how well a variable, 

such as positions, explains another 

variable, such as commodity prices. In 

this way, the selection of the time 

interval can easily affect the strength of 

the Granger method result. 

A third disadvantage of Granger 

inheres in the selection of the time lag. 

A Granger analysis will not capture an 

effect that is delayed beyond the length 

of the time lag. And a Granger analysis 

with too long a time lag may not detect 


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1511Roughly speaking, ‘‘goodness-of-fit’’ analyses 

examine how well the data fits the model. Using a 

goodness of fit criteria allows the data to select the 

number of lags that empirically fits the data the 

best. 

1512See generally Williams, Dodging Dodd-Frank: 

Excessive Speculation, Commodities Markets, and 

the Burden of Proof, Law & Policy Journal of the 

University of Denver (2015) at 136–38 (discussing 

problems associated with Granger test’s 

assumptions and parameters). 

1513 Id. at 138. 

1514There are other difficulties in the CFTC 

dataset that complicate empirical analysis of 

herding activity. See Acharya, Ramadorai, and 

Lochstoer, Limits to Arbitrage and Hedging: 

Evidence from the Commodity Markets, at 19 

(Journal of Financial Economics 2013). 

1515See Bahattin Bu ̈ yu ̈ ks ̧ahin and Jeffrey H. 

Harris, The Role of Speculators in the Crude Oil 

Futures Market (working paper 2009) (later 

published in The Energy Journal, Vol. 32, No. 2, 

167–202 (2011) under the title Do Speculators Drive 

Crude Oil Futures Prices?). 

1516These test statistics is a t-test for one lag in 

the relevant variable or an F-test for multiple lags. 

1517This argument is also correct for F-tests (a 

multivariable extension of t-tests). 

1518 David Frenk, Review of Irwin and Sanders 

2010 OECD Report, at p. 6 (Better Markets June 20, 

2010) and citations therein, cited in Henn Letter at 

6–7. 

price changes during periods of price 

volatility. The Granger technique does 

not guide the selection of the time lag. 

There are some heuristic techniques to 

help determine the time lag based on 

the ‘‘goodness-of-fit’’ 1511 of regressions, 

but these supplemental techniques may 

yield time lags that do not have a strong 

theoretical footing.1512

In such ways, and others, the authors 

of such study have wide license in 

modelling design. The results can be 

highly dependent upon and sensitive to 

model design choices. Key design 

decisions of seemingly little import, 

such as the selection of time steps, can 

in fact make a substantial difference in 

the study’s result. While such flexibility 

can be useful, this flexibility also 

permits Granger results to be sensitive 

to modelling assumptions. Such 

sensitivity, especially in the particular 

context of the volatile commodity 

prices, is problematic. Volatility in 

commodity prices is a complex 

phenomenon, with possibly overlapping 

effects of short- and long-term volatility 

and many exogenous variables that can 

affect prices. In short, ‘‘care must be 

taken not to overstate the interpretive 

power’’ of Granger causality studies.1513

Finally, the method cannot discern 

the true cause of something when event 

A and B occur almost simultaneously. 

Granger cannot say whether A caused B 

or whether C causes A and then C 

causes B with a brief time lag. In this 

way, Granger correlation analysis is 

fundamentally incapable of establishing 

a cause and effect relationship. 

There can also be limitations with 

regard to the data used in Granger 

studies on position limits, the majority 

of which used Commission data. There 

is a problem which inheres in this data 

in the particular context of position 

limit studies. The trade data used 

identifies the entity doing the trade as 

‘‘commercial’’ or ‘‘non-commercial.’’ 

The data does not identify whether a 

particular trade is a hedge or a 

speculative gamble.1514 While the 

studies’ authors may infer that a trader’s 

identity as a commercial trader is 

strongly associated with hedging (or at 

least non-speculative trades), in practice 

that may be far from the case. 

There is also the statistical concept of 

‘‘robustness,’’ meaning roughly that the 

results of a study are not qualitatively 

different based on different applications 

(different data sets, different tweaks of 

assumptions). In several ways, 

application of the Granger method in 

this particular context offers grounds for 

caution for study authors seeking 

statistical robustness. First, for a given 

time step and commodity, the particular 

time interval chosen may affect the 

result. Second, a Granger method is, by 

its nature, very sensitive to which 

particular dataset is chosen. Once again, 

a study’s author(s) have wide discretion 

in the selection of which datasets to 

study, and Granger methodology will be 

highly sensitive to this selection. 

There is the related problem of 

economic robustness. For example, 

because of individual market 

characteristics, a study limited to a 

particular commodity or time period 

may fail to detect patters that would be 

detectable applying the same method in 

to other time periods of commodities. 

Applying Granger analysis to 

commodity prices presents special 

challenges in this context because many 

commodity prices can be quite volatile, 

especially in the short-term. That is, the 

Granger method may have low 

‘‘statistical power’’ in this context. In 

mathematical terms, high volatility in 

one of the Granger variables can lead to 

large standard errors for regression 

coefficients for the t-statistic.1515

A modelling choice to include other 

variables can further reduce the 

statistical power of the statistical test 

used in the Granger method.1516 Other 

economic variables in the regression 

analysis, if not properly chosen, can 

compromise the Granger ‘‘causality’’ 

test. For instance, explanatory variables 

may not be uncorrelated to the 

speculative position or position change 

variables. To the extent that the 

variables are correlated to speculative 

positions, they may, in the estimation of 

the regression, wash out the price effect. 

The t-statistic of the regression 

coefficient remains small because the 

standard error estimate of the coefficient 

is large due to common correlation 

between explanatory variables.1517

Authors of Granger method studies 

may add ‘‘control variables’’ in order to 

reflect other factors that may be 

affecting or relevant to the two main 

variables of primary interest (such as 

price and position). The introduction of 

control variables will help to discount 

spurious corrections between the 

variables of primary interest by studying 

whether another variable could be 

correlated to (and thus ‘‘Granger 

causing’’) variables such as price and 

position. Adding extra variables can, on 

the one hand, affect for third factors 

which may be relevant. On the other 

hand, the introduction of the third 

factors may compromise the statistical 

power of the primary question of 

interest. 

Finally, there are also economic 

studies casting doubt on the suitability 

of commodities data for meaningful 

Granger tests, given volatility in 

commodities price data.1518 This is 

because volatility increases the standard 

error of the estimated coefficient for the 

lagged variable(s). Thus, Granger tests 

examining commodities data may lack 

statistical power to detect Granger 

causality. 

iv. Comparison of Strengths and 

Weaknesses 

Granger techniques provide great 

flexibility. This flexibility also provides 

great license to economists on selection 

of critical factors such as the length of 

the time lag and the time step. The 

ultimate conclusions of such studies 

may be influenced by model design. 

Unsurprisingly, different economists 

reach different results. In this sense, the 

conclusions of Granger-based papers are 

vulnerable to criticism. 

v. Analysis of Studies Reviewed That 

Use Granger Methodology 

Overall, when the Granger studies 

find a correlation (in the sense of a leadlag relationship) between speculative 

positions and price returns, they do so 

not with respect to price returns as a 

whole, but the risk premium component 

of price returns. The risk premium is the 

portion of expected return of a futures 

contract associated with holding the 

contract. It is not an express term of the 

contract, but an amount that can be 

derived from economic analysis as the 

difference between the futures price 

return and a hypothesized price return 


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1519 In theory, if the futures contract at expiration 

is a perfect substitute for the spot commodity, then 

the expiring futures price should converge to the 

spot price. It is important to note that many 

expiring futures contracts are imperfect substitutes 

for the spot commodity and this might prevent 

convergence. Moreover, the risk premium decreases 

to zero as the futures contract approaches 

expiration. Thus, the risk premium has no effect on 

the final convergence of the futures to the spot price 

at expiration of the futures contract, but could, in 

theory, impact the rate of convergence (although 

any impact may be negligible). 

1520Bahattin Bu ̈ yu ̈ ks ̧ahin and Jeffrey H. Harris, 

The Role of Speculators in the Crude Oil Futures 

Market at 2 (working paper 2009). 

1521See, e.g., Goyal and Tripathi, Regulation and 

Price Discovery: Oil Spot and Futures Markets 

(working paper 2012); Irwin and Sanders, Energy 

Futures Prices and Commodity Index Investment: 

New Evidence from Firm-Level Position Data 

(working paper 2014); Kaufmann and Ullman, Oil 

Prices, Speculation, and Fundamentals: 

Interpreting Causal Relations Among Spot and 

Futures Prices, Energy Economics, Vol. 31, Issue 4 

(July 2009); Kaufman, The role of market 

fundamentals and speculation in recent price 

changes for crude oil, Energy Policy, Vol. 39, Issue 

1 (January 2011); Mobert, Do Speculators Drive 

Crude Oil Prices? (2009 working paper); Sanders, 

Boris, and Manfredo, Hedgers, Funds, and Small 

Speculators in the Energy Futures Markets: An 

Analysis of the CFTC’s Commitment of Traders 

Reports, Energy Economics (2004); Singleton, 

Investor Flows and the 2008 Boom/Bust in Oil 

Prices (working paper March 23, 2011) (published 

in final form in Management Science in 2013); 

Singleton, The 2008 Boom/Bust in Oil Prices 

(working paper May 17, 2010). 

1522 Kenneth J. Singleton, Investor Flows and the 

2008 Boom/Bust in Oil Prices, SSRN Electronic 

Journal 15 (2011) 18. (Equation 6, lagged correlation 

analysis that is, functionally, a Granger analysis). 

1523Hamilton and Wu, Risk Premia in Crude Oil 

Futures Prices, Journal of International Money and 

Finance (2013) (replicating Singleton’s result using 

a different methodology, a two-factor linear model 

of fundamental supply and demand). 

1524 Kenneth J. Singleton, Investor Flows and the 

2008 Boom/Bust in Oil Prices, SSRN Electronic 

Journal 15 (2011) 5–8. 

1525 Jochen Mo ̈bert, Deutsche Bank Research, 

Dispersion in beliefs among speculators 9–10 

(2009). This paper concluded that as net long 

positions increased, volatility increased. This paper 

was inconclusive of the impact of speculation on 

price levels (id. at 8–9), and observed caveats on the 

difficulty of accurate modelling in the complex 

crude oil market (id. at 11). 

1526Frenk, Review of Irwin and Sanders 2010 

OECD Report, at 6 (Better Markets June 10, 2010). 

1527There are not many other economic studies 

in the administrative record duplicating the results 

of Singleton and Hamilton and Wu. A few others 

reached similar conclusions regarding the crude oil 

market using Granger analysis, but these are 

relatively modest or narrowly constructed studies 

that are not often cited by economic peers. See 

Goyal and Tripathi, Regulation and Price Discovery: 

Oil Spot and Futures Markets (working paper 2012) 

(concluding that regulations of the nation of India, 

including position limits, may have mitigated short 

duration ‘‘bubbles’’). 

1528 Kaufmann and Ullman, Oil Prices, 

Speculation, and Fundamentals: Interpreting 

Causal Relations Among Spot and Futures Prices, 

Energy Economics, Vol. 31, Issue 4 (July 2009); 

Kaufman, The role of market fundamentals and 

speculation in recent price changes for crude oil, 

Energy Policy, Vol . 39, Issue 1 (January 2011); 

Sanders, Boris, and Manfredo, Hedgers, Funds, and 

Small Speculators in the Energy Futures Markets: 

An Analysis of the CFTC’s Commitment of Traders 

Reports, Energy Economics (2004). 

1529 Irwin and Sanders, Index Funds, 

Financialization, and Commodity Futures Markets, 

at 14–15, Applied Economic Perspectives and 

Policy (2010). 

1530Hamilton, Causes and Consequences of the 

Oil Shock of 2007–2008, Brookings Paper on 

Economic Activity (2009); Parsons, Black Gold & 

Fool’s Gold: Speculation in the Oil Futures Market 

at 82, 106–107 (Economia 2009) (if oil prices were 

for a futures contract. The risk premium 

is the return required to bear the 

undiversifiable risk on the relevant side 

of a futures contract.1519

There are also Granger studies that 

analyze speculative positions with 

respect to price returns as a whole or 

price volatility; these do not find a 

statistically significant correlation. 

Moreover, those studies that do find a 

lead-lag correlation using the Granger 

methodology in the risk premium 

context are limited to studies in 

particular markets in particular time 

frames: Studies using weekly, not daily, 

price data and analyzing crude oil and 

ethanol-related commodities (including 

wheat, which is an economic substitute 

for corn) during the 2007–2010 

timeframe. 

There are 36 primarily Granger-based 

economic studies in the administrative 

record. For analysis purposes, these 

papers are grouped according to 

whether they discuss primarily crude 

oil or other energy derivatives (8 

studies); the possible impact of 

commodity index funds across multiple 

commodities (13); and agricultural 

commodities (15). 

Crude Oil and Other Energy Derivatives 

There was a substantial increase in 

crude oil prices through July 2008, 

followed by a significant price collapse 

from July 2008 through March of 

2009.1520 Several Granger analyses have 

looked at price returns and/or price 

volatility in the crude oil markets, or the 

energy markets generally, in the 2007– 

2009 timeframe.1521

Professor Kenneth Singleton found 

evidence that speculative positions 

Granger-caused risk premium on weekly 

time intervals during the 2007 to 2009 

period when studying the crude oil 

futures markets.1522 Part of Singleton’s 

results were replicated in part in a paper 

by Hamilton and Wu using a different 

methodology than Granger causality 

analysis.1523 Professor Singleton found a 

link between the volume of speculative 

positions and an increase in risk 

premium. Because risk premium is a 

component of price returns and hence 

price, he thus found a link—Granger 

causal link—between speculative 

positions and price. However, because 

risk premium is just a relatively small 

component of price, this study does not 

purport to explain entirely the large 

2008 changes in crude oil prices. 

In the case of index funds, many 

funds take long positions. The presence 

of large index funds positions raises an 

issue of whether what economists 

would call this ‘‘heterogeneity of views’’ 

can affect marketplace health. Singleton 

presents, with his Granger-like analysis, 

a discussion of heterogeneity in this 

context. He conjectures—without 

supporting empirical analysis—that 

learning about economic fundamentals 

with heterogeneous views may induce 

excessive price volatility, drift in 

commodity prices, and a tendency 

towards booms and busts. He asserts 

that under these conditions the flow of 

financial index investments into 

commodity markets may harm price 

discovery and thus social welfare.1524

Another paper using Granger analysis 

concluded that speculators did have an 

impact on price volatility in the crude 

oil market.1525

Some commenters have suggested that 

using a weekly, not a daily, time 

interval for a Granger analysis in this 

context is a better choice because 

speculative positions change gradually 

and there is, on a daily basis, substantial 

price volatility, especially in the crude 

oil market.1526 The common sense 

explanation for this may be that prices 

change more often and more rapidly 

than position sizes, as a general rule. A 

weekly time interval is a good way to 

filter out price changes that speculative 

position changes cannot explain.1527

Other Granger analyses of the crude 

oil market use shorter time intervals and 

do not find Granger-causality between 

speculative position changes and either 

price returns, price changes or price 

volatility.1528 The academic literature 

contains a divergence of views on 

whether the existence of ‘‘excess 

speculation’’ in the crude oil market 

would necessarily result in something 

that is easy to measure, like increases in 

oil inventories. Some economists argue 

against the role of ‘‘excess speculation’’ 

in crude oil, observing that when there 

was a run-up in prices of certain 

commodities, there was no noticeable 

increase in inventories.1529 This 

assumes that a fundamental shock in the 

oil prices, for example, is likely to 

increase or decrease inventories, as 

hedgers in the physical market 

anticipate future price increases or 

decreases. However, other economists 

have explained that, at least in theory, 

speculation can affect spot oil prices 

without causing substantial increases in 

inventory (providing the price elasticity 

of oil demand is small).1530


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driven above the level determined by fundamental 

factors of supply and demand by forces such as 

speculation, storage would not necessarily increase, 

for ‘‘successful innovations in the financial industry 

made it possible for paper oil to be a financial asset 

in a very complete way’’); accord Lombardi and 

Van Robays, Do Financial Investors Destabilize the 

Oil Price?, at 21–22, European Central Bank 

Working Paper Series No. 1346 (June 2011). The 

ability drawdown or stock pile inventory is limited 

by storage capacity. Further, since it is expensive 

to store oil above ground, buy and hold strategies 

are only a loose constraint on prices. 

1531 Dwight R. Sanders & Scott H. Irwin, Energy 

Futures Prices and Commodity Index Investment: 

New Evidence from Firm-Level Position Data, 46 

Energy Economics (working paper 2014). 

1532 In this paper, Irwin and Sanders critiqued 

Singleton’s results, concluding that Singleton found 

Granger causation because he improperly calculated 

positon data. This debate cannot be resolved 

definitively. In the absence of better daily data on 

position in both swaps and position markets, it is 

unclear who is correct here. 

1533 Dwight R. Sanders, Keith Boris & Mark 

Manfredo, Hedgers, funds, and small speculators in 

the energy futures markets: An analysis of the 

CFTC’s Commitments of Traders reports, 26 Energy 

Economics 425–445 (2004). 

1534 Id. at 439, Equation 5. 

1535 James D. Hamilton & Jing Cynthia Wu, Risk 

premia in crude oil futures prices, 42 Journal of 

International Money and Finance 9–37 (2014). 

1536Robert K. Kaufmann, The role of market 

fundamentals and speculation in recent price 

changes for crude oil, 39 Energy Policy 105–115 

(2011). 

1537Cf. Kaufmann and Ullman, Oil Prices, 

Speculation, and Fundamentals: Interpreting 

Causal Relations Among Spot and Futures Prices, 

31 Energy Economics (July 2009) (concluding that 

there is Granger-price causation between different 

types of crude oil). This study does not look for 

causation between position and price and so, again, 

is of marginal relevance in the position limits 

context. 

1538See, e.g., Antoshin, Canetti, and Miyajima, 

IMF Global Financial Stability Report: Financial 

Stress and Deleveraging: Macrofinancial 

Implications and Policy, Annex 1.2, Financial 

Investment in Commodities Markets (October 2008); 

Jeffrey H. Harris and Bahattin Bu ̈ yu ̈ ks ̧ahin, The Role 

of Speculators in the Crude Oil Futures Market 

(working paper 2009); Brunetti and Bu ̈ yu ̈ ks ̧ahin, Is 

Speculation Destabilizing? (working paper 2009); 

Frenk, Review of Irwin and Sanders 2010 OECD 

Report (Better Markets June 10, 2010); Gilbert, 

Speculative Influences on Commodity Futures 

Prices, 2006–2008, UN Conference on Trade and 

Development (2010) (page citations are to the 2009 

working paper version placed in the administrative 

record); Gilbert, Commodity Speculation and 

Commodity Investment (powerpoint presentation 

2010); Irwin and Sanders, The Impact of Index and 

Swap Funds on Commodity Futures Markets: A 

Systems Approach, Journal of Alternative 

Investments (2011); Irwin and Sanders, The Impact 

of Index and Swap Funds on Commodity Futures 

Markets: Preliminary Results (working paper 2010); 

Mayer, The Growing Interdependence Between 

Financial and Commodity Markets, UN Conference 

on Trade and Development (discussion paper 2009); 

Stoll and Whaley, Commodity Index Investing and 

Commodity Futures Prices (working paper 2010); 

Tse and Williams, Does Index Speculation Impact 

Commodity Prices?, Financial Review, Vol. 48, 

Issue 3 (2013); Tse, The Relationship Among 

Agricultural Futures, ETFs, and the US Stock 

Market, Review of Futures Markets (2012). A fairly 

late submission by Williams, Dodging Dodd-Frank: 

Excessive Speculation, Commodities Markets, and 

the Burden of Proof, Law & Policy Journal of the 

University of Denver (2015), studies generally the 

limitations of Granger causality. 

Irwin and Sanders conclude that there 

is no Granger-causation between 

positions in a particular commodity 

index fund and price returns in four 

energy commodity markets.1531 Irwin 

and Sanders’ paper contains a fairly 

robust Granger analysis which analyzes 

several models in conjunction with their 

standard model equation for position 

and price. However, all of the equations 

that they test for Granger causation 

contain a possible prejudice: The use of 

variables that may be correlated with 

price other than the position variable, 

thus masking the power of the position 

variable. Moreover, their paper fails to 

show that the particular index fund data 

they used was generally representative 

of index funds by statistical testing.1532

There is an earlier paper by Sanders, 

Boris, and Manfredo that has a similar 

result.1533 However, this 2004 paper 

uses variables that may be correlated 

with price other than position data, and 

so, in the Granger analysis, the price 

equation used for Granger testing may 

mask some or all of the impact of 

positions on price (if any).1534 As 

discussed, Irwin and Sanders’ 2014 

paper is also not completely free from 

this masking problem. However, it has 

only one, not several, variables that 

could mask correlation between 

position changes and price returns: A 

lagged price return variable. Irwin and 

Sanders, aware of the possibility of this 

masking of correlation, present a 

defense of their choice to include a 

lagged price return variable in their 

model. They argue that one does not 

know whether positions will affect just 

current price returns or both current and 

lagged price returns, and in this way it 

is not necessarily the case that there is 

a masking effect. 

This argument does not prove that 

there is no masking effect. There is at 

least the concern that the Irwin and 

Sanders model, as constructed, masks 

possible Granger-causality between 

position changes and price returns. 

Theoretically, one could learn more by 

examining the linear correlation 

between explanatory variables (lagged 

price returns and changes in position) 

by performing additional diagnostic 

regressions. These regressions would 

estimate correlations between 

explanatory variables and resolve the 

open question of whether the price 

equation is significantly ‘‘masking’’ 

Granger-causality between position 

changes and price returns. 

Selecting between competing models 

with divergent results becomes more of 

a judgment call than a science. Irwin 

and Sanders’ 2014 paper is well-done, 

as are papers with opposite conclusions, 

which find an empirical relationship 

between position changes and price 

returns (risk premia), such as the 

Singleton Granger analysis discussed 

above, and a paper by Hamilton and Wu 

based on a different statistical method 

discussed below.1535

It is impossible to easily discern who 

is correct or what accounts for the 

difference in result. It could be the 

‘‘masking’’ issue in the Irwin and 

Sanders model. It could also be the 

focus in the Irwin and Sanders work on 

price returns, as opposed to the focus in 

both Singleton’s as well as Hamilton 

and Wu’s on just a component of price 

returns, risk premia. Irwin and Sanders, 

by focusing on price returns, are doing 

Granger-causality testing with a model 

less sensitive to changes in just risk 

premia. The differing results could also 

be due to the different time horizons 

(weekly versus daily time increments) 

used in the competing studies. 

This clash of well-executed studies is 

on an important issue—the dramatic 

changes in crude oil prices in 2006– 

2009. The study by Kaufman is not 

directly on point.1536 He finds Grangercausation between different types of 

crude oil contracts, but does not look to 

positions or whether positions Grangercause changes in price returns. 

Kaufmann also finds that far-out 

futures contracts and spot crude oil are 

not correlated and he concludes that the 

reason for this lack of correlation is 

speculation in the crude oil market. 

However, there are gaps in this 

inference. Kaufmann assumes there 

should be a long-run equilibrium 

between the spot and the futures price 

but cannot discern a supply and 

demand reason for the lack of 

correlation. There are many factors of 

supply and demand that would lead to 

differences between far-out futures 

prices and spot prices in the crude oil 

market during the time period studied— 

1986–2007. These factors include the 

depletion of oil fields; variability in 

economic growth; discovery of new oil 

sources and better modes of extraction; 

adaption of oil infrastructure.1537

Index Funds Generally 

Some economists have used the 

Granger methodology to study a group 

of commodity markets and to analyze, 

overall, the effect, or lack thereof, of 

commodity index fund investments on 

both energy and agricultural commodity 

prices.1538 These relatively few Granger 

studies on the ‘‘financialization’’ effect 

vary in their conclusions. Overall, as a 

group, the Granger studies on the effect 

of index funds across a swath of 


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1539There are many more studies using the 

comovement or cointegration analysis, discussed in 

Section I(B) below, that look at the financialization 

questions. 

1540Christopher L. Gilbert, Speculative Influences 

on Commodity Futures Prices, 2006–2008 (2010). 

1541 Id. at 23; see also id. at 24, Table 6 (average 

price impact by commodity, including a maximum 

price impact of over 16 percent for crude oil during 

2006–2008 time period). 

1542Several statements about the index in the 

paper indicate a lack of economic rigor, or at least 

major inferential leaps, in the assumption that the 

index approximates commodity index funds. Id. at 

18, 21. 

1543See id. at 22 (Equation 4) (complex equation 

that subtracts logarithmic prices without detailed 

economic justification for the destructive of data 

though subtraction). 

1544 Id. at 24, Table 6. 

1545See id. at 23–24 (little or no statistical 

assessment of how the results of Table 4 and 5 

results translate into the large price impact 

percentages in Table 6). 

1546Hans R. Stoll & Robert E. Whaley, Commodity 

Index Investing and Commodity Futures Prices 

(working paper 2010). 

1547Stoll and Whaley also found a divergence of 

futures and cash prices in wheat in 2006–2009 

period, especially in 2008 period, but concluded 

that there were limited negative impacts on market 

functioning associated with this failure to diverge. 

This result should not be used to suggest that 

divergence is not a costly phenomenon. Stoll and 

Whaley’s analysis is limited to CME’s wheat futures 

contract. It failed to converge for a period of time 

because storage was mispriced in the contract 

during this time period, and market participants 

knew this and prices reflected this difference. CME 

eventually changed the wheat contract to charge a 

more appropriate amount for storage and the 

divergence phenomenon dissipated. So this 

example of divergence is associated with economic 

differences between the spot and futures contracts. 

It not an example of divergence associated with 

market manipulation, with attendant social welfare 

costs. See Frank Easterbrook, Monopoly, 

Manipulation, and the Regulation of Futures 

Markets, S118, Journal of Business (1986) (‘‘When 

the closing price on a futures contract significantly 

diverges from the price of the cash commodity 

immediately before and after, this is strong 

evidence that someone has reduced the accuracy of 

the market price and inflicted real economic loss on 

participants in the market.’’). 

1548See Frank Easterbrook, Monopoly, 

Manipulation, and the Regulation of Futures 

Markets S124, Journal of Business (1986) (in the 

specific context of position limits, ‘‘Offenses may be 

harder to detect when they involve more than one 

market.’’). 

1549 Yiuman Tse & Michael R. Williams, Does 

Index Speculation Impact Commodity Prices? An 

Intraday Analysis, 48 Financial Review 365–383 

(2013). 

1550Stoll and Whaley also observed that 

commodity index funds should not be thought of 

as speculators because they participated in these 

markets to diversify their returns (relative to equity 

holdings). In Tse, The Relationship Among 

Agricultural Futures, ETFs, and the US Stock 

Market, Review of Futures Markets (2012), Tse 

concluded that there were now positive correlations 

between agricultural ETF returns and S&P 500. This 

result suggests that the diversification benefit has at 

least decreased. In this paper, Tse also found, using 

5-minute, intraday returns, that agricultural ETF 

price returns are Granger-caused by some of the 

underlying commodity futures market. This result 

is a rare result finding causation from the futures 

prices to financial or institutional traders. 

1551 James W. Williams, Dodging Dodd-Frank: 

Excessive Speculation, Commodities Markets, and 

the Burden of Proof, 37 Law & Policy 135–38 (2015). 

(sensitivities of Granger studies to parameters, 

including time-sensitivity to time intervals, makes 

‘‘Granger-inspired studies of excessive speculation 

. . . problematic,’’ a problem compounded by the 

volatile nature of the commodity markets). 

1552 Dwight R Sanders & Scott H Irwin, The 

Impact of Index Funds in Commodity Futures 

Markets: A Systems Approach, 14 The Journal of 

Alternative Investments 40–49 (2011). 

1553 David Frenk, Better Markets, Inc., 

Speculation and Financial Fund Activity and The 

Impact of Index and Swap Funds on Commodity 

Futures Markets 6 (2010). Some of Frenk’s critiques 

fall short of the mark. For example, he criticizes 

Irwin and Sanders for using a one-week interval for 

their testing. Id. at 7. This is not a flaw in the Irwin 

and Sanders paper and in fact using a one-week 

time interval helps to ameliorate another problem 

Frenk identifies: The difficulty of applying Granger 

analysis to highly volatile data such as commodity 

prices. 

commodity futures prices do not 

agree.1539

Gilbert concluded that commodity 

index fund positons did Granger-cause 

price increases in certain commodity 

futures markets during the 2006–2008 

time period.1540 Gilbert, a Professor of 

Economics at the University of Trento, 

Italy, found that this price impact 

appeared to be lasting or 

‘‘permanent.’’ 1541

Gilbert’s study is based upon a 

composed proxy for commodity fund 

index investments. The index data they 

use is not explained in sufficient detail 

in the paper and the results derived 

from this index are therefore not 

replicable.1542 The price equation he 

uses for testing is problematic.1543

Gilbert’s numerical results on price 

impact are dramatic, finding substantial 

average impact in various commodities 

due to speculation, with average impact 

in parts of 2008 of over 10 percent for 

aluminum, copper, nickel, wheat, and 

corn.1544 Yet he provides little detail on 

how he arrived at these percentages 

other than to say that they are 

‘‘estimates’’ that he inferred from the 

statistical results set forth in his Table 

5.1545 Because his findings are not welldocumented and contain unexplained 

inferences, his paper is unreliable. 

By contrast, the Granger analysis of 

Stoll and Whaley concludes that inflows 

and outflows from commodity index 

funds to the commodity markets do not 

have Granger-caused price changes in 

the commodity futures market.1546 The 

authors of this study did find a fleeting 

price impact from when commodity 

index funds roll over to another contract 

month. (This fleeting rollover impact 

finding may be outdated; markets have 

learned to anticipate and account for 

index fund rollovers.) 1547

Stoll and Whaley’s analysis does not 

account for the possibility that there 

could be a delayed effect on futures 

price changes associated with a delay in 

laying off, in the futures markets, risks 

acquired in commodity index swap 

contracts. In practices, dealers may do 

this, acquiring risk in multiple markets 

within acceptable limits as they manage 

their portfolio risk.1548 Moreover, a 

paper by Tse and Williams criticizes 

Stoll and Whaley’s approach for using 

‘‘low frequency data’’ and failing to use 

‘‘sufficiently granular data to capture 

fast futures markets dynamics.’’ 1549

Using intraday, shorter time intervals to 

analyze the possible effect of 

commodity fund investments in the 

futures markets, Tse and Williams 

conclude that there was ‘‘transmission’’ 

of price impacts from futures contracts 

in a particular commodity fund index 

(the GSCI index) to commodities that 

were not in the index. However, this 

Granger-causation result does not 

necessarily establish any price impact 

associated with excessive speculation. 

Other factors may lead to this result, 

such as time delay in illiquid markets, 

the role of the GSCI index as a price 

influencing mechanism, or the more 

rapid market response that tends to 

occur with more liquid markets.1550

While both the Stoll and Whaley and 

the Gilbert papers are often cited in the 

literature, they both have limitations in 

scope and approach. Other studies do 

not fully resolve this academic debate. 

In a paper by James W. Williams, the 

limitations of Granger causality analysis 

in the position limits context is 

discussed.1551

The general findings of Irwin and 

Sanders support Stoll and Whaley’s 

conclusions.1552 Irwin and Sanders 

analyzed weekly CFTC price data over 

a number of years and found that there 

was neither Granger-causation between 

index fund positions and futures price 

returns or Granger-causation between 

changes in fund positions and futures 

price volatility. Utilizing a Working’s Tindex, Irwin and Sanders also find that 

there was not excessive speculation in 

these markets. 

Frenk criticizes Irwin and Sanders for 

(1) both their specific methodology, 

arguing that they used incorrect proxies 

for hedging volumes and (2) rehearsing 

the general disadvantages of using 

Granger analysis.1553 Frenk identifies 

difficulties in Irwin and Sanders’ data 

and underlying assumption. 

There is a significant problem with 

the Irwin and Sanders paper. The price 

formula used for Granger testing in their 

paper is complex, incorporating many 

lagged price returns and lagged 

positions, and risks masking correlation 

due to the possible interdependence of 


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1554 Dwight R Sanders & Scott H Irwin, The 

Impact of Index Funds in Commodity Futures 

Markets: A Systems Approach, 14 The Journal of 

Alternative Investments 40–49 (2011). 

1555 In Table 54 of the Irwin and Sanders paper, 

the price return equation used for the Granger 

correlation analysis diminishes the potential impact 

of positions on current price returns. Irwin and 

Sanders use this equation to test for Grangercausation between price returns and position 

changes, but inclusion of lagged price returns in the 

equation is problematic. Within the workings of the 

Granger statistics, placing lagged price returns and 

change of position data in the same equation can 

mask the impact of change of positions on price. 

That is because price returns and lagged price 

returns may have common correlation; a statistician 

would say that lagged price return data and change 

in positions are competing for common correlation 

with price returns in the Table 4 equation. In this 

way, the explanatory power of the change in 

position variable in this Irwin and Sanders paper 

is diminished by introduction of the lagged price 

return variables. 

1556See James W. Williams, Dodging Dodd-Frank: 

Excessive Speculation, Commodities Markets, and 

the Burden of Proof, 37 Law & Policy 137–138 

(2015) (Granger methodology may be problematic in 

analysis of position limits, because there may be 

nonlinear relationships between economic 

variables). 

1557Compare Jo ̈rg Mayer, United Nations 

Conference on Trade and Development, The 

Growing Interdependence Between Financial and 

Commodity Markets (2009). 

1558Those studies reflect the views of the 

individual economists, and, not necessarily of the 

Commission. Compare Mayer, The Growing 

Interdependence Between Financial and 

Commodity Markets, UN Conference on Trade and 

Development (discussion paper 2009) (finding 

financial investment in commodity trading Grangercause price changes in soybeans, soybean oil, 

copper, crude oilTable 4) with IMF Global Financial 

Stability Report: Financial Stress and Deleveraging: 

Macrofinancial Implications and Policy, Annex 1.2, 

Financial Investment in Commodities Markets 

(October 2008) (not providing specifications or 

background on study, but reporting results finding 

an absence of Granger causation between position 

and price in all but the copper markets). 

1559See Bahattin Bu ̈ yu ̈ ks ̧ahin and Jeffrey H. 

Harris, The Role of Speculators in the Crude Oil 

Futures Market (working paper 2009). 

1560Celso Brunetti & Bahattin Buyuksahin, Is 

Speculation Destabilizing?, SSRN Electronic 

Journal. The Commission cited this study in 

particular in its December 2013 Position Limits 

Proposal. See also Letter from CME Group, Inc., to 

CFTC (Mar. 28, 2011). 

1561See, e.g.,Irwin and Sanders, The ‘‘Necessity’’ 

of New Position Limits in Agricultural Futures 

Markets: The Verdict from Daily Firm-Level Position 

Data (working paper 2014); Irwin and Sanders, The 

Performance of CBOT Corn, Soybean, and Wheat 

Futures Contracts after Recent Changes in 

Speculative Limits (working paper 2007); Sanders, 

Irwin, and Merrin, Smart Money? The Forecasting 

Ability of CFTC Large Traders, Journal of 

Agricultural and Resource Economics (2009); 

Sanders, Irwin, and Merrin, A Speculative Bubble 

in Commodity Futures? Cross-Sectional Evidence, 

Agricultural Economics (2010); Irwin, Sanders, and 

Merrin, Devil or Angel: The Role of Speculation in 

the Recent Commodity Price Boom, Journal of 

Agricultural and Applied Economics (2009); 

Sanders, Irwin, and Merrin, The Adequacy of 

Speculation in Agricultural Futures Markets: Too 

Much of a Good Thing?, Applied Economic 

Perspectives and Policy (2010). An additional paper 

is, for the most part, in accord with Irwin and 

Sanders’ work. Aulerich, Irwin, and Garcia, 

Bubbles, Food Prices, and Speculation: Evidence 

from the CFTC’s Daily Large Trader Data Files 

(NBER Conference 2012) (concluding overall that 

buying pressure from financial index investment in 

recent years did not cause massive price ‘‘bubbles’’ 

in agricultural futures prices, and any such 

evidence of price increase is weak evidence of small 

and fleeting price impact). 

1562See, e.g., Borin and Di Nino, The Role of 

Financial Investments in Agricultural Commodity 

Derivatives Markets (working paper 2012) (finding 

‘‘sparse’’ evidence of Granger causation between 

traders’ investment decisions and futures prices and 

also ‘‘scarce evidence of hearing behavior except in 

the cotton market’’); Grosche, Limitations of 

Granger Causality Analysis to Assess the Price 

Effects From the Financialization of Agricultural 

Commodity Markets Under Bounded Rationality, 

Agricultural and Resource Economics (2012); 

Gilbert, How to Understand High Food Prices, 

Journal of Agricultural Economics (2008); Robles, 

Torero, and von Braun, When Speculation Matters 

(working paper 2009) (speculative trading may have 

influenced agricultural commodity prices ‘‘but the 

evidence is far from conclusive’’). 

1563See, e.g., Algieri, Price Volatility, Speculation 

and Excessive Speculation in Commodity Markets: 

Sheep or Shepherd Behaviour? (working paper 

2012) (‘‘excessive speculation’’ has driven price 

volatility for maize, rice, soybeans, and wheat for 

a particular timeframe); Cooke and Robles, Recent 

Food Prices Movements: A Time Series Analysis 

(working paper 2009) (concluding that financial 

activity in futures market and proxies for 

speculation can help explain observed changes in 

international food prices for corn, wheat, rice, and 

soybeans); Timmer, Did Speculation Affect World 

Rice Prices?, UN Food and Agricultural 

Organization (working paper 2009) (concluding that 

the price of rice was not affected by financial 

speculators, but run-ups in wheat and corn prices 

‘‘was almost certainly caused by financial 

speculators’’); Varadi, An Evidence of Speculation 

in Indian Commodity Markets (working paper 2012) 

(inferring the unexplained price increases must be 

due to speculation). 

1564Other limitations arise from fairly cryptic 

inferential reasoning that the cause of any price-run 

Continued 

variables.1554 In a model designed to 

test whether there is Granger-causation 

between position changes and price 

return, additional variables may 

diminish the statistical power of the 

position change variable in the testing 

equation by masking the effect of 

positon on price returns. The inclusion 

of these lagged price returns and 

position change variables in the model 

design may well diminish the statistical 

power of the position change 

variable.1555 In this way it may also 

mask a possible correlation between 

position changes and price returns.1556

Other studies doing Granger testing 

for the effects of commodity index funds 

on prices arrive at conflicting 

results.1557 Then-CFTC economists who 

were able to access non-public, daily 

market data to do Granger-based 

economic analysis of the possible 

impact of commodity index funds have 

added to this debate.1558 A battery of 

Granger tests discussed in a paper 

prepared by Bahattin Bu ̈yu ̈ ks ̧ahin and 

Jeffrey H. Harris lead to the conclusion 

that there was no Granger-causation 

between swap dealer positions (a proxy 

for commodity index fund positions) 

and returns in the crude oil or natural 

gas futures.1559 This finding stayed 

consistent across tests using different 

time periods within 2000 to 2008 and 

different lag periods. Rather, 

Bu ̈ yu ̈ ks ̧ahin and Harris found price 

changes Granger-cause changes in 

position. This study performs an 

additional Working T analysis and 

concludes that this measure of 

speculative positions was not Granger 

causing price changes in the crude oil 

or natural gas markets. 

The study by Brunetti and 

Bu ̈ yu ̈ ks ̧ahin is also an important 

contribution to the literature.1560

Brunetti and Bu ̈ yu ̈ ks ̧ahin consider price 

returns and positions in several markets 

(crude oil, natural gas, corn, Eurodollar, 

and mini-Dow) and find no Granger 

causation between position and price 

returns for any of these commodity 

markets during a time period when 

commodity index funds were 

participating in these markets. This 

study also finds that speculators in 

these markets during the time period are 

decreasing, not increasing, volatility. 

These CFTC-staff studies have the 

advantage of using non-public, daily 

data. However, such studies are subject 

to the same limitations that are inherent 

in Granger analysis in this context: The 

open question of whether the proper 

time lag was selected, the ad hoc 

assumption of the time step selected to 

compute the volatility, and the 

inclusion in both studies of variables 

such as lagged price returns that may 

inadvertently mask correlation. The 

inherent limitations of Granger analysis 

may well bear on the conflicting results 

of these Granger papers. 

Agricultural Commodities 

The final set of Granger papers 

concern the agricultural commodity 

markets. These include a series of 

papers by Irwin and Sanders and coauthors not finding Granger causation 

between positions and price returns.1561

A few papers arrive at nuanced or 

inconclusive results, but generally 

cannot find significant Granger 

causation between position and price in 

the agricultural commodity markets.1562

There are studies (some are more 

properly categorized as articles) that do 

purport to find Granger causation 

between positions and price returns.1563

The papers finding substantial price 

impacts caused by speculative positions 

in the commodity futures markets are 

not published in academic, peerreviewed economic or agricultural 

journals.1564


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up must be due to speculation. See, e.g., Timmer, 

Did Speculation Affect World Rice Prices?, 38, UN 

Food and Agricultural Organization (working paper 

2009) (regarding theory that financial speculators 

are the cause for price run-ups, the paper states that 

‘‘[t]hese conclusions are reached mostly by 

eliminating the other explanations and by logical 

reasoning’’); Varadi, An Evidence of Speculation in 

Indian Commodity Markets (working paper 2012) 

(asserting author’s ‘‘estimations’’ that speculation 

has played a ‘‘decisive role’’ in creating commodity 

price bubbles in Indian commodity markets, 

without provision of a theoretical framework to 

reach this conclusion). 

1565Christopher J. Gilbert, How to Understand 

High Food Prices, Journal of Agricultural 

Economics (2008). 

1566 Id. 

1567 Id. at 27–28. 

1568 Gilbert, Speculative Influences on 

Commodity Futures Prices, 2006–2008, 24 (Table 4), 

UN Conference on Trade and Development (2010) 

(referencing price impacts in wheat, corn, and 

soybean). 

1569Aulerich, Irwin, and Garcia, Bubbles, Food 

Prices, and Speculation: Evidence from the CFTC’s 

Daily Large Trader Data Files, 22 (NBER Conference 

2012) (finding some weak evidence of temporary 

changes in price Granger-caused by positions, but 

observing that the ‘‘size of the estimated system 

impact is too small’’ to be consistent with the 

commodity index funds causing a huge run-up in 

prices). 

1570 Grosche, Limitations of Granger Causality 

Analysis to Assess the Price Effects from the 

Financialization of Agricultural Commodity 

Markets Under Bounded Rationality, Agricultural 

and Resource Economics (2012). 

1571 Id. at 18. 

1572 Id. at 17. See also Williams, Dodging DoddFrank: Excessive Speculation, Commodities 

Markets, and the Burden of Proof, Law & Policy 

Journal of the University of Denver (2015). 

1573Two time series of price data are said to be 

cointegrated if the error term in the modeling of 

their statistical correlation is a term that is, among 

other things, independent of time. In layperson’s 

terms, the two streams of price data each roughly 

follow a random walk through time. (In more 

technical terms, cointegration means there is a 

linear connection between the two streams of data 

where the difference is ‘‘white noise’’ (Brownian 

motion) or a random walk. There is some 

cointegrating vector of coefficients that can be used 

to form a linear combination of the two time series.) 

Gilbert, in a 2008 paper, reaches a 

different result with respect to 

agricultural commodities.1565 Gilbert 

performs Granger testing on other 

variables that could explain (in the 

sense of Granger-causing) run-ups in 

agricultural commodity futures prices. 

Specifically, he looks at macroeconomic 

and financial factors that affected the 

price of many commodities during the 

2005–2008 time period.1566 Gilbert 

obtains results suggesting that the main 

determinants in agricultural commodity 

futures prices during this time period 

are macroeconomic (such as GDP 

growth) and financial factors (such as 

the value of the dollar and interest 

rates).1567 Gilbert concludes that (1) 

there is little Granger-causation 

evidence that speculation by commodity 

index funds caused the run-up in 

agricultural commodity prices during 

this time period; and (2) moreover, there 

is evidence that macroeconomic factors 

other than ‘‘excessive speculation’’ 

might have caused the price run-up. 

Gilbert’s work does not purport to show 

that macroeconomic and financial 

factors account for all price changes. 

Moreover, his 2008 piece is difficult to 

reconcile with his 2010 work, which 

does find price impacts from 

speculation using Granger analysis for 

some agricultural commodities.1568

The work of Gilbert, as well as Irwin 

and Sanders, also suggest a cautious 

approach is warranted in concluding 

how sizeable or lasting any price impact 

associated with ‘‘excessive speculation’’ 

can be, at least when employing a 

Granger analysis. One paper authored 

by Irwin emphasized that the only 

evidence of Granger-causation between 

positions and price returns in the 

agricultural market was weak evidence 

of temporary changes in price.1569

The debate is hard to resolve, 

including for the fairly technical reasons 

provided in Grosche.1570 Grosche 

observes that index trading and other 

financial investment may be based on a 

mixture of speculative and hedging 

motives in the agricultural sphere.1571

The interaction between the physical 

and financial contracts in the 

agricultural commodity sphere is underresearched and the possible ‘‘spillover’’ 

effects from financial to agricultural 

markets is unknown.1572

b. Comovement, Cointegration and 

‘‘Financialization’’ 

i. Description 

These studies employ a statistical 

method that can be viewed 

mathematically as a special case of 

Granger causality, a method frequently 

referred to as comovement. This method 

looks for whether there is correlation 

that is contemporaneous and not lagged. 

(This is effectively similar to a Granger 

analysis where the type period of lag is 

set to zero.) Like Granger causality, this 

method employs linear regression to 

establish correlation between market 

prices or price returns and speculative 

positions. When the time step is set to 

zero, the economist can no longer seek 

to establish an inference of cause and 

effect between prices or price returns 

and positions. Instead, the economist is 

using a Granger-type analysis to 

establish whether there is a correlation 

that is contemporaneous. A subset of 

these comovement studies uses a 

technique called cointegration for 

testing correlation between two sets of 

data, to see if there is a statistical 

relationship notwithstanding the ‘‘white 

noise’’ of price data.1573

This technique can be used to ferret 

out unexpected divergences in prices. 

For example, many economists perform 

cointegration tests comparing futures 

and spot prices, which generally should 

constrain each other by staying within 

reasonable bands of each other. If they 

find a discrepancy, they consider 

whether excess speculation or a price 

‘‘bubble’’ could explain this price 

discrepancy. 

ii. Advantages and Disadvantages 

Such approaches are useful to 

compare commodity markets with other 

markets in seeking a correlation over 

time between these sets of prices. For 

example, a study may look at a price 

index for commodities for one time 

series and a price index for equities for 

another time series. In rough terms, 

studying the linear regressions of these 

price data over time establishes whether 

there is a confluence of price trends in 

these two markets. It may capture 

correlations that a Granger causality 

approach may miss if the latter uses too 

large a time lag. In this way, 

comovement analyses may be stronger 

than Granger analyses at finding 

correlations, avoiding the problem of 

correlations being hidden by the 

improper selection of length of time lag. 

But the complementary disadvantage 

is that a comovement result cannot 

establish even weak, Granger-style 

causation. In the particular context of 

position limits, this disadvantage is 

significant. As further explained below 

in the discussion of specific studies, 

correlations between prices or price 

returns and positions can be caused by 

external factors such as broad 

macroeconomic trends. In particular, 

using comovement to try to establish a 

‘‘price bubble’’ over time ranges that are 

short-term (months) or medium-term (18 

months to two years) is problematic 

because of the impact macroeconomic 

or other external factors (wars, 

recessions, etc.) can have on short-term 

prices. A comovement study showing a 

correlation between two sets of data— 

crude oil futures and spot prices—over 

just a year or two years is, all else being 

equal, a fairly weak basis to infer a price 

bubble. There can be other factors that 

cause decoupling of prices over such a 

time period. 

iii. ‘‘Financialization’’ 

Many of the papers in this category 

focus on a documented correlation 

between returns to commodity futures 

and the financial (including equity) 

markets that has increased strongly in 


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1574Tang and Xiong, Index Investment and 

Financialization of Commodities, Financial 

Analysts Journal (2012). 

1575Basu and Gavin, What Explains the Growth 

in Commodity Derivatives?, Federal Reserve Bank of 

St. Louis (2011). 

1576 Id. at 40. 

1577 Id. at 41. 1578 Id. at 38, 44–45. 1579See id. at 44 (however, following the collapse 

of commodity prices in the summer of 2008 and 

subsequent financial panic in September of 2008, 

the correlation between commodity prices and 

equities became highly and positively correlated). 

Use of commodities to hedge equity or business 

cycle risk is controversial. Basu and Gavin, What 

Explains the Growth in Commodity Derivatives?, at 

44 Federal Reserve Bank of St. Louis (2011), citing 

Bu ̈ yu ̈ ks ̧ahin, Haigh, and Robe (2008) (unconditional 

correlation between equity and commodity futures 

returns is near zero). 

1580 Id. at 38, 44. 

recent years.1574 This is often called 

comovement between the commodity 

and financial markets. The many factors 

that have driven explosive growth in 

commodity derivatives trading in recent 

years are well-documented in a study by 

Basu and Gavin.1575 There has been 

substantial growth in commodity index 

investments; this includes commodity 

exchange-traded funds and other 

commodity indices that fund managers 

and other financial investors use. Both 

the number of such indices, and the 

volume of trading involving them, has 

grown substantially in the last decade. 

There have also been significant 

changes in the long positions held in 

commodity futures index funds during 

the financial crisis:1576

Figure 1B. Over-the-counter trading in 

commodity derivatives by swap dealers 

has also increased over time, with a 

pronounced spike during the 2007–2008 

time period.1577

Figure 2B. The factors driving this 

growth include the desire of 

institutional portfolio managers to 

hedge against stock risk, based on the 

belief by some academic and industry 

economics that there were negative 

correlations between returns on equity 

and commodity futures.1578 This belief 

may not be economically justifiable.1579

Investors also sought higher yields in a 

low-yield environment.1580


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1581M.W. Masters, A.K. White, The Accidental 

Hunt brothers: How Institutional Investors Are 

Driving up Food and Energy Prices, 

www.accidentalhuntbrothers.com (2008). Mr. 

Masters, Portfolio Manager for Masters Capital 

Management, LLC, has often referred to these large 

investors as ‘‘passive’’ investors. ‘‘Passive 

speculators are an invasive species that will 

continue to damage the markets until they 

eradicated.’’ Masters Statement, CFTC March 2010 

hearing at 5. According to Barclay’s, index fund 

investment fund in commodities reached $431 

billion as of July 2011. Algieri, A Roller Coaster 

Ride, 5 (working paper 2011). 

1582See, e.g., Boyd, Bu ̈ yu ̈ ks ̧ahin, and Haigh, The 

Prevalence, Sources, and Effects of Herding 

(working paper 2013); Bu ̈ yu ̈ ks ̧ahin and Robe, Does 

it Matter Who Trades Energy Derivatives?, Review 

of Env’t, Energy, and Economics (2013); 

Bu ̈yu ̈ ks ̧ahin and Robe, Speculators, Commodities, 

and Cross-Market Linkages (working paper 2012); 

Bu ̈yu ̈ ks ̧ahin and Robe, Does ‘‘Paper Oil’’ Matter? 

(working paper 2011); Bu ̈ yu ̈ ks ̧ahin, Harris, and 

Haigh, Fundamentals, Trader Activity, and 

Derivatives Pricing (working paper 2008); Cheng, 

Kirilenko, and Xiong, Convective Risk Flows in 

Commodity Futures Markets (working paper 2012); 

and Haigh, Harris, and Overdahl, Market Growth, 

Trader Participation and Pricing in Energy Futures 

Markets (working paper 2007). 

1583See, e.g., Baffes and Haniotos, Placing the 

2006/08 Commodity Boom into Perspective, World 

Bank Policy Research Working Paper 5371 (2010); 

Belke, Bordon, and Volz, Effects of Global Liquidity 

on Commodity and Food Prices, German Institute 

for Economic Research (2013); Kawamoto, Kimura, 

et al., What Has Caused the Surge in Global 

Commodity Prices and Strengthened Cross-market 

Linkage?, Bank of Japan Working Papers Series 

No.11–E–3 (May 2011); and Pollin and Heintz, How 

Wall Street Speculation is Driving Up Gasoline 

Prices Today (AFR working paper 2011). 

1584See, e.g., Ada ̈mmer, Bohl and Stephan, 

Speculative Bubbles in Agricultural Prices (working 

paper 2011); Algieri, A Roller Coaster Ride: An 

Empirical Investigation of the Main Drivers of 

Wheat Price (working paper 2013); Babula and 

Rothenberg, A Dynamic Monthly Model of U.S. Pork 

Product Markets: Testing for and Discerning the 

Role of Hedging on Pork-Related Food Costs, 

Journal of Int’l Agricultural Trade and Development 

(2013); Basu and Miffre, Capturing the Risk 

Premium of Commodity Futures: The Role of 

Hedging Pressure, Journal of Banking and Risk 

(2013); Hoff, Herding Behavior in Asset Markets, 

Journal of Financial Stability (2009); Tang and 

Xiong, Index Investment and Financialization of 

Commodities, Financial Analysts Journal (2012); 

Creti, Joets, and Mignon, On the Links Between 

Stock and Commodity Markets’ Volatility, Energy 

Economics (2010); Bichetti and Maystre, The 

Synchronized and Long-lasting Structural Change 

on Commodity Markets: Evidence from High 

Frequency Data (working paper 2012); Bunn, 

Chevalier, and Le Pen, Fundamental and Financial 

Influences on the Co-movement of Oil and Gas 

Prices (working paper 2012); Coleman and Dark, 

Economic Significance of Non-Hedger Investment 

in Commodity Markets (working paper 2012); 

Dorfman and Karali, Have Commodity Index Funds 

Increased Price Linkages between Commodities? 

(working paper 2012); Korniotis, Does Speculation 

Affect Spot Price Levels? The Case of Metals With 

and Without Futures Markets (working paper, FRB 

Finance and Economic Discussion Series 2009) 

(also submitted as a comment by CME); Le Pen and 

Se ́vi, Futures Trading and the Excess Comovement 

of Commodity Prices (working paper 2012); and 

Windawi, Speculation, Embedding, and Food 

Prices: A Cointegration Analysis (working paper 

2012). 

1585 Jickling and Austin, Hedge Fund Speculation 

and Oil Prices 1 (Congressional Research Service 

R41902 June 29, 2011). 

1586 Id. at 16, (Congressional Research Service 

R41902 June 29, 2011). 

1587This is true for a variety of reasons, including 

the fact that refining production is expensive to 

change on short notice. See generally Hamilton, 

Causes and Consequences of the Oil Shock of 2007– 

2008, at 17–23, Brookings Paper on Economic 

Activity (2009) (while oil prices may have been 

‘‘too high’’ in July 2009, ‘‘low price elasticity of 

demand, and the failure of physical production to 

increase’’ are more likely the predominant causes 

than ‘‘speculation per se’’). 

1588Pollin and Heintz, How Wall Street 

Speculation is Driving Up Gasoline Prices Today, 

at 10, Americans for Financial Reform (working 

paper 2011) (‘‘Lagged values of both gasoline prices 

and crude oil prices can affect current gas prices. 

This implies that past speculative pressures are 

carried over, at least for several months, to current 

prices.’’); Bunn, Chevalier, Le Pen, and Sevi, 

Fundamental and Financial Influences on the Comovement of Oil and Gas Prices, at 18 (working 

paper 2012) (‘‘we find significant evidence that 

speculation, with its focus on index trading, 

increases the correlation between oil and gas’’). 

iv. The Masters Hypothesis 

One variation on this financialization 

theme is the Masters ‘‘hypothesis.’’ 

Michael W. Masters, a hedge fund 

manager, is a leading proponent of the 

view that commodity index investments 

have been a major driver of increases in 

the commodity futures prices. In brief, 

his views are expressed in the following 

statement: 

Institutional Investors, with nearly $30 

trillion in assets under management, have 

decided en masse to embrace commodities 

futures as an investable asset class. In the last 

five years, they have poured hundreds of 

billions of dollars into the commodities 

futures markets, a large fraction of which has 

gone into energy futures. While individually 

these Investors are trying to do the right thing 

for their portfolios (and stakeholders), they 

are unaware that collectively they are having 

a massive impact on the futures markets that 

makes the Hunt brothers pale in comparison. 

In the last 41⁄2, years assets allocated to 

commodity index replication trading 

strategies have grown from $13 billion in 

2003 to $317 billion in July 2008. At the 

same time, the prices for the 25 commodities 

that make up these indices have risen by an 

average of over 200%. Today’s commodities 

futures markets are excessively 

speculative....1581

Statements are not, in themselves, 

rigorous economic studies, nor do they 

purport to be. Several economists have 

attempted to formalize and study 

rigorously the ‘‘Masters hypothesis’’ or 

related conjectures using comovement 

or cointegration methods. These studies 

are discussed below. 

v. Discussion of Specific Studies 

There are 25 papers that use some 

form of comovement or cointegration 

analysis, broadly defined. Former and 

current economists within the Office of 

Chief Economist have used this method 

repeatedly (7 papers); 1582 several 

government and policy researchers 

deploy this method (4 papers); 1583 and 

other academicians have used this 

method (14 papers).1584

The Example of Oil Prices 2006–2008 

One of the key challenges for 

application of the Masters hypothesis is 

reconciliation of a supposed speculative 

price with what is happening in the 

physical market. The debate within 

academia, practitioners and 

policymakers on this topic has been 

considerable, especially given the runup in prices in certain commodities, 

such as the 2006–2008 rise in crude oil 

prices. ‘‘Dramatic swings in crude oil 

prices have led Congress to examine the 

functioning of the markets where prices 

are set.’’ 1585 The correlation of oil with 

economic trends is not necessarily 

evidence that they are causing increases 

in oil prices. As a Congressional 

Research Study observed, this might 

suggest that certain traders with ‘‘better 

information on macroeconomic trends, 

which strongly influence energy 

demand, take more aggressive positions, 

which would then influence oil 

prices.’’ 1586

The economics of the crude oil market 

are a good example of the dangers of 

applying comovement or cointegration 

methods over short- and medium-term. 

Short-term crude oil prices are less 

elastic than longer-term prices. This 

means, in the short term, changes in 

price do not affect the supply of crude 

oil as much as long-term price changes 

do. There are many reasons why this is 

so, having to do with the cost of storing 

crude oil above ground and the cost of 

starting and stopping crude oil 

extraction. So it is unsurprising that 

there are short- and medium-term 

divergences in price between spot and 

longer-term futures contracts in the 

crude oil markets. 

On the supply side of crude oil 

market economics, a short-term shock to 

supply (wars, embargoes, or other 

events) will not necessarily translate 

into a long-term change in prices, even 

though it may cause substantial shortterm price changes and volatility. 

Similarly, on the demand side of crude 

oil market economics, short-term 

changes to demand can impact shortterm crude oil prices without causing 

lasting long-term price impact.1587

For such reasons, comovement and 

cointegration studies of crude oil prices 

over medium time frames are 

unpersuasive.1588 Bu ̈ yu ̈ ks ̧ahin and Robe 

showed that correlations between equity 

and energy commodity investments 

increased massively after Lehman’s 


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1589Bu ̈ yu ̈ks ̧ahin and Robe, Does ‘‘Paper Oil’’ 

Matter? (working paper 2011). 

1590Bu ̈ yu ̈ks ̧ahin and Robe, Does it Matter Who 

Trades Energy Derivatives?, Review of Env’t, 

Energy, and Economics (2013). 

1591 Id. at 5. 

1592Celso Brunetti and Bahattin Bu ̈ yu ̈ ks ̧ahin, Is 

Speculation Destabilizing? (working paper 2009). 

See also Haigh, Harris, and Overdahl, Market 

Growth, Trader Participation and Pricing in Energy 

Futures Markets (working paper 2007) 

(participation of swap dealers and arbitrageurs has 

assisted in improved price efficiency—price 

converge—in crude oil futures contracts, with 

nearby, one, and two-year crude oil futures 

contracts statistically cointegrated through the 

period studied, July 2004 to mid-2006). 

1593Bu ̈ yu ̈ks ̧ahin, Harris, and Haigh, 

Fundamentals, Trader Activity, and Derivatives 

Pricing (working paper 2008). 

1594 Id. at 3. 

1595 Id. at 4–5. 

1596Bu ̈ yu ̈ks ̧ahin and Robe, Does it Matter Who 

Trades Energy Derivatives?, Review of Env’t, 

Energy, and Economics (2013); Bu ̈ yu ̈ ks ̧ahin, Harris, 

and Haigh, Fundamentals, Trader Activity, and 

Derivatives Pricing (working paper 2008). 

1597E.g., Basu and Gavin, What Explains the 

Growth in Commodity Derivatives?, at 44 Federal 

Reserve Bank of St. Louis (2011) (commodity and 

equity prices highly and positively correlated in 

February 2010); Tang and Xiong, Index Investment 

and Financialization of Commodities, Financial 

Analysts Journal (2012); Inamura, Kimata, et al., 

Recent Surge in Global Commodity Prices (Bank of 

Japan Review March 2011). 

1598Hamilton and Wu, Risk Premia in Crude Oil 

Futures Prices, Journal of International Money and 

Finance (2013). 

1599See Irwin and Sanders, Index Funds, 

Financialization, and Commodity Futures Markets, 

at 15, Applied Economic Perspectives and Policy 

(2010) (surveying literature in support and against 

the idea of a speculative bubble in prices arising 

from commodity index fund participation in the 

futures market). Compare Gilbert, Speculative 

Influences on Commodity Futures Prices, 2006– 

2008, UN Conf. On Trade Development (2010); 

Einloth, Speculation and Recent Volatility in the 

Price of Oil (working paper 2009), and Tang and 

Xiong, Index Investment and Financialization of 

Commodities, Financial Analysts Journal (2012) 

with Bahattin Bu ̈ yu ̈ ks ̧ahin and Jeffrey H. Harris, The 

Role of Speculators in the Crude Oil Futures Market 

(working paper 2009); Brunetti and Bu ̈ yu ̈ ks ̧ahin, Is 

Speculation Destabilizing? (working paper 2009); 

Stoll and Whaley, Commodity index Investing and 

Commodity Futures Prices, Journal of Applied 

Finance (2010), Irwin and Sanders (multiple 

studies). 

1600See, e.g., Bu ̈ yu ̈ ks ̧ahin and Robe, Speculators, 

Commodities, and Cross-Market Linkages (working 

paper 2012); Irwin and Sanders, Index Funds, 

Financialization, and Commodity Futures Markets, 

at 15, Applied Economic Perspectives and Policy 

(2010), citing, inter alia, Phillips and Yu, Dating the 

Timeline of Financial Bubbles During the Subprime 

Crisis, Quantitative Economics (2011); and Kilian 

and Murphy, The Role of Inventories and 

Speculative Trading in the Global Market for Crude 

Oil, Journal of Applied Econometrics (2010). 

1601Brunetti and Bu ̈ yu ̈ ks ̧ahin, Is Speculation 

Destabilizing? (working paper 2009) (finding that 

hedge funds in the commodity markets take the 

opposite position to other market participants, 

therefore providing liquidity to the market in 

various commodity market places studied, 

including crude oil, natural gas, corn, and two 

financial contracts). 

1602Acharya, Ramadorai, and Lochstoer, Limits to 

Arbitrage and Hedging: Evidence from Commodity 

Markets, Journal of Financial Economics (2013) 

(existence of financial commodity index trading 

will tend to decrease risk premium, thereby 

generally making it cheaper for producers to hedge 

through short futures contracts). 

collapse in 2008.1589 As explained in 

another paper by Bu ̈ yu ̈ ks ̧ahin and Robe, 

this raises the question of whether 

hedge fund and index fund inflows are 

transmitting financial shocks to 

commodity prices.1590 However, as 

Bu ̈ yu ̈ ks ̧ahin and Robe’s survey of 

Granger and comovement economic 

literature demonstrate, it does not 

appear that index traders and hedge 

funds had an impact on crude oil prices 

during this time period.1591 Further, 

Celso Brunetti and Bahattin Bu ̈ yu ̈ ks ̧ahin 

separately found that hedge funds exert 

a calming influence on crude oil prices 

by lowering oil price volatility.1592

Cointegration results suggest that 

financial traders’ influence of crude oil 

futures prices is desirable. For example, 

then-CFTC economists, Bu ̈ yu ̈ks ̧ahin, 

Harris, and Haigh show how the 

increased presence of swap dealers, 

hedge funds, and other financial traders 

have led to the cointegration of various 

crude oil futures contracts (the nearby 

contract, the one-year contract, and the 

two-year contract).1593 This cointegration result by these economists 

suggests that there was a long-term 

relation between the strength of price 

cointegration and the market activities 

of financial traders,1594 but this result 

does not suggest any harm to the 

marketplace or price discovery from the 

cointegration of various crude oil 

contracts. The authors conjecture that 

the greater market activity by these 

traders can ‘‘enhance market quality’’ 

through ‘‘enhance[d] linkages among 

various futures prices’’ that make these 

commodity markets ‘‘more 

informationally efficient.’’ 1595

Both research papers 1596 are correct 

that, respectively, there is increased 

comovement between crude oil prices 

with financial investments and 

cointegration between nearby, one-year, 

and two-year crude oil futures contracts. 

At least for the crude oil market, these 

price linkages exist. However, one 

cannot obtain, using comovement and 

cointegration techniques, decisive 

evidence on whether this effect 

improves market efficiency; such a 

conclusion involves interpreting the 

informational linkages between the 

markets. To the extent that the paper by 

Bu ̈ yu ̈ ks ̧ahin, Harris, and Haigh moves 

beyond establishing the linkage to 

inferring that the linkage has salutary 

effects on commodity markets, that 

conclusion was not empirically tested, 

because it was not modelled explicitly. 

At most, these studies establish the 

existence of such price linkages. 

Financialization Comovement Literature 

Some studies have examined 

‘‘financialization’’ by using comovement 

analysis to ask whether increased 

investment flows into commodity 

indices (typically composed with 

substantial long futures positions) are 

correlated with increases in futures 

prices or the volatility of commodity 

futures prices across many different 

types of studies. Some of these 

financializaton comovement studies 

have looked to whether these 

investment flows decrease the risk 

premium for holding a long futures 

contract, thereby causing a nontransient increase in the long futures 

contract price (which, in turn, may 

increase the price of the underlying 

commodity). 

There is consensus in the economic 

literature that equities and commodities 

no longer exhibit the strong negative 

correlations that index fund investment 

managers may have sought in hedging 

their portfolios. In recent years there has 

been an increased positive correlation 

between equity and commodity prices 

since 2008.1597 There is also substantial 

consensus among economists who study 

this issue that risk premiums for 

holding long futures contracts have 

decreased due to financialization.1598

However, there is a divergence of 

views among economists on the 

impacts, if any, on the large positions 

taken by index funds on commodity 

futures prices or price volatility.1599

These hypothesized effects of 

financialization are debated among 

academics, practitioners, and 

policymakers. Results of studies that 

test for a bubble component in 

commodity futures prices—regardless of 

the cause—are decidedly mixed.1600

Commission-affiliated economists 

have confirmed a general decrease in 

volatility associated with 

financialization, a salutary effect 

associated with increased liquidity.1601

In theoretical models outside the 

comovement methodology, competition 

from index investment reduces the risk 

premium that accrues to long position 

holders, and this can have the net effect 

of lowering the cost of hedging to 

traditional physical market 

participants.1602 Some economists rely 

upon the efficient market hypothesis 

that market prices fully incorporate all 

the available public ‘‘information’’ into 

prices—in support of conclusion that 

financialization provides benefits such 

as better price discovery, liquidity, and 

transfer of risks to entities better 


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1603Filimonov, Bicchetti, and Maystre, 

Quantification of the High Level of Endogeneity and 

of Structural Regime Shifts in Commodity Markets, 

at3 and citations therein (working paper 2013). 

1604Cheng, Kirilenko, and Xiong, Convective Risk 

Flows in Commodity Futures Markets (working 

paper 2012). 

1605 Id. at 2 (citing papers on a growing body of 

theoretical work indicating that at times of financial 

crisis, funding and risk constraints may force 

financial traders to unwind positions, which, in 

turn, forces hedgers to reduce their hedging 

positions). 

1606 Id. at 3. 

1607 Id. See also Acharya, Ramadorai, and 

Lochstoer, Limits to Arbitrage and Hedging: 

Evidence from the Commodity Markets, Journal of 

Financial Economics (2013) (decreases in financial 

traders’ risk capacity should lead to increases in 

hedgers’ hedging cost, all else being equal). 

1608Bu ̈ yu ̈ks ̧ahin and Robe, Speculators, 

Commodities, and Cross-Market Linkages (working 

paper 2012). 

1609Tang and Xiong, Index Investment and 

Financialization of Commodities, Financial 

Analysts Journal (2012). 

1610Of course, the spillover effect may not be 

limited to domestic markets. Cf. UN Food and 

Agricultural Org., Price Volatility in Agricultural 

Markets. Economic and Social Perspectives Policy 

Brief 12 (2010) (citing financialization as a possible 

basis for short-term volatility and observing that 

international integration of markets can propagate 

price risks to domestic markets quicker than 

before). 

1611 Irwin and Sanders, Index Funds, 

Financialization, and Commodity Futures Markets, 

15, Applied Economic Perspectives and Policy 

(2010) (questioning the small magnitude of 

correlation and suggesting that Tang and Xiong may 

not have adequately controlled for fundamental 

factors affecting price). 

1612Tang and Xiong, Index Investment and 

Financialization of Commodities, Financial 

Analysts Journal (2012). 

1613Tse, The Relationship Among Agricultural 

Futures, EFTs, and the US Stock Market, at 16, 

Review of Futures Markets (2012). Indeed, this 

decreased correlation may be due, in part, to 

ethanol, an economic substitute for gasoline as an 

additive to reformulated blend stock, being 

manufactured with corn and other grains. 

1614See generally Henn Letter. 

1615See December 2013 Position Limits Proposal 

at 75740 n.483 (‘‘The speculative position limits 

that the Commission proposes apply only to 

transactions involving one commodity or the spread 

between two commodities . . . . They do not apply 

to diversified commodity index contracts involving 

more than two commodities . . . . [C]ommenters 

assert that such contracts, which this proposal does 

not address, consume liquidity and damage the 

price discovery function of the marketplace’’). 

1616 Irwin and Sanders, Index Funds, 

Financialization, and Commodity Futures Markets, 

at 26, Applied Economic Perspectives and Policy 

(2010) (emergency evidence that ‘‘other traders, 

such as broker-dealers and hedge funds, play key 

roles in transmitting shocks to commodity futures 

markets from other sectors’’), citing, inter alia 

Bu ̈ yu ̈ ks ̧ahin and Robe, Does it Matter Who Trades 

Energy Derivatives?, Review of Env’t, Energy, and 

Economics (2013); Haigh, Hranaiova, and Overdahl, 

Hedge Funds, Volatility, and Liquidity Provisions in 

the Energy Futures Markets, Journal of Alternative 

Investments (Spring 2007); Basu and Gavin, What 

Explains the Growth in Commodity Derivatives?, 

Federal Reserve Bank of St. Louis (2011) 

(documenting increased participation in commodity 

trading by swap dealers). 

1617 Korniotis, Does Speculation Affect Spot Price 

Levels? The Case of Metals With and Without 

Futures Markets (working paper, FRB Finance and 

Economic Discussion Series 2009). 

prepared to assume it.1603 Comovement 

and cointegration analyses are some of 

the statistical tools used to test whether 

these purported benefits of greater 

market participation hold true under 

particular market conditions. 

While competition and increased 

trading volume can generally help 

markets, inflows do not universally 

benefit market welfare. In a paper by 

Cheng, Kirilenko, and Xiong, the 

authors use comovement methodology 

to conclude that in times of distress, 

financial traders reduce their net long 

position, causing risk to flow from 

financial traders to commercial 

hedgers.1604 ‘‘[J]ust when the 

uncertainty in the economy was rising, 

the number of futures contracts used by 

commercial hedgers to hedge their risk 

was going down.’’ 1605

Cheng, Kirilenko, and Xiong argue 

that tests such as Granger, which look 

to whether financial traders’ positions 

and futures prices are negatively 

correlated when they trade to 

accommodate hedgers, overlook an 

important lesson from the distressed 

financial literature.1606 When financial 

entities trade in response to their own 

financial distress, their trades may be 

correlated positively to futures price 

changes. These correlations may net out, 

so that any significant correlation 

between their positions and price 

changes may be masked by trading 

during financial distress.1607

Using cointegration techniques and 

non-public trading data, then-CFTC 

economists, Bu ̈yu ̈ ks ̧ahin and Robe 

demonstrate that the correlations 

between equity indices and 

commodities increase with greater 

participation by financial 

speculators.1608 There is no such effect 

for other types of traders. In concert 

with the work of Cheng, Kirilenko, and 

Xiong, they find that this cointegration 

effect, the price linkages between equity 

indices and investible commodities, is 

lower during times market stress. 

Another comovement study provided 

an empirical link between commodity 

index investment and futures price 

movements, including increased price 

volatility.1609 Tang and Xiong find that 

the increasing presence of index traders 

in commodity futures markets improves 

risk sharing in these markets with 

concomitant volatility spillover from 

outside markets. This study finds 

evidence of volatility spillovers from the 

financial crisis in the 2006–2009 time 

period, spillovers that may have been a 

key driver of recent commodity price 

volatility.1610

This Tang and Xiong finding of 

volatility ‘‘spillovers’’ is frequently cited 

by commenters in support of position 

limits. However, some academics are 

skeptical of their results. Irwin and 

Sanders concede that the Tang and 

Xiong paper ‘‘appears to offer concrete 

evidence’’ of some form of 

financialization, but offers several 

reasons to view these findings with 

caution.1611

Tang and Xiong’s results do not 

necessarily point to lasting difficulties 

associated with the integration of 

financial and commodity markets. 

Instead, they argue that commodity 

markets were not integrated with 

financial markets prior to the 

development of commodity index 

funds. In their paper, Tang and Xiong 

view financialization as a ‘‘process’’ 

which helps explain ‘‘the synchronized 

price boom and bust of a broad set of 

seemingly unrelated commodities’’ 

during the 2006–2008 time period.1612

A problem with this line of reasoning 

that critics have identified is that there 

could be other factors which lead to 

increased correlation between equities 

and futures during this time period. 

After all, 2006–2009 was an eventful 

time where broad macroeconomic 

factors held sway and could have led to 

large positive correlations between these 

markets. According to many, one of the 

factors leading to the influx of 

investment funds in during the 2006– 

2008 time period was negative 

correlations between commodities 

returns and equities returns. Yet this 

factor is less prevalent today. ‘‘The 

positive correlation between the 

agriculture ETFs and S&P 500 suggests 

that the diversification benefits of using 

an agricultural index have 

decreased.’’ 1613

Some commenters have pointed to 

studies such as Tang and Xiong’s in 

support of the position limits rule.1614

However, most financial investors’ 

exposure to commodities through 

commodity index funds or ETFs would 

not be prevented by position limits. 

Studies on the price returns or price 

volatility effect of commodity index 

funds are thus not directly relevant to 

the placement of position limits on 

individual commodities contract.1615

Moreover, commodity index funds are 

not the only large investors whose 

activities may affect commodity futures 

prices.1616

A paper by Korniotis contains an 

important caveat in the financialization 

debate: The effects of financialization 

may vary widely depending on the type 

of commodity.1617 Crude oil is an 

important component of the S&P 

Goldman-Sachs Commodity Index 


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1618See Baffes and Haniotos, Placing the 2006/08 

Commodity Boom into Perspective, World Bank 

Policy Research Working Paper 5371 (2010); 

Kawamoto, Kimura, et al., What Has Caused the 

Surge in Global Commodity Prices and 

Strengthened Cross-market Linkage?, Bank of Japan 

Working Papers Series No.11–E–3 (May 2011); 

Coleman and Dark, Economic Significance of NonHedger Investment in Commodity Markets (working 

paper 2012); Dorfman and Karali, Have Commodity 

Index Funds Increased Price Linkages between 

Commodities? (working paper 2012); Le Pen and 

Se ́vi, Futures Trading and the Excess Comovement 

of Commodity Prices (working paper 2012); Creti, 

Joets, and Mignon, On the Links Between Stock and 

Commodity Markets’ Volatility, Energy Economics 

(2010); Bichetti and Maystre, The Synchronized and 

Long-lasting Structural Change on Commodity 

Markets: Evidence from High Frequency Data 

(working paper 2012). 

1619Boyd, Bu ̈yu ̈ ks ̧ahin, and Haigh, The 

Prevalence, Sources, and Effects of Herding 

(working paper 2013); Hoff, Herding Behavior in 

Asset Markets, Journal of Financial Stability (2009). 

See also Froot, Scharfstein, and Stein, Herd on the 

Street: Informational Inefficiencies in a Market with 

Short Term Speculation (working paper 1990) 

(theoretical paper discussing herding); Weiner, Do 

Birds of A Feather Flock Together? Speculator 

Herding in the Oil Market (working paper 2006) 

(doing a herding analysis to conclude that there are 

subgroups within speculators that act in parallel, 

and this amplifies their effect on crude oil prices). 

1620Hoff, Herding Behavior in Asset Markets, 

Journal of Financial Stability (2009); Mayer, The 

Growing Interdependence Between Financial and 

Commodity Markets, UN Conference on Trade and 

Development (discussion paper 2009) (Granger 

analysis). 

1621E.g., Brunetti and Bu ̈ yu ̈ ks ̧ahin, Is Speculation 

Destabilizing?, at 5 n.3 (working paper 2009) (‘‘the 

moderate level of herding in futures markets 

[among hedge funds] serves to stabilize prices’’). 

1622Basu and Miffre, Capturing the Risk Premium 

of Commodity Futures: The Role of Hedging 

Pressure, Journal of Banking and Risk (2013). 

1623See Aulerich, Irwin, and Garcia, Bubbles, 

Food Prices, and Speculation: Evidence from the 

CFTC’s Daily Large Trader Data Files, at 3 n.4, 

NBER Conference on Economics of Food Price 

Volatility (2012) (studies testing for the existence of 

price bubbles in agricultural futures markets have 

led to ‘‘mixed results’’). See also.Belke, Bordon, and 

Volz, Effects of Global Liquidity on Commodity and 

Food Prices, German Institute for Economic 

Research (2013); Ada ̈mmer, Bohl and Stephan, 

Speculative Bubbles in Agricultural Prices (working 

paper 2011); Algieri, A Roller Coaster Ride: an 

Empirical Investigation of the Main Drivers of 

Wheat Price (working paper 2013); Babula and 

Rothenberg, A Dynamic Monthly Model of U.S. Pork 

Product Markets: Testing for and Discerning the 

Role of Hedging on Pork-Related Food Costs, 

Journal of Int’l Agricultural Trade and Development 

(2013); Windawi, Speculation, Embedding, and 

Food Prices: A Cointegration Analysis (working 

paper 2012). 

1624Nobel laureates in economics cannot agree on 

whether bubbles exist or what the proper definition 

of a bubble is. Studies that focus on the causes of 

price formation avoid these definitional 

uncertainties. See Easterbrook, Frank, Monopoly, 

Manipulation, and the Regulation of Futures 

Markets, at S117, Journal of Business (1986) (it is 

Continued 

(GSCI), more so than industrial metals. 

Federal Reserve Board economist 

George Korniotis found that there was 

cointegration between metals with and 

without futures contracts that did not 

weaken as financial speculation 

increased in the marketplace and the 

spot prices for industrial metals were 

unrelated to the GSCI. 

With the exceptions discussed in 

detail above, many of the studies in this 

vein do not warrant detailed discussion. 

Even well-executed economic studies 

using comovement methodology that do 

not focus on position limits may be of 

little or marginal relevance.1618

Herding 

There are other possible ways in 

which additional trading volume may 

not be an unalloyed benefit to the 

wellbeing of a marketplace. A few 

comovement studies attempt to test for 

the existence of ‘‘herding.’’ This is a 

formalized version of price trending. 

The idea here is that traders may initiate 

a trade with the expectation that 

positive-feedback traders will purchase 

the traded instruments at a higher price 

later.1619 Some economists argue that 

financialization aggravates ‘‘herding’’ 

behavior and herding creates price 

bubbles.1620 Others dispute any such 

effect.1621

Though the evidence for herding is 

meager, the underlying idea is 

consistent with accepted and 

theoretically plausible results on risk 

premia. Risk premiums rise with the 

volatility of the futures markets, and 

risk premiums depend in part on 

speculators’ hedging pressure and 

inventory levels.1622

Agricultural Commodities and 

Financialization 

Agricultural economists have reached 

similarly conclusions on the 

cointegration of financial speculators 

and food prices. While there are 

respectable empirical results suggesting 

that financial speculation have affected 

some recent agricultural commodity 

price dynamics, there is no unanimity 

in the academic community on 

conclusive empirical evidence of the 

causal dynamics, breadth, and 

magnitude of such effects.1623

c. Models of Fundamental Supply and 

Demand and Related Methods 

i. Description 

Some economists have developed 

economic models for the supply and 

demand of a commodity. These models 

often include theories of how storage 

capacity and use affect supply and 

demand, often a critical factor in the 

case of physical commodities and their 

inter-temporal price (that is, their price 

over time). Using models of supply and 

demand, the economists then attempt to 

arrive at a ‘‘fundamental’’ price (or price 

return) for commodity based on the 

model. Specifically, the economists look 

at where the model is in equilibrium 

with respect to quantities supplied and 

quantities demanded to arrive at this 

price. The fundamental price given by 

such a model is then compared with 

actual prices. The economists look for 

deviations between the fundamental 

price, based on the model, and the 

actual price of the commodity. When 

pursuing this method, economists look 

for whether the price deviations are 

statistically significant. When there are 

statistically significant deviations of the 

actual price from market fundamentals, 

they infer that the price is not driven by 

market fundamentals. 

Many of these studies present a model 

for one particular commodity or set of 

commodities. Some looked at volatile 

markets. Others used at very predictable 

markets. 

We group together for analysis a 

diverse set of studies that fall within 

this broad category of economic models 

of fundamental supply and demand. 

Some asserted that their models 

generally could explain prices. Some 

papers were neutral. And some papers 

reached the conclusion that market 

fundamentals could not explain certain 

price data in the markets they studied. 

ii. Advantages 

This methodology is well-recognized 

and accepted means for detecting price 

deviations. This is a centuries-old 

technique, as old as the quantification of 

economics. The model forces the 

economist to explain supply and 

demand. This requirement thus 

provides welcome transparency. 

Moreover, the models are auditable: 

When the fundamental price deviates 

from the actual price, the economists 

may well be able to look at the model 

and see which aspects of supply and/or 

demand created the deviation. If the 

economist cannot ascertain the source of 

the deviation, (1) the economist may 

seek to add additional variables to the 

models for supply or demand to better 

model supply and demand or (2) 

conclude that this unexplained 

deviation is empirical support for the 

existence of a non-fundamental price. 

Another advantage of this model is 

that the loose language of ‘‘bubble’’ is 

replaced by the term ‘‘non-fundamental 

price.’’ The model supplies an 

economically motivated specification 

for the price of a commodity. This 

feature permits deeper economic 

analysis and debate on whether a nonfundamental price exists without a 

digression into debates about what the 

term ‘‘bubble’’ means.1624


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not necessarily market manipulation to exploit an 

advantageous position in the marketplace in 

anticipation of changes in supply and demand.’’) 

1625Ben S. Bernake, Oil and the Economy, 

Remarks by then Governor Bernake at the 

Distinguished Lecture Series, Darton College, 

Albany, Georgia (2004). 

1626Brennan and Schwartz, Arbitrage in Stock 

Index Futures (Journal of Business 1990). 

1627Byun, Speculation in Commodity Futures 

Market, Inventories and the Price of Crude Oil 

(working paper 2013); Hamilton, Causes and 

Consequences of the Oil Shock of 2007–2008, 

Brookings Paper on Economic Activity (2009); 

Kilian and Lee, Quantifying the Speculative 

Component in the Real Price of Oil: The Role of 

Global Oil Inventories (working paper 2013); Kilian 

and Murphy, The Role of Inventories and 

Speculative Trading in the Global Market for Crude 

Oil, Journal of Applied Econometrics (2010); Knittel 

and Pindyck, The Simple Economics of Commodity 

Price Speculation (working paper 2013). 

1628Hamilton, Causes and Consequences of the 

Oil Shock of 2007–2008, Brookings Paper on 

Economic Activity (2009) (below-ground 

inventories should also be considered and are not 

included in the data) (concluding that speculative 

trading did affect both the speed and magnitude of 

the price decline in 2008). 

iii. Disadvantages 

As applied to position limits, this 

approach has several drawbacks as well. 

First and foremost, the analyses and 

conclusions that flow from these studies 

are only as good as the models 

themselves. Specifically, the price 

benchmark is based on the model, and 

an analysis of deviation from the 

benchmark is only as strong as the 

model itself. These models incorporate 

many simplifying assumptions. Market 

behavior and the real world in general, 

are much more complicated. 

Moreover, these models do not 

function well when there is a supply 

shock or when demand falls 

precipitously. Another disadvantage is 

model construction using variables that 

are highly correlated with the price. If 

the correlation between price and a 

variable is too high, then using the 

variable in the model may permit the 

variable to function as a proxy for price. 

This will hobble the model’s ability to 

detect price deviations. 

A substantial disadvantage of this 

model is the inherent difficulty of 

modelling fundamentals of supply and 

demand in a market of any complexity. 

Or even, in a model, in anticipating or 

measuring the impact of large 

macroeconomic trends. For example, 

economists have a notoriously bad track 

record of predicting economic 

recessions. Thus it is difficult to 

conclude that a model with a few 

variables, designed without this 

hindsight, would be successful in 

predicting how crude oil prices would 

behave during the advent of an 

economic recession. With hindsight, 

economists know now that September 

2008 was at the outset of a substantial 

global recession, or at least a point of 

dramatic decrease in the output of the 

world economy. And with hindsight, it 

is apparent that the recession 

dramatically reduced the demand for 

crude oil. But at the outset of a 

recession, a model designed without 

knowledge of the recession (or of its 

severity) might confuse a statistically 

significant deviation of actual crude oil 

prices for the fundamental price derived 

from the model. 

In addition, while this statistical 

method replaces the loose language of 

‘‘bubbles’’ with a statistically derived 

fundamental price, studies offering 

economic analysis of the fundamentals 

of price and demand do not eliminate 

all subjectivity in determining whether 

a non-fundament price has occurred. An 

economist will often obtain from these 

models a ‘‘price band,’’ a band for 

which prices falling within that range 

remain reflective of fundamental supply 

and demand. Prices outside the price 

band are non-fundamental prices. 

Determining the height of the band 

depends on what is viewed as a 

statistically significant deviation, by 

definition. But determining what a 

statistically significant deviation is 

requires the economist to make an 

assumption that can be quite 

consequential. The economist must set 

a level of price changes that his or her 

model will ignore as attributable merely 

to chance. Nothing in underlying 

statistics of the price data will provide 

the economist with this level. If the 

level is fixed so that the price band is 

relatively tall, less prices are likely to be 

labelled statistically significant 

deviation by the test. 

iv. Analysis of Specific Papers Using 

Fundamental Models 

Crude Oil Models 

Even before 2007, there were 

suspicions about prices in the crude oil 

market. The Governor of the Federal 

Reserve Board said in 2004: ‘‘The sharp 

increases and extreme volatility of oil 

prices have led observers to suggest that 

some part of the rise in prices reflects 

a speculative component arising from 

the activities of traders in the oil 

markets.’’ 1625 Then the price of crude 

oil doubled from June 2007 to June 

2008, and then rapidly declined in the 

second-half of 2008. Many economists 

thereafter published papers saying that 

the increase in demand up to June 2008 

and/or the decrease in demand for 

September 2008 crude oil could not be 

explained by market fundamentals. 

Many attempted to infer from this fact 

that speculative trading was causing 

changes in crude oil prices or price 

volatility. 

To understand these papers’ strengths 

and weaknesses, it is important to 

appreciate a critical factor about crude 

oil market economics—storage.1626 Data 

on storage is often used to study crude 

oil prices for speculative price 

influences. 

Crude oil is storable, and so its price 

reflects, in particular, the demand for 

crude oil inventory. Speculators 

influence the spot price of crude oil by 

placing physical crude oil into storage 

when future prices are anticipated to be 

higher and out of storage when future 

prices are anticipated to be lower. Given 

this, some economists have studied 

crude oil storage to determine whether 

crude oil inventories could be 

contributing to the boom and bust in 

crude oil prices during the 2007–2008 

time period. Specifically, using models 

of fundamental supply and demand, 

they study the elasticity of crude oil 

prices to determine whether the effect of 

speculators’ trading on crude oil 

inventories could affect crude oil prices. 

Several economists have examined 

above-ground oil inventories in the 

United States during this 2007–2008 

timeframe and examined the interplay 

of crude oil inventories and prices. They 

concluded that the short-term elasticity 

of crude oil demand would have had to 

have been unusually low—quite 

inelastic—for inventory demand to fully 

explain the unusual crude oil prices in 

2007–2008. (Price inelasticity of 

demand means that the price of crude 

oil is sensitive to changes in quantity 

demand: A small decrease in demand is 

likely to cause a large drop in price, for 

example, when the short-term elasticity 

of demand is inelastic, all else being 

equal.) From this, they conclude that 

speculative traders’ effect on inventory 

demand was unlikely to be a complete 

explanation for the 2007–2008 crude oil 

price swings. That is, it would be 

unlikely for speculators to be able to (at 

least easily) cause substantial 

movements in crude oil prices by 

speculators’ influence on the amount of 

crude oil stored in above-ground crude 

oil inventories.1627

Nonetheless, inventories may still 

explain part of the unusual price 

behavior of crude oil in 2007–2008. 

Even if the short-term elasticity of 

demand would have to have been very 

small in absolute value, speculation 

may have also affected below-ground 

inventories.1628

Many economists conclude that there 

was a substantial demand shock to 

crude oil during this time period, a 


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1629 Kilian and Murphy, The Role of Inventories 

and Speculative Trading in the Global Market for 

Crude Oil, Journal of Applied Econometrics (2010). 

1630See id. at 6 & n. 8 (economic theory suggests 

a link between cyclical fluctuations in global real 

activity and the real price of oil). 

1631E.g., Cifarelli and Paladino, Oil Price 

Dynamics and Speculation: A Multivariate 

Financial Approach, at p.1, Energy Economics 

(2010) (‘‘Despite the difficulties, we identify a 

significant role played by speculation in the oil 

market, which is consistent with the observed large 

daily upward and downward shifts in prices—a 

clear evidence that it is not a fundamental-driven 

market’’); Einloth, Speculation and Recent 

Volatility in the Price of Oil (working paper 2009) 

(using convenience yields to conclude that 

speculation did not play a major role in rise of 

crude oil to $100 a barrel in March of 2008, did play 

a role in its subsequent rise to $140 a barrel, and 

did not play a role in subsequent decline); 

Hamilton, Causes and Consequences of the Oil 

Shock of 2007–2008, Brookings Paper on Economic 

Activity (2009) (speculative trading increased the 

speed and magnitude of mid-2008 price collapse). 

Papers using this methodology reach a broad range 

of conclusions. See also Eckaus, The Oil Price 

Really is a Speculative Bubble (working paper 2008) 

(reject the hedging pressure hypothesis that 

inventory positions are an important determinant of 

risk premiums, and concludes that oil prices are 

speculative because he cannot perceive a reason for 

the prices based on supply and demand); Morana, 

Oil Price Dynamics, Macro-finance Interactions and 

the Role of Financial Speculation, at 206–226, 

Journal of Banking & Finance, Vol. 37, Issue 1 (Jan. 

2013) (concluding that there is excessive 

speculation in the crude oil market that did lead to 

a substantial price impact in 2007–2008); Sornette, 

Woodard and Zhou, The 2006–2008 Oil Bubble and 

Beyond: Evidence of Speculation, and Prediction, 

Physica A. (2009) (find evidence of a bubble, but 

only based upon an undocumented model largely 

presented by graphs); Stevans and Sessions, 

Speculation, Futures Prices, and the U.S. Real Price 

of Crude Oil, American Journal of Social and 

Management Science (2010) (contending that there 

is ‘‘hoarding’’ in the crude oil market and that 

elimination of the longer-term futures contracts 

would curb excessive speculation); Weiner, 

Speculation in International Crises: Report from the 

Gulf, Journal of Int’l Business Studies (2005) (a 

combination of political and market events, not 

speculation, was behind the price volatility in 

1990–1991); Breitenfellner, Crespo, and Keppel, 

Determinants of Crude Oil Prices: Supply, Demand, 

Cartel, or Speculation?, at 134, Monetary Policy and 

the Economy (2009) (concluding ‘‘it is conceivable’’ 

that interaction between crude oil production and 

financial markets exacerbated pressure on crude oil 

prices, but finding no proof of this). 

1632Plante and Yu ̈ cel, Did Speculation Drive Oil 

Prices? Futures Market Points to Fundamentals 

(working paper Federal Reserve of Dallas 2011) 

(crude oil data for the 2007–2009 time period ‘‘are 

consistent with how a well-functioning futures 

market would behave,’’ and if speculation had been 

to blame, there would have been ‘‘very large 

positive spreads . . . followed by significant 

increases in inventory’’). 

1633 Juvenal and Petrella, Speculation in the Oil 

Market (working paper of Federal Reserve Bank of 

St. Louis 2012) (concluding that speculation played 

a ‘‘significant role’’ in both the price increases in 

2008 and the subsequent collapse, but they did not 

carefully model ‘‘excess speculation.’’ Instead, they 

interpreted the second principle component as 

being ‘‘excess speculation’’ even though the second 

component may be assigned many other 

interpretations or even be deemed uninterpretable.). 

1634E.g., Kilian and Murphy, The Role of 

Inventories and Speculative Trading in the Global 

Market for Crude Oil, Journal of Applied 

Econometrics (2010). In the construction of his 

study, Kilian used a shipping index, the Dry Baltic 

Index. In shipping, a predominant factor in the cost 

of shipping is the cost of crude oil. By using the 

Dry Baltic Index to attempt to compose a model to 

explain crude oil prices, the economist chose a 

variable which would naturally be highly correlated 

to crude oil prices. However, by using a proxy, the 

effectiveness of the model is lessened. It is unclear 

whether the results are attributable to fundamentals 

driving crude oil prices or crude oil prices driving 

the Dry Baltic Index. See also Morana, Oil Price 

Dynamics, Macro-finance Interactions and the Role 

of Financial Speculation, pp. 206–226, Journal of 

Banking & Finance, Vol. 37, Issue 1 (Jan. 2013) 

(careful, large-scale modeling of the oil market 

macro-finance interface, finding the existence of 

‘‘excess speculation’’ in these markets using 

Workings T and other tests, and concluding that 

financial factors may have up to a 30 percent 

contribution to oil price fluctuations). Id. at p.220 

(using Working’s T and model to conclude that 

there is a significant liquidity effect associated with 

non-fundamental financial shocks in the oil market, 

leading to a higher real oil price without affecting 

inventories); id. at 223–224 (macro-finance factors 

played a larger role than ‘‘financial factors’’ in the 

2007–2009 crude oil ‘‘price shock,’’ but ‘‘excessive 

speculation’’ did have a price impact). 

1635Hamilton, Causes and Consequences of the 

Oil Shock of 2007–2008, Brookings Paper on 

Economic Activity (2009). 

1636See id. at 17–23. 

demand arising from the onset of a 

global recession. As the deep recession 

of 2008 and 2009 began to set in, there 

was a decrease in demand for 

September 2008 crude oil in the crude 

oil futures market. It is unlikely that a 

demand shock associated with the 

recession was anticipated by the 

marketplace, including speculators, 

given the notorious difficulty of 

predicting recessions. Kilian and 

Murphy 1629 assert, if a global recession 

causes the demand shock, the 

economics of the crude oil market 

suggests that there is little policymakers 

can do to prevent this kind of price 

bubble from appearing in the crude oil 

market at the outset of the recession.1630

Several economists wrote papers 

suggesting that their results indicated 

that crude oil price changes during this 

time period reflected uneconomic or 

‘‘bubble-like’’ behavior. Generally, these 

authors find that their models of supply 

and demand could not track well the 

run up in crude oil prices to around 

$145 in mid-2008 or the bust to close to 

$30 a barrel just a few weeks later, and 

they concluded that activity by 

speculators in these markets was or 

might be affecting the rapid crude oil 

price changes.1631

These studies do not, in total, lead to 

consensus. There are distinctive 

differences and disagreement in the 

papers on the existence of excessive 

speculation in the crude oil market 

during 2007–2009. Even within the 

Federal Reserve system, there is 

disagreement, for instance, Plante and 

Yu ̈ cel, in Did Speculation Drive Oil 

Prices? Futures Market Points to 

Fundamentals,1632 and Juvenal and 

Petrella, in Speculation in the Oil 

Market.1633

The methodology of fundamentals of 

supply and demand does not zero in 

precisely on causation and leaves room 

for interpretation of why a price does 

not follow modelled supply and 

demand behavior. Labelling prices 

‘‘bubbles’’ caused by speculation simply 

because one does not understand or 

cannot otherwise account for price 

movements is problematic. One 

explanation for the failure of these 

models to track such fast-moving prices 

that is speculative activity is at work. 

But there are other explanations. On 

some level, there is a tautological error 

in labelling price changes as ‘‘bubblelike’’ simply because economists could 

not, as of a certain time and with certain 

model, otherwise explain or predict 

price movements. These models are 

trying to explain very complex 

phenomena and make difficult choices 

on how to use imperfect data. 

Some models performed better at 

modelling the real-world crude oil 

prices, using models of fundamental 

supply and demand, by selecting one of 

the stronger proxies for crude oil, such 

as the Dry Baltic Index or 

macroeconomic variables such as global 

gross domestic product as explanatory 

variables.1634

One of the best studies in this area is 

Hamilton, Causes and Consequences of 

the Oil Shock of 2007–2008.1635 He 

concludes that fundamentals of supply 

and demand are responsible for most of 

the run-up in prices, while speculative 

trading may have increased both the 

speed and absolute magnitude of the 

mid-2008 decline in prices. As to the 

first point, he concludes that while oil 

prices may have been ‘‘too high’’ in July 

2008, ‘‘low price elasticity of demand, 

and the failure of physical production to 

increase’’ are more likely the 

predominant causes than ‘‘speculation 

per se.’’ 1636 He acknowledges, however, 

that the speed and magnitude of the 

price decline in mid-2008 may have 

been induced, in part, by speculative 

trading. 

Given this mixed result, both 

proponents and opponents of position 

limits cite various aspects of this 

Hamilton study. His study follows the 

data closely; his model discusses key 

issues such as inventory. He does not 

leap to strained interpretations based on 

theoretical model assumptions. When 

his model does not provide a full 

explanation for price behavior based on 

supply and demand, he does not simply 

jump to the conclusion that speculation 

is at work. Instead, he offers measured 


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1637 Kilian and Murphy, The Role of Inventories 

and Speculative Trading in the Global Market for 

Crude Oil, at p.7 n. 9, Journal of Applied 

Econometrics (2010). 1638Allen, Litov, and Mei, Large Investors, Price 

Manipulation, and Limits to Arbitrage: An Anatomy 

of Market Corners, Review of Finance (2006). 

1639 Gorton, Hayashi, Rouwenhorst, The 

Fundamentals of Commodity Futures Returns, 

Review of Finance (2013). 

1640Ederington, Dewally, and Fernando, 

Determinants of Trader Profits in Futures Markets 

(working paper 2013). 

1641All else being equal, the more inventory 

available for delivery the less costly it is for shorts 

to hedge their exposure. Similarly, the more volatile 

the commodity prices are, the more price risk is 

being accepted by the longs (all else being equal). 

This means that in volatile markets hedgers that are 

short will pay higher risk premia to hedge. 

1642Haigh, Hranaiova, and Overdahl, Hedge 

Funds, Volatility, and Liquidity Provisions in the 

Energy Futures Markets, Journal of Alternative 

Investments (2007). 

1643See also Harrison and Kreps, Speculative 

Investor Behavior in a Stock Market With 

Heterogeneous Expectations, Quarterly Journal of 

Economics (1978) (differences in subjective beliefs 

induce trading and speculation); Manera, Nicolini 

and Vignati, Futures Price Volatility in 

Commodities Markets: The Role of Short-Term vs 

Long-Term Speculation (working paper 2013) 

(short-term speculation, as estimated by daily 

volume divided by open interest, increases 

volatility while long term speculation, using a 

Working’s T analysis, decreases it); Trostle, Global 

Agricultural Supply and Demand: Factors 

Contributing to the Recent Increase in Food 

Commodity Prices, USDA Economic Research 

Service (2008) (surveying supply and demand 

fundamentals explain a lot of the futures prices and 

price volatility: Slow growth in production relative 

to demand for biofuels, declining US dollar, rising 

oil prices, bad weather 2006 to 2007, growing 

holdings by foreign countries, and increased cost of 

production for agriculture in general). 

1644Chan, Trade Size, Order Imbalance, and 

Volatility-Volume Relation, Journal of Financial 

Economics (2000) (studying the equity market to 

determine the role that trade size has on volatility 

for equities); Chordia, Subrahmanyam and Roll, 

Order imbalance, Liquidity, and Market Returns, 

Journal of Financial Economics (2002) (show that 

order imbalances in either direction for equity 

markets affect daily returns after controlling for 

aggregate volume and liquidity); Doroudian and 

Vercammen, First and Second Order Impacts of 

Speculation and Commodity Price Volatility 

(working paper 2012) (claiming a ‘‘second order’’ 

price distortion caused by institutional investors); 

Frankel and Rose, Determinants of Agricultural and 

Mineral Commodity Prices (working paper 2010) 

(two macroeconomic fundamentals—global output 

and inflation—have positive effects on real 

commodities, but microeconomic variables have 

greatest overall effects, including volatility, 

inventories, and spot-forward spread); Girardi, Do 

Financial Investors Affect Commodity Prices? 

(working paper 2011) (during the late 2000s there 

was a positive, statistically significant and 

substantial correlation between hard red winter 

wheat price and the U.S. equity market, as well as 

a substantial correlation between hard red winter 

wheat prices and crude oil prices); Hong and Yogo, 

Digging into Commodities (working paper 2009) 

(investors use commodities to hedge market 

fluctuations, as evidenced by yield spread analysis); 

Kyle and Wang, Speculation Duopoly with 

Agreement to Disagree: Can Overconfidence 

Survive the Market Test?, Journal of Finance (1997) 

(theoretical model explaining how overconfidence 

by fund managers can lead to a persistence in 

market prices); Plato and Hoffman, Measuring the 

Influence of Commodity Fund Trading on Soybean 

Price Discovery (working paper 2007) (‘‘finding that 

the price discovery performance of the soybean 

futures market has improved along with the 

increased commodity fund trading’’); Westcott and 

Hoffman, Price Determination for Corn and Wheat: 

The Role of Market Factors and Government 

Programs (working paper 1999) (analysis of supply 

and demand fundamentals for wheat and corn that 

does not include position data); and Wright, 

International Grain Reserves and Other Instruments 

to Address Volatility in Grain Markets, World Bank 

Research Observer (2012) (about price limits, not 

position limits). 

1645Bos and van der Molen, A Bitter Brew? How 

Index Fund Speculation Can Drive Up Commodity 

Prices, Journal of Agricultural and Applied 

Economics (2010) (most of the changes in spot 

prices can be attributed to shifts in demand and 

supply, and failure to account properly for these 

inputs in the coffee price generation process may 

lead to serious overestimation of the effects of 

speculation; nevertheless, asserting without 

detailed analysis that speculation is an important 

part of the coffee price generation process), Gupta 

and Kamzemi, Factor Exposures and Hedge Fund 

Operational Risk: The Case of Amaranth (working 

paper 2009) (trying to explain the behavior of 

Amaranth on the mistaken notion that a hedge fund 

should be diversified); Henderson, Pearson and 

Wang, New Evidence on the Financialization of 

Commodity Markets (working paper 2012) (analysis 

founded on questionable assumption that 

commodity link note investors are uninformed 

investors); Van der Molen, Speculators Invading the 

Commodity Markets (working paper 2009) (data 

handling problems: Dataset which covers twenty 

years, while the variable index speculators is only 

available for two to three years, and assumes that 

net position is in indication of index speculators). 

judgments on the possibility that 

speculation may have affected the 

precipitous mid-2008 crude oil price 

decline and presents statistical evidence 

that this may have occurred. 

Other Studies Based on Supply and 

Demand Models 

A discussion of crude oil prices 

during the 2007–2008 timeframe is 

illustrative of other commodities during 

this time period. For example, there is 

considerable comovement between the 

real price of crude oil and the real price 

of other industrial commodities during 

times of major fluctuation in global real 

activity (such as global recessions).1637

All commodities during this time period 

were buffeted by macroeconomic 

factors, including a global recession, 

and a deep one at that during 2008 and 

2009. 

Outside of the crude oil context, there 

are some noteworthy studies of 

fundamental supply and demand that 

bear on the position limits rulemaking. 

Allen, Litov, and Mei, in Large 

Investors, Price Manipulation, and 

Limits to Arbitrage: An Anatomy of 

Market Corners,1638 examine historical 

corners and squeezes in security and 

commodity markets and conclude that a 

corner or squeeze may induce 

arbitragers to exit the market, since 

arbitragers will only take short positions 

when the prospect of profits is high 

enough. Two papers, Gorton, Hayashi, 

Rouwenhorst, The Fundamentals of 

Commodity Futures Returns,1639 and 

Ederington, Dewally, and Fernando, 

Determinants of Trader Profits in 

Futures Markets,1640 offer empirical 

support for the hedging pressure 

hypothesis: That the returns on long 

futures positions vary inversely with 

inventory and price volatility.1641

Haigh, Hranaiova, and Overdahl, in 

Hedge Funds, Volatility, and Liquidity 

Provisions in the Energy Futures 

Markets,1642 suggest that hedge funds 

supply liquidity and that there is little 

linkage between price volatility and 

hedge fund position change. They claim 

that hedge fund participation in futures 

markets, at least as of 2007, was not 

injecting unwarranted volatility into 

futures prices.1643

Other papers on the fundamentals of 

supply and demand do not bear directly 

on position limits. Some discuss matters 

far afield from the impact of positions 

on price or other matters bearing on 

position limits.1644 Others rest on 

unreliable model assumptions.1645


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1646This method is particularly good at 

‘‘accommodating’’ abrupt shifts in market data. 

Some statistic methods, such as those based on 

linear regression, may have difficulty with volatile 

data or data discontinuity. This method is also 

particularly well-suited for studying policy 

changes. For example, if the Federal Reserve makes 

a policy change that is expected to have a longterm, but not necessarily an immediate, impact, this 

method will permit an economist to infer, based on 

the model, the duration of the lag before the policy 

change begins to affect the markets. 

1647This example is taken from an academic 

paper not within the administrative record that 

found non-fundamental (or ‘‘bubble’’) prices in 

crude oil and feeder cattle markets. Brooks et al, 

Boom and Busts in Commodity Markets: Bubbles or 

Fundamentals? (working paper 2014). 

1648These models are difficult to design well in 

this context for several other reasons. The 

economist is making an informed, probabilistic 

inference that a transition has occurred. This 

inference is more than a seat-of-the-pants 

determination, but it is less than a mathematical 

certainty. The result of this statistical method is 

also highly dependent upon what set of data the 

econometrician selects for analysis. An economic 

model founded on this method should be given 

more credence when it is applied to more than one 

dataset and the results are replicated with different 

data. Selection of controlling variables that would 

account for position data is a difficult task with this 

statistical model. The data-driven nature of the 

model does not help in selection of proper 

controlling and explanatory variables. Ingenuity is 

required to design explanatory variables that would 

account well for position data. 

1649These are: Cifarelli and Paladino, Commodity 

Futures Returns: A non-linear Markov Regime 

Switching Model of Hedging and Speculative 

Pressures (working paper 2010) (concluding that 

speculation, not supply and demand factors, drive 

some daily price swings in certain energy futures); 

Chevallier, Price Relationships in Crude oil Futures: 

New Evidence from CFTC Disaggregated Data, 

Environmental Economics and Policy Studies 

(2012) (the influence of financial investors through 

the S&P GSCI Energy Spot may have contributed to 

price changes in the crude oil market) (discussed 

in ensuing text); Hache and Lantz, Speculative 

Trading & Oil Price Dynamic: A Study of the WTI 

Market, Energy Economics, Vol. 36, 340 (March 

2013) (cannot reject hypothesis that variations in 

the positions of non-commercial players may have 

played a ‘‘destabilising role in petroleum markets’’ 

and ‘‘speculative trading can be considered an 

important factor during market instability and ‘oil 

bubbling’ process’’); Lammerding, Stephan, Trede, 

and Wifling, Speculative Bubbles in Recent Oil 

Price Dynamics: Evidence from a Bayesian Markov 

Switching State-Space Approach, Energy 

Economics Vol. 36 (2013) (claims to find robust 

evidence of ‘‘bubbles’’ in oil prices associated with 

speculation); and Sigl-Gru ̈ b and Schiereck, 

Continued 

d. Switching Regressions 

i. Switching Regression Analysis 

Described 

In a switching regression analysis, an 

economist poses the existence of a 

model with more than one state. In the 

particular context of position limits, 

there are typically two states: (1) A 

normal state—where prices are viewed 

as what they theoretically should be 

following market fundamentals and (2) 

a second state—often described as a 

‘‘bubble’’ state in these papers. Using 

price data, authors of these studies 

calculate the probability of a transition 

between these two states. The point of 

transition between the two states under 

this methodology is called a structural 

‘‘breakpoint.’’ Examination of these 

breakpoints permits the researcher to 

date and time the existence of a second 

state, such as a bubble state. 

These authors sometimes find 

empirical support in the data for the 

existence of a second state by 

calculating the probability of 

breakpoints. When the probability is 

high enough, the research will say that 

there is evidence for a second state. 

ii. Advantages 

A variant of this method was first 

published in 1973. It is fairly wellcredentialed within academia. If there 

are two states of the world, it makes 

sense that distinct states would have 

different economic models. Because 

switching regressions uses at least a 

two-state regression, this method 

satisfies the economist’s view that 

different states would be better 

described using different models. A onesize-fits-all model, applied to varying 

economic states, could potentially be 

compromised in order to accommodate 

disparate states. 

This model is flexible, allowing for 

many different specifications (of model 

design) as explanatory variables of 

speculative positions and futures prices. 

When using this method, the 

economic researcher permits the data 

itself to choose the structural 

breakpoints. This differs from some 

other statistical methods, where the 

economic researcher may choose 

exogenously, based on interpretation of 

the data or historical knowledge, where 

and when a transition to a supposed 

bubble state occurs. The model’s 

selection of the breakpoint permits data 

to be tested against known historical 

events and thus lend a measure of 

credence to the model’s choices for 

structural breaks. 

The model also permits close study of 

particular time periods. An economist 

may well be aware of historical events 

that were market-transition events such 

as ‘‘bubbles,’’ and this method permits 

the economist to zero-in on that time 

period and to investigate potential 

causes and/or confounding events 

associated with a suspected market 

transition.1646

iii. Disadvantages 

This method has a significant 

disadvantage that is highlighted in the 

position limit context. This statistical 

technique tests for a second state. There 

could, however, be reasons for a nonnormal state other than a ‘‘bubble’’ state. 

This method leaves quite a bit to 

economic interpretation of the model, 

not raw data analysis, to reach their 

inference that the second state is a 

‘‘bubble’’ state. 

While the existence of a second state 

may indicate a ‘‘bubble’’ state and may 

indicate a problem with excessive 

speculation, this statistical method 

cannot definitively prove these 

inferences, even if position data were 

used in the analysis. The probability of 

the existence of second state in these 

studies in only circumstantial evidence 

of (1) a ‘‘bubble’’ state and (2) a 

‘‘bubble’’ state caused by excessive 

speculation. 

Consider an example of why data 

alone cannot explain why a deviation 

from a normal market state is a bubble 

state: The case of feeder cattle. If there 

is a drought and feed becomes scarce 

and expensive, the cattlemen may sell 

off part of their herd. Prices of feeder 

cattle may then drop in the short term 

as well, because cattleman may sell 

young calves, too. But subsequently, 

because so many cattle have been 

slaughtered, there is a shortage of feeder 

cattle the next season and the prices of 

feeder cattle rise. So in this case, there 

is theoretical and empirical support for 

two states, but they correspond to nondrought and drought states and not 

normal and ‘‘bubble’’ state. Switching 

regression analysis if applied to feeder 

cattle prices during a time period 

encompassing both drought and nondrought state would not establish the 

existence of what we could typically 

view as a ‘‘bubble’’ in the post-drought 

price rise.1647 In any event, none of this 

price phenomenon can be viewed as a 

problem of ‘‘excessive speculation.’’ 

One could still use the ill-defined word 

‘‘bubble’’ to describe the second state, 

but it would be a dearth of rainfall, not 

excessive speculation, which created 

this second state. 

The theoretical level of the analysis, 

and in particular the lack of firm 

empirical data linking non-normal states 

to speculative ‘‘bubble’’ markets, are 

weaknesses of this statistical method. 

The studies following this method do 

not provide categorical proof of the 

existence of speculative ‘‘bubble’’ 

markets and they do not provide 

statistical evidence of whether positions 

limits would be effective in ameliorating 

‘‘bubble’’ markets.1648

iv. Analysis of Studies Reviewed That 

Used Switching Regression 

Five studies used a standard form of 

switching regressions analysis.1649


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Speculation and Nonlinear Price Dynamics in 

Commodity Futures Markets, Investment 

Management and Financial Innovations, Vol. 77, 

pp. 59–73 (2010) (‘‘short-run autoregressive 

behavior’’ of commodity markets is driven not only 

by fundamentals but also by trading of speculators). 

1650These are: Fan and Xu, What Has Driven Oil 

Prices Since 2000? A Structural Change Perspective, 

Energy Economics (2011) (multi-state); Baldi and 

Peri, Price Discovery in Agricultural Commodities: 

The Shifting Relationship Between Spot and 

Futures Prices (working paper 2011) (multi-state); 

Silvernnoinen and Thorp, Financialization, Crisis 

and Commodity Correlation Dynamics, Journal of 

Int’l Financial Markets, Institutions, and Money 

(2013) (conditional correlations). All three of these 

papers are of mixed methodology, applying 

switching regression analysis to relationships 

between prices that are viewed by the papers’ 

authors as cointegrated. 

1651For example, the study by Sigl-Gru ̈ b and 

Schiereck employs a smooth transition (as opposed 

to an abrupt change) between states. Unfortunately, 

the study’s model does not have a high goodnessof-fit values (all adjusted-R2 are below 0.05 and 

most are below 0.01), nor fundamental economic 

explanatory variables (only lagged prices and 

speculative positions in the transition component 

between states). These are shortcomings. In 

particular, the latter omission may overstate the 

importance of speculative positions. 

1652Chevallier, Price Relationships in Crude oil 

Futures: New Evidence from CFTC Disaggregated 

Data, Environmental Economics and Policy Studies 

(2012). 

1653Specifically, Chevallier found that in the first 

state, the coefficient of the logarithmic returns of 

net speculative positions is positive and significant 

(1 percent level). In the second state, this coefficient 

is negative and mildly significant (10 percent level). 

Chevallier’s results show statistically significant 

relationships between the volume of speculative 

positions in particular and logarithmic price 

returns. 

1654See, e.g., Goyal and Tripathi, Regulation and 

Price Discovery: Oil Spot and Futures Markets at 

15–16 (working paper 2012) (describing 

methodology in more detail). 

1655Even if there were not such problems, the 

methodology has an insurmountable theoretical 

difficulty. The use of the ‘‘unit root’’ test, as a part 

of this eigenvalue methodology, is an inherently 

suspect way of identifying explosive price behavior. 

That is because the unit root tests rely upon a small 

a set of observations to approximate long-term price 

behavior. 

Three studies used a related 

methodologies, multi-state regressions 

or conditional correlations.1650

Most of these studies are not helpful 

because they do not use position data or 

because they have technical issues.1651

It is difficult to perform these types of 

studies well. A study finding the 

existence of transitions between states 

can be unconvincing if it does not have 

solid theoretical and economic 

justifications for the data selected and 

the model’s design. Many of the 

disadvantages of this methodology, 

discussed above, find expression in 

these papers. 

However, there is one switching 

regression study worthy of further 

discussion in our view. It is wellexecuted and employs position data: 

Chevallier, Price Relationships in Crude 

oil Futures: New Evidence from CFTC 

Disaggregated Data.1652 Of course, it 

inherits all the difficulties of speculative 

position data, such as the difficulty 

separating hedgers from speculators. Yet 

Chevalier’s effort does persuasively 

suggest the existence of two states in 

price structure during 2008 crude oil 

market price swings. His paper suggests 

that with highly inelastic supply and 

demand, the influence of financial 

investors through the S&P GSCI Energy 

Spot may have contributed to price 

changes in the crude oil market. 

Using switching regressions, 

Chevallier attempts to reconcile two 

strands of economic literature: Papers 

that posit the predominance of supply 

and demand fundamentals and other 

papers that investigate speculative 

trading. Chevallier employs 

macroeconomic variables, proxies for 

supply and demand fundamentals, and 

speculative positions (net open position 

of speculators) in his model 

specifications. Using switching 

regression analysis, he concludes that 

one cannot eliminate the possibility of 

speculation (a reason why the physical 

commodity may move into and out of 

storage) as one of the main reasons 

behind the 2008 oil price swings. 

This is an important result. Other 

economic studies using models of 

supply and demand purport to explain 

the 2008 price swings in crude oil 

without incorporating speculation into 

demand. Chevallier’s paper suggests 

that speculation cannot be ruled out as 

a cause. Specifically, using net 

speculative positions as one of his 

variables in his test, he found that this 

variable was statistically significant on 

crude oil futures natural logarithm of 

price returns during the 2008 time 

period.1653

This result posits that speculation 

may have played some role during the 

2008 crude oil futures price swings. It 

suggests that studies that look only to 

supply and demand without 

incorporating speculative demand to 

explain the crude oil market in 2008 

may be overlooking an important factor. 

The switching regression methodology 

in this context functions as a crosscheck to determine whether models of 

fundamental supply and demand can, in 

fact, account for all the price swings in 

crude oil during this time. In at least 

this particular commodity market and 

timeframe, Chevallier’s finding that net 

speculative positions are correlated with 

crude oil future prices suggests a price 

effect from net speculative positions. 

e. Eigenvalue Stability 

i. Description 

Some economists have run 

regressions on price and time-lagged 

values of price. They estimate the timelagged regression over short time 

internals. They do this to detect, 

through examination of specific terms in 

their lagged price model, unusual price 

changes. In technical terms, they use a 

difference equation for lagged price with 

different estimated values (i.e., 

coefficients) for different time-lagged 

price variables. They then solve for the 

roots of that characteristic equation and 

look for the eigenvalues (latent values) 

with absolute value greater than one. 

They conclude that eigenvalue indicates 

that the price of the commodity is in an 

‘‘exploding’’ state or a ‘‘bubble.’’ 1654

ii. Advantages and Disadvantages 

This method can be applied after-thefact to historical data to try to ascertain 

whether past price changes constituted 

a ‘‘bubble.’’ Or it can be applied to realtime data to predict whether a current 

state of affairs is a ‘‘bubble.’’ For these 

reasons, some economists perceive, as 

an advantage of this method, the ability 

through statistical means to date and 

time ‘‘bubbles’’ in prices. 

On the other hand, this method is 

based on a model and the results of any 

analysis are only as strong as the model. 

The model is limited to price data and 

a constant. Models using this technique 

do not permit the study authors to 

include other explanatory variables. 

This is a disadvantage because it is 

likely that there are variables of interest 

other than lagged prices when 

considering whether price instability 

exists. For example, someone interested 

in position limits would want to include 

an explanatory variable such as 

speculative positions in the regressions, 

but this technique does not permit this. 

Further, the model allows for wide 

discretion in the number of lagged 

prices used. The studies’ authors often 

look at ‘‘goodness of fit’’ results to 

determine how many lags to select, 

seeking to set the model based upon the 

data. This step may make the model 

uniquely tailored to a particular dataset 

but not easily applicable to another. Put 

another way, selecting an important 

model feature based on testing of the 

data runs the risk of a selection that is 

not based on any theoretical or 

economic fact, but instead on ad hoc 

assumptions made by the modelers and 

any idiosyncrasies of the dataset.1655

iii. Analysis 

Economists using this methodology 

attempt to find the existence of price 

‘‘bubbles’’ using eigenvalue stability 

methods. Three such papers were 


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1656These are: Phillips and Yu, Dating the 

Timeline of Financial Bubbles During the Subprime 

Crisis, Quantitative Economics (2011); Czudaj and 

Beckman, Spot and Futures Commodity Markets 

and the Unbiasedness Hypothesis—Evidence from 

a Novel Panel Unit Root Test, Economic Bulletin 

(2013); Gutierrez, Speculative Bubbles in 

Agricultural Commodity Markets, European Review 

of Agricultural Economics (2012) (Monte Carlo 

variant of eigenvalue stability approach). 

1657 Gilbert, Speculative Influences on 

Commodity Futures Prices, 2006–2008, UN 

Conference on Trade and Development (2010). 

1658 Id. at 9 at ¶ iii. 

1659 Id. at ¶ ii. 

1660This is perhaps why he proceeds to a 

Granger-based analysis using position data in the 

second half of his paper. 

1661 Kumar and Seppi, Futures Manipulation with 

‘‘Cash Settlement’’, Journal of Finance (1992) 

(while, without physical delivery, corners and 

squeezes are infeasible, cash-settled contracts are 

still susceptible to cash-to-futures price 

manipulation, and this price manipulation transfers 

liquidity from futures to cash markets); Dutt and 

Harris, Position Limits for Cash-Settled Derivative 

Contracts, Journal of Futures Markets (2005) 

(arguing that cash settled contracts appear to be 

particularly susceptible to manipulation, but 

appearing to conflate SEC options with CFTCregulated commodity contracts). 

1662Lombardi and van Robays, Do Financial 

Investors Destabilize the Oil Price? (working paper, 

European Central Bank, 2011) (giving theoretical 

grounds for the ability of financial investors in 

futures to destabilize oil prices, but only in the 

short run); Vansteenkiste, What is Driving Oil Price 

Futures? Fundamentals Versus Speculation 

(working paper, European Central Bank, 2011); Liu, 

Financial-Demand Based Commodity Pricing: A 

Theoretical Model for Financialization of 

Commodities (working paper 2011). 

1663Schulmeister, Torero, and von Braun, 

Trading Practices and Price Dynamics in 

Commodity Markets (working paper 2009) (finding 

that price movements in crude oil and wheat are 

lengthened and strengthened by ‘‘speculation’’ in 

respective futures prices). 

1664Pirrong, Manipulation of the Commodity 

Futures Market Delivery Process, Journal of 

Business (1993); Pirrong, The Self-Regulation of 

Commodity Exchanges: The Case of Market 

Manipulation, Journal of Law and Economics 

(1995); Ebrahim and ap Gwilym, Can Position 

Limits Restrain Rogue Traders?, at 832 Journal of 

Banking & Finance (2013) (‘‘Our results illustrate 

that excess speculation, with or without the intent 

to manipulate the futures markets, is not 

worthwhile for the speculator’’ and concluding that 

position limits are ‘‘counterproductive’’ because 

excessive speculation enriches other market players 

at the expense of the speculator). 

1665Pliska and Shalen, The Effects of Regulation 

on Trading Activity and Return Volatility in 

Futures Markets, at 148, Journal of Futures Markets 

(2006) (‘‘[W]ell-meaning regulatory policies can be 

counterproductive by reducing the liquidity which 

is characteristic of futures markets,’’ including 

policies such as ‘‘extreme margins and position 

limits’’); Lee, Cheng and Koh, An Analysis of 

Extreme Price Shocks and Illiquidity Among 

Systematic Trend Followers (working paper 2010) 

(using an agent-based model and assuming trendfollowers in the market, finds no reason to believe 

position limits will help as opposed to leading to 

erratic price behavior). 

1666Pirrong, The Self-Regulation of Commodity 

Exchanges: The Case of Market Manipulation, 

Journal of Law and Economics (1995). 1667 Id. at 143. 1668 Id. (asserting that position limits are 

‘‘excessively costly’’ and concluding that selfregulation, along with after-the-fact civil and 

criminal penalties for manipulation, may be more 

efficient, but this assertion is unaccompanied by 

quantitative analysis or a detailed qualitative costbenefit analysis). 

1669Pirrong’s Manipulation of the Commodity 

Futures Market Delivery Process, Journal of 

Business (1993). 

1670 Id. at 363 (futures market manipulations 

‘‘distorts prices and creates deadweight losses;’’ 

‘‘causes shorts to utilize real resources to make 

excessive deliveries;’’ and ‘‘distorts consumption’’). 

submitted.1656 All the authors find 

‘‘evidence’’ of various ‘‘bubbles.’’ 

However, in none of these studies is 

there reasonable empirical evidence to 

support the inferential leap between 

instability, ‘‘bubbles,’’ and excess 

speculation. In particular, for all of 

these studies, there is no link made in 

the data between price instability and 

positions. These studies do not use 

position data. The problem inheres in 

the method, which, while purporting to 

detect the existence of ‘‘bubbles,’’ does 

not permit the research to link supposed 

bubble to speculative positions. 

In modern markets, prices can change 

rapidly for many reasons. The 

‘‘explosion’’ of a price over a short time 

interval does not necessarily reflect 

uneconomic behavior or a price 

‘‘bubble.’’ It could simply represent a 

‘‘shock.’’ That shock need not come 

from speculative activity. The price path 

may not be smooth. For this reason, 

these models are conceptually flawed 

when applied to commodity prices and 

commodity futures prices. 

For example, in Gilbert, Speculative 

Influences on Commodity Futures 

Prices,1657 Gilbert uses a variant of this 

methodology in an early section of his 

paper to find ‘‘clear evidence’’ of 

‘‘bubble periods’’ for copper and 

soybeans lasting days and weeks.1658 He 

finds unexplained price increases in 

crude oil for periods of time that are 

‘‘insufficient to qualify as bubbles.’’ 1659

Using just price data, and not positions, 

Gilbert’s attribution of lingering price 

spikes cannot be attributed to 

speculative positions.1660

There is a subtler disadvantage that 

inheres in the inference between the 

identification of price growth without 

bound and the existence of a bubble. To 

examine intervals where a price series is 

appearing to grow without bound and to 

infer that that implies a bubble is 

problematic. A time series for price of 

an asset is unlikely to tend to infinity 

because, eventually, this would likely 

lead to infeasible prices (generally, in 

the absence of hyperinflation). We do 

not expect the real price of an asset, 

which is the price is adjusted for 

inflation, to grow without bound. 

2. Theoretical Models 

Some economic papers cited in this 

rulemaking perform little or no 

empirical analysis and instead, present 

a general theoretical model that may 

bear, directly or indirectly, on the effect 

of excessive speculation in the 

commodity marketplace. Within the 26 

theoretical model papers in the 

administrative record, there is a subset 

of papers which may be viewed as 

generally supportive or disapproving of 

position limits. Because these papers do 

not include empirical analysis, they 

contain many untested assumptions and 

conclusory statements. In the specific 

context of academic analysis of position 

limits (as opposed to policy 

formulation) theories are useful but 

must be tested empirically. 

Theoretical Papers Directly or Indirectly 

Support Position Limits 

Two studies presented theoretical 

models establishing the risk of price 

manipulation in the derivatives markets, 

including cash-settled contracts, 

suggesting that position limits might be 

particularly helpful in cash-settled 

contracts.1661 A few studies presented 

theoretical reasons why financial 

investors might increase or 

‘‘destabilize’’ commodity futures 

prices 1662 or the spot price.1663

Theoretical Studies Indirectly 

Criticizing at Least Some Position 

Limits 

On the other hand, there were 

theoretical papers that reached 

conclusions which could be helpful to 

position limit skeptics, such as the 

power of the marketplace to ‘‘selfdiscipline’’ would-be excessive 

speculators.1664 Some papers offer 

theoretical grounds for the concern that 

more restrictive or ‘‘extreme’’ position 

limits might increase price 

volatility.1665

Even these papers are not firm in their 

opposition. In The Self-Regulation of 

Commodity Exchanges: The Case of 

Market Manipulation, Journal of Law 

and Economics (1995),1666 Craig Pirrong 

(an economic expert for ISDA/SIFMA in 

the position limits rulemaking) argues 

that there ‘‘is no strong theoretical or 

empirical reason to believe that selfregulating exchanges effectively deter 

corners.’’ 1667 He simply disagrees that 

other forms of regulation such as 

position limits ‘‘could do better.’’ 1668

Pirrong does not discount the harm of 

price manipulation. Pirrong’s 

Manipulation of the Commodity Futures 

Market Delivery Process,1669 documents 

these harms.1670

Other Theoretical Papers 

A set of papers suggest that there can 

be excessive speculation in oil without 


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1671Avriel and Reisman, Optimal Option 

Portfolios in Markets with Position Limits and 

Margin Requirements, Journal of Risk (2000) (a 

theoretical model suggesting that speculation may 

push crude oil prices above the price level is 

justified by physical-market fundamentals without 

necessarily resulting in a significant increase in oil 

inventories); Pierru and Babusiaux, Speculation 

without Oil Stockpiling as a Signature: A Dynamic 

Perspective (working paper 2010); Routledge, Seppi, 

and Spatt, Equilibrium Forward Curves for 

Commodities, Journal of Finance (2000) (important 

work on the theory of storage). See Parsons, Black 

Gold & Fool’s Gold: Speculation in the Oil Futures 

Market at 82, 106–107 (Economia 2009) (not a 

theoretical model paper, but a survey piece, that 

indicates that if oil prices were driven above the 

level determined by fundamental factors of supply 

and demand by forces such as speculation, storage 

would not necessarily increase; an argument that 

this would occur ‘‘overlooks how paper oil markets 

have been transformed’’ and ‘‘successful 

innovations in the financial industry made it 

possible for paper oil to be a financial asset in a 

very complete way’’). 

1672 Kyle and Viswanathan, How to Define Illegal 

Price Manipulation, American Economic Review 

(2008); Westerhoff, Speculative Markets and the 

Effectiveness of Price Limits, Journal of Economic 

Dynamics and Control (2003) (discussing when 

price limits can be welfare-improving). 

1673 Dai, Jin and Liu, Illiquidity, Position Limits, 

and Optimal Investment (working paper 2009); 

Edirsinghe, Naik, and Uppal, Optimal Replication 

of Options with Transaction Costs and Trading 

Restrictions, Journal of Financial and Quantitative 

Analysis (1993); Shleifer and Vishney, The Limits 

of Arbitrage, Journal of Finance (1997). 

1674Schulmeister, Technical Trading and 

Commodity Price Fluctuations (working paper 

2012). 

1675Morris, Speculative Investor Behavior and 

Learning, Quarterly Journal of Economics (1996); 

Kyle and Wang, Speculation Duopoly with 

Agreement to Disagree: Can Overconfidence 

Survive the Market Test?, Journal of Finance (1997); 

Leitner, Inducing Agents to Report Hidden Trades: 

A Theory of an Intermediary, Review of Finance 

(2012); Sockin and Xiong, Feedback Effects of 

Commodity Futures Prices (working paper 2012); 

Froot, Scharfstein, and Stein, Herd on the Street: 

Informational Inefficiencies in a Market with Short 

Term Speculation (working paper 1990) (theoretical 

paper discussing herding); Dicembrino and 

Scandizzo, The Fundamental and Speculative 

Components of the Oil Spot Price: A Real Option 

Value (working paper 2012). 

1676Basu and Gavin, What Explains the Growth 

in Commodity Derivatives?, Federal Reserve Bank 

of St. Louis (2011), provides an excellent analysis 

of the factors driving rapid increases in volume in 

commodity derivatives trading. See also 

Easterbrook, Monopoly, Manipulation, and the 

Regulation of Futures Markets, Journal of Business 

(1986); Pirrong, Squeezes, Corners, and the AntiManipulation Provisions of the Commodity 

Exchange Act, Regulation (1994). 

1677For example, a CME Group white paper, 

Excessive Speculation and Position Limits in 

Energy Derivatives Markets (undated), lacks 

empirical data or other economically valid 

supporting analysis. It also uses confusing 

terminology. For example, CME quotes a Wall 

Street Journal survey of economists, which in turn 

summarily concludes: ‘‘[t]he global surge in food 

and energy prices is being driven primarily by 

fundamental market conditions, rather than an 

investment bubble.’’ Id. at p.5. Even economists 

who find some price impact from outsized 

speculative positions would not disagree that, in 

the main, prices remain determined ‘‘primarily’’ by 

market fundamentals. And many of these 

economists finding price impact would not ascribe 

the result to an ‘‘investment bubble.’’ 

1678Frenk and Turbeville, Commodity Index 

Traders and the Boom/Bust Cycle in Commodities 

Prices (Better Markets 2011). 

1679See id. at 8–9 for a description of the 

mechanics of the roll. See also Mou, Limits to 

Arbitrage and Commodity Index Investment: FrontRunning the Goldman Roll (working paper 2011). 

1680See id. at 5–6 for a description of contango, 

an upward-sloping forward price curve for a 

commodity. Market participants may view contango 

as evidence that commodity prices will increase in 

the future. 

1681 Id. at 2. See id. at 4 (focusing on crude oil 

and wheat price spreads before, during, and after 

the role from January 1983 to June 2011). 

1682Otherwise, other market participants may 

assume that the rolling activity reflects an informed 

trader reacting to market fundamentals and the roll 

could well impair the price discovery function of 

the commodities market. See Urbanchuk, 

Speculation and the Commodity Markets, at p. 12 

(working paper 2011) (‘‘traders can misinterpret an 

index inflow as a bullish statement by a trader with 

superior information’’). While not every large 

institutional trader has to ‘‘sunshine,’’ those that 

announce their rolling timing in their prospectus 

are bound by SEC rules to follow their prospectus 

procedures. 

1683See Parsons, Black Gold & Fool’s Gold: 

Speculation in the Oil Futures Market, at 99–101, 

Economia (2009) (discussing crude oil market 

economics that explain why crude oil futures prices 

are sometimes in contango); id. at 101 (‘‘Although 

oil futures fluctuate between backwardation and 

contango, on average they have been backwarded’’). 

1684See, e.g., Cooper, Excessive Speculation and 

Oil Price Shock Recessions: A Case of Wall Street 

‘‘De ́ja` vu all over again’’, Consumer Federation of 

America (2011); Berg, The Rise of Commodity 

Speculation: From Villainous to Venerable (UN 

FAO 2011); Eckaus, The Oil Price Really Is a 

a significant increase in crude oil 

inventories.1671 The remaining 

theoretical papers in the administrative 

record focus on useful economic 

background on price manipulation; 1672

comovement effects in the equity or 

options markets,1673 high-frequency 

trading,1674 or other matters of marginal 

relevance.1675

3. Surveys and Opinions 

The remaining 73 papers are survey 

pieces. Some of these papers provide 

useful background material.1676 But on 

the whole, these survey pieces offer 

opinion unsupported by rigorous 

empirical analysis. These papers, if they 

presented statistics at all, presented 

descriptive statistics. An inherent 

difficulty with this approach is that the 

facts that the author presents to support 

the author’s theory may be incomplete 

and not fully representative of economic 

reality. 

While they may be useful for 

developing hypotheses, they often 

exhibit policy bias and are not neutral, 

reliable bases for judgments in the 

academic context (again, as opposed to 

the judgments of policymakers).1677

We have reviewed all 73 papers in 

this category and discuss below only 

those few that add marginal value to the 

empirical analyses discussed above. 

a. Frenk and Turbeville (Better Markets) 

Frenk and Turbeville, in Commodity 

Index Traders and the Boom/Bust Cycle 

in Commodities Prices,1678 present a 

survey of economic literature that 

incorporates some empirical testing for 

the price impact of index fund ‘‘rolling’’ 

of commodity index fund positions. 

Rolling refers to the time when 

commodity index funds, such as those 

tracking a popular commodity index 

such as the Standard & Poor’s Goldman 

Sachs Commodity Index (GSCI), must 

roll forward their expiring futures 

contracts to maintain their (typically 

long) positions.1679 Frenk and 

Turbeville argue that the index fund roll 

‘‘systematically distorts forward 

commodities futures price curves 

toward a contango 1680 state, which is 

likely to contribute to speculative 

‘boom/bust’ cycles. . . .’’ 1681

This set of inferences is problematic 

for several reasons. First, it depends on 

the current existence of a price impact 

from rolling. Yet the roll price impact is 

a market phenomenon that may no 

longer be as substantial as it once was. 

The market now has general knowledge 

of the influx of commodity index traders 

and their established rolling behavior. 

Moreover, many ETFs announce in their 

prospectus how they will trade, and 

most large exchange-traded funds now 

‘‘sunshine’’ their rolls: To announce to 

the market in advance when and how 

they will roll.1682 These trends have 

lessened the price impact of the rolls. 

Moreover, the Frenk and Turbeville 

article ascribes the contango state of 

commodity futures prices to the price 

impact of roll without empirical 

analysis to support a causal link. There 

has historically been an alternation 

between contango and backwardation in 

the crude oil commodity market: This 

phenomenon has been attributed to 

changes in short-term supply or 

demand, increased market participation 

on the long side to earn the risk 

premium associated with going long, 

and other reasons, but not the technical 

aspects of commodity index rolls.1683

Frenk and Turbeville’s article is 

unpersuasive in ascribing large boom/ 

bust cycles in price to waning and 

temporary price impacts of rolls. 

Several other survey papers posit the 

existence of a speculative bubble in 

price due to speculation along the lines 

of the Frenk and Tuberville article. But 

these studies also do not present an 

empirical analysis to support this 

conclusion.1684


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Speculative Bubble, at p.8, MIT Center for Energy 

and Env’l Research (2008) (‘‘there is no reason 

based on current and expected supply and demand 

that justifies the current price of oil’’); Parsons, 

Black Gold & Fool’s Gold: Speculation in the Oil 

Futures Market, Economia (2009) (explaining why, 

on a theoretical level, the absence of large crude oil 

inventories does not preclude a crude oil price 

bubble); Tokic, Rational destabilizing speculation, 

positive feedback trading, and the oil bubble of 

2008, Energy Economics (2011) (survey with 

theoretical model adjunct). See also Urbanchuk, 

Speculation and the Commodity Markets, at 8–9 

(working paper 2011) (observing that the share of 

corn futures held by commercial traders has fallen 

from more than 70 percent in January 2005 to about 

40 percent in August 2011); id. at 12 (arguing that 

speculators are a major factor behind the sharp 

increase in the level and volatility of corn prices in 

2011 because ‘‘traders can misinterpret an index 

inflow as a bullish statement by a trader with 

superior information’’); Inamura, Kimata, et al., 

Recent Surge in Global Commodity Prices (Bank of 

Japan Review March 2011) (contending that global 

monetary policies have tended to boost commodity 

prices). 

1685The Role of Market Speculation in Rising Oil 

and Gas Prices: A Need to Put the Cop Back on the 

Beat, Permanent Subcommittee on Investigations of 

the U.S. Senate Committee on Homeland Security 

and Governmental Affairs at pp. 19–32 (June 27, 

2006) (‘‘Senate Report on oil and gas prices’’). 

1686See, e.g., Plante and Yu ̈ cel, Did Speculation 

Drive Oil Prices? Futures Market Points to 

Fundamentals (Federal Reserve Bank of Dallas 

Econ. Ltr. Oct. 2011) (if speculating were the cause 

of crude oil spokes, it would ‘‘leave telltale signs 

in certain data, such as inventories’’). 

1687The Role of Market Speculation in Rising Oil 

and Gas Prices: A Need to Put the Cop Back on the 

Beat at p.12. 

1688 Id. at 13. 

1689 Id. 

1690 Id. at 14. See id. at 23. 

1691See Parsons, Black Gold & Fool’s Gold: 

Speculation in the Oil Futures Market, Economia 

(2009); n.1491, supra. Contra Senate Report on oil 

and gas prices at 13 (‘‘As far as the market is 

concerned, the demand for a barrel of oil that 

results from the purchase of a futures contract by 

a speculator is just as real as the demand for a barrel 

that results from a purchase of a futures contract by 

a refiner’’). 

1692Senate Report on oil and gas prices at 22 

(claiming that financial investors have created 

‘‘runaway demand’’), 24 n. 128 (traders assert crossmarket arbitrage in energy between futures and 

over-the-counter markets may be driving 

speculative pressure). 

1693 Id. at 24, 26 (observing that Goldman Sachs 

issued a report concluding that speculators were 

impacting crude oil prices, peaking at $7 per barrel 

in the spring of 2004, and that industry traders and 

CFTC staff in a 2005 analysis disagreed as to 

whether a speculative price was caused by financial 

speculators). 

1694 Id. at p.30. 

1695Excessive Speculation in the Wheat Market, 

Majority and Minority Staff Report, Permanent 

Subcommittee on Investigations of the U.S. Senate, 

Committee on Homeland Security and 

Governmental Affairs (June 24, 2009). 

1696Excessive Speculation in the Wheat Market at 

11–12. 

1697 Id. at 12. 

1698See supra note 1547. When CME revised its 

wheat contract, this price divergence dissipated. 

The futures wheat contract, at expiration, had a 

valuable real option to store the wheat at a belowmarket price. This may have been a primary reason 

why it was more valuable at expiration than spot 

wheat. 

1699See Aulerich, Irwin, and Garcia, Bubbles, 

Food Prices, and Speculation: Evidence from the 

CFTC’s Daily Large Trader Data Files, at pp.2–3, 

NBER Conference on Economics of Food Price 

Volatility (2012) (summarizing that this could 

happen when (1) the futures market is insufficiently 

liquid to absorb large order flow, (2) the index 

traders are in effect noise traders who make 

arbitrage risky, or (3) large order flow on the long 

Continued 

b. Senate Reports 

i. Senate Report on Oil and Gas Prices 

The U.S. Senate staff report on oil 

prices concludes that increased 

participation by speculators in the 

energy commodity futures markets has 

had an effect on energy prices.1685 Other 

survey pieces assert that market 

fundamentals fully explain commodity 

price spikes.1686 These survey articles 

do not present rigorous statistical 

models to support their competing 

conclusions. 

The Senate report points out that 

fundamental supply and demand were 

factors increasing energy prices.1687 But 

it determines that these factors ‘‘do not 

tell the whole story.’’ 1688 It asserts that 

the large purchases of crude oil futures 

contractors by financial speculators 

‘‘have, in effect, created an additional 

demand for oil. . . .’’ 1689 The report 

acknowledges that the price effect is 

‘‘difficult to quantify,’’ and cites 

unspecified analysts on estimated price 

impact.1690

But in the general economics of the 

futures market, demand for futures 

contracts does not necessarily increase 

the demand for, or price of, the physical 

commodity. In the particular context of 

the crude oil markets, as discussed 

above, demand for ‘‘paper oil’’ may not 

directly translate into spot price impact 

due to storage economics.1691

Regarding price effect, the Senate 

report relies on anecdotal evidence 

because of the difficulty in 

quantification. The Senate report cites 

reports from energy industry 

participants that financial speculators 

have caused the price of oil to rise.1692

The report also acknowledges that 

analyses of the effect of speculation on 

these energy markets have reached 

divergent conclusions.1693

The Senate Report does not analyze 

how position limits would ameliorate 

the problem it identifies. While not all 

the speculators referenced in this report 

would be affected by a position limit 

rule, the Senate Report does list Brian 

Hunter, then a trader in natural gas for 

Amaranth Advisors hedge fund, among 

the top 2005 energy traders.1694 These 

reports, which include factual recitation 

and anecdotal evidence, contain no 

models or methods that can be audited 

by economists. 

ii. Senate Report on Wheat 

The Senate staff report concerning 

wheat 1695 surveys economic literature 

and certain market data, but, like the 

Senate Report on oil and gas prices, this 

report does not use statistical or 

theoretical models to reach an 

economically rigorous conclusion. The 

Senate wheat report does include 

anecdotal evidence: Virtually all of the 

commercial traders interviewed by the 

Senate staff ‘‘identified the large 

presence of index traders in the Chicago 

market as a major cause’’ of a problem 

with price convergence in wheat in 

2008.1696 The staff report states that the 

demand for wheat futures contracts has 

itself increased the price of wheat 

futures contracts relative to the cash 

market for wheat: 

These index traders, who buy wheat 

futures contracts and hold them without 

regard to the fundamentals of supply and 

demand in the cash market for wheat, have 

created a significant additional demand for 

wheat futures contracts that has as much as 

doubled the overall demand for wheat 

futures contracts. Because this significant 

increase in demand in the futures market is 

unrelated to any corresponding supply or 

demand in the cash market, the price of 

wheat futures contracts has risen relative to 

the price of wheat in the cash market. The 

very large number of index traders on the 

Chicago exchange has, thus, contributed to 

‘‘unwarranted changes’’ in the prices of 

wheat futures relative to the price of wheat 

in the cash market. These ‘‘unwarranted 

changes’’ have, in turn, significantly 

impaired the ability of farmers and other 

grain businesses to price crops and manage 

price risks over time, thus creating an undue 

burden on interstate commerce. The 

activities of these index traders constitute the 

type of excessive speculation that the CFTC 

should diminish or prevent through the 

imposition and enforcement of position 

limits as intended by the Commodity 

Exchange Act.1697

However, there are other reasons that 

can also explain this 2008 price 

divergence. The CME wheat contract 

was poorly designed to account for the 

cost of storage, and this has been cited 

as a reason for the price divergence 

between futures and spot wheat 

contracts during the 2008 time period. 

When CME revised its wheat contract, 

this price divergence dissipated.1698

That said, the more formal statistical 

studies discussed throughout establish 

rationales for concern with index 

traders that are grounded in more 

rigorous economic reasoning. There are 

circumstances when a large volume of 

financial index investment flows may 

causes market prices to deviate from 

fundamental values.1699 Alternatively, a 


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side of the market is seen erroneously as traders 

taking bullish positions based on valuable 

information about market fundamentals). See id. at 

pp.3–4 (observing contrasting findings depending 

on impact of index trading depending on liquidity 

of the agricultural commodity market); Singleton, 

Investor Flows and the 2008 Boom/Bust in Oil 

Prices, at 5–8 (March 23, 2011 working paper) 

(learning about economic fundamentals with 

heterogeneous information may induce excessive 

price volatility, drift in commodity prices, and a 

tendency towards booms and busts); Tang and 

Xiong, Index Investment and Financialization of 

Commodities, at p.30, Financial Analysts Journal 

(2012) (‘‘the price of an individual commodity is no 

longer simply determined by its supply and 

demand’’); id. at 29–30 (‘‘Instead, prices are also 

determined by a whole set of financial factors such 

as the aggregate risk appetite for financial assets’’). 

1700 Id. at 135 (while price of natural gas declined 

after Amaranth’s demise, ‘‘this alone does not prove 

Amaranth’s ability to elevate prices above supply 

and demand fundamentals’’). 

1701 Id. at 3. 

1702 Id. at 3 (NYMEX exchange did not have 

routine access to Amaranth’s trading positions on 

ICE, and therefore NYMEX could not have a 

complete and accurate view of whether ‘‘a trader’s 

position . . . is too large.’’ In addition, there were 

no accountability limits on the ICE exchange). 

1703See Letter from Markus Henn, World 

Economic, Ecology & Development, to CFTC (Feb. 

10, 2014), available at http://comments.cftc.gov/ 

PublicComments/ 

ViewComment.aspx?id=59628&SearchText=henn. 

See also, Markus Henn, Evidence on the Negative 

Impact of Commodity Speculation by Academics, 

Analysis and Public Institutions, (Nov. 26, 2013), 

available at http://comments.cftc.gov/ 

PublicComments/ 

ViewComment.aspx?id=59628&SearchText=henn. 

1704The CME white paper, while technically not 

submitted formally by CME in the administrative 

record, warrants individualized analysis. It is cited 

in the Commission’s December 2013 Position Limits 

Proposal; it is posted on the CME Group’s Web site; 

and it is cited in arguments by such commenters as 

MFA. (MFA February 9, 2014 comment letter at 11– 

12, n.26). 

1705 Id. 

1706Markus Henn cites the 2011 version of the 

Singleton paper, which is the only version of this 

paper in the administrative record. A subsequent 

May 2012 version is available from Professor 

Singleton’s Stanford Web site at http://

web.stanford.edu/∼kenneths/. 

classical economist would argue that 

prices are still determined by supply 

and demand, but that the aggregate risk 

appetite for financial assets affects the 

demand for commodities through a 

more complicated process than 

previously envisioned. 

For reasons similar to the Senate 

Report on Oil and Gas Prices, the Senate 

Report on Wheat is less useful to an 

academic than it may be to 

policymakers. 

iii. Senate Report on Natural Gas 

A similar analysis applies to the 

Senate report on natural gas, Excessive 

Speculation in the Natural Gas Market. 

The report, which focuses at length on 

Amaranth’s natural gas trading, does not 

include a statistical analysis of 

empirical data and, as the minority 

report notes, some ‘‘ facts . . . support 

the conclusion that Amaranth’s trading 

activity was the primary cause of’’ 

natural gas price spikes,’’ but other facts 

point to market fundamentals.1700

The report does argue that if 

Amaranth’s large-scale speculative 

trading was causing ‘‘large jumps in the 

price differences’’ and prices that were 

‘‘ridiculous,’’ 1701 the current regulatory 

regime would be unable to prevent this 

price disruption.1702

4. Comments That Consist of Economic 

Studies or Discuss Economics in Depth 

Several comment letters perform 

substantial summary analysis of other 

economic studies bearing on position 

limits, present original economic 

analysis or formal economic studies. 

These submissions thus warrant 

individual analysis. The following 

submissions are summarized and 

analyzed in this section: 

(A) the February 10, 2014, comment 

letter by Markus Henn of World 

Economic, Ecology & Development, 

including, as an attachment, a 

November 26, 2013, list of studies 

entitled ‘‘Evidence on the Negative 

Impact of Commodity Speculation by 

Academics, Analysis and Public 

Institutions’’ (‘‘Henn Letter’’); 1703

(B) the analysis of Philip K. Verleger 

of the economic consulting firm 

PKVerleger LLC, attached as Annex A to 

the February 10, 2014 comment letter by 

the International Swaps and Derivatives 

Association (ISDA) and the Securities 

Industry and Financial Markets 

Association (SIFMA) (‘‘2/10/14 ISDA/ 

SIFMA Comment Letter’’); 

(C) the analysis of Craig Pirrong, 

Professor of Finance at the University of 

Houston Business School, attached as 

Annex B to the 2/10/14 ISDA/SIFMA 

Comment Letter; 

(D) two studies by Sanders and Irwin, 

The ‘‘Necessity’’ of New Position Limits 

in Agricultural Futures Markets: The 

Verdict from Daily Firm-Level Position 

Data (working paper 2014), and Energy 

Futures Prices and Commodity Index 

Investment: New Evidence from FirmLevel Position Data (working paper 

2014); 

(E) two studies by Hamilton and Wu, 

Effects of Index-Fund Investing on 

Commodity Futures Prices, International 

Economic Review, Vol. 56, No. 1 

(February 2015), and Risk Premia in 

Crude Oil Futures Prices, Journal of 

International Money and Finance (2013) 

(submitted as second paper in the same 

electronic comment submission); and 

(F) materials that CME Group 

submitted for inclusion in the 

administrative record, include 3 sets of 

materials submitted on March 28, 2011 

(first set, second set, and third set); an 

undated CME study on conditional spotmonth limits; and a CME Group’s white 

paper, Excessive Speculation and 

Position Limits in Energy Derivatives 

Markets.1704

a. The Markus Henn List of Studies 

Markus Henn’s February 10, 2014, 

comment letter acknowledges that there 

is an ongoing debate about whether 

speculators can dominate a marketplace 

and exacerbate market volatility and 

market prices. He nonetheless asks the 

Commission to take into account a list 

of studies he submits with his letter. He 

then presents numerous economic 

studies as well as media articles. 

As a group, this list of studies, 

opinion pieces, and news articles 

documents the existence of concern and 

suspicion about large speculative 

positions in commodity markets. Many 

of the studies cited by the Henn Letter 

look for evidence of financialization and 

in this sense suffer from interpretational 

bias.1705 As a group, these opinion 

pieces and studies do not consistently 

seek alternative explanations for their 

conclusions. As Markus Henn 

acknowledges in his cover letter, these 

papers are part of an ongoing debate 

among economists, not conclusive 

evidence of the harmful effects of 

excessive speculation. 

Three of the most persuasive papers, 

persuasive insofar as they employ wellaccepted, defensible, scientific 

methodology, document and present 

facts and results that can be replicated, 

and are on point regarding issues 

relevant to position limits, cited in the 

Henn Letter involve the crude oil 

market during the financial crisis: 

Singleton, Investor Flows and the 2008 

Boom/Bust in Oil Prices (March 23, 

2011 working paper); 1706 Hamilton and 

Wu, Risk Premia in Crude Oil Futures 

Prices, Journal of International Money 

and Finance (2013) (an earlier working 

paper version is cited by Henn); and 

Hamilton, Causes and Consequences of 

the Oil Shock of 2007–2008, Brookings 

Paper on Economic Activity (2009). The 

first two conclude that there is a 

statistical link between the volume of 

speculative positions and a component 

of price, risk premium, at least for some 

commodities in some timeframes. 

Hamilton’s Causes and Consequences of 

the Oil Shock of 2007–2008 concludes 

that the oil price run-up was caused by 

strong demand confronting stagnating 

world production, but the price collapse 

was perhaps not driven by 

fundamentals. 


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1707 Verleger argues that limits in the non-spot 

month would have an especially chilling effect, 

‘‘very likely leading to, among other things, higher 

energy prices;’’ and that position limits should not 

apply to cash-settled markets because traders 

holding cash-settled contracts do not have any 

ability to influence the physical market prices of 

commodities. Id. at 2–3. Pirrong also makes these 

arguments but provides further analysis, so we 

discuss this critique in subsection C below. 

1708See Berg, The Rise of Commodity 

Speculation: From Villainous to Venerable, at p.263 

(UN FAO 2011) (former CBOT trader suggests that 

spot month limit positions should be in place for 

at least a few days in the non-spot months to lesson 

price distortions from the roll). 

1709 Id. 

1710See, e.g., id. at 12 (after observing that nonspot month limits are high enough to perhaps not 

impact the market, stating that non-spot limits will 

‘‘adversely affect the ability of commercial 

participants to use some futures market’’). 

1711CL–ISDA/SIFMA–59611, Annex B, at 2, 

¶¶ 6–9. 

1712 Id. at ¶ 7. 

1713 Id. at 6, ¶ 27. 

1714 Id. at pp. 3–10. 

1715CL–ISDA/SIFMA–59611, Annex B, at p.2. 

1716Sanders and Irwin, The ‘‘Necessity’’ of New 

Position Limits in Agricultural Futures Markets: 

The Verdict from Daily Firm-Level Position Data, at 

p.19 (working paper 2014) (preannounced trades 

can have a ‘‘sunshine trading’’ effect of increasing 

liquidity and lowering trading costs). See, e.g., 

Frenk and Turbeville, Commodity Index Traders 

and the Boom/Bust Cycle in Commodities Prices 

(Better Markets 2011) (very large institutional 

players rolls have had a temporary price impact that 

is expensive to the ETF investors). 

b. Verleger’s Analysis, Attached to 

ISDA/SIFMA Comment Letter 

Philip K. Verleger provided an 

analysis as a retained expert for ISDA. 

Annex A to the 2/10/14 ISDA/SIFMA 

Comment Letter. He contends, without 

quantitative modelling or empirical 

evidence, that in the energy markets 

‘‘unwarranted price fluctuations’’ have 

historically been due to ‘‘confluence of 

contributing factors’’ such as weather, 

geopolitical events, or changes in 

industry structure. 2/10/14 ISDA/ 

SIFMA Comment Letter, Annex A at pp. 

2–3. In passing, he opines, without 

analysis or citation, that the high energy 

prices in 2008 ‘‘are attributable to 

environmental regulation.’’ Id. Verleger 

also asserts that his expertise is in the 

energy markets, yet opines (contrary to 

many comment letters from other energy 

market participants) that the energy 

markets are ‘‘subject to conditions and 

dynamics’’ of other commodity markets. 

Id. at p.2. For these reasons, we view 

Verleger’s analysis as weak and 

conclusory and lacking in economic 

rigor and empirical data. 

By way of further example, Verleger 

contends that if the position limits rule 

had been in effect in 2013, oil prices 

would have been $15 per barrel higher 

and the cost to American consumers 

would have been roughly $100 billion. 

Annex A at p.3. He provides no 

quantitative reasoning in support of 

these numbers.1707

Verleger also asserts that exploration 

for sources of energy has resulted in a 

large increase in oil supply in recent 

years, and states that these companies 

use swaps and futures to hedge their 

position. Id. at p.7. He then summarily 

asserts that independent companies 

exploring for and developing oil and gas 

production would ‘‘not have achieved 

this success without hedging’’ and that 

hedging would not have occurred if the 

Commission’s position limits had been 

in place. Id. at p.8. Verleger overlooks 

several critical facts. 

First, companies actively engaged in 

oil and gas exploration might either 

qualify for bona fide hedging treatment 

or fall within the position limit. As to 

non-spot month limits, Verleger 

concedes that ‘‘it may be argued that the 

initial non-spot month position limits 

are high enough (109,000 contracts for 

crude as an example)’’ to avoid liquidity 

impacts. Id. at 12.1708

Second, he argues that these 

exploration companies have ‘‘benefited 

indirectly because passive investors 

such as retirement funds have taken 

long positions in commodities through 

the swap markets,’’ and suggests that 

with position limits there would be an 

absence of non-commercials to take 

positions opposite oil and gas 

development companies. Id. at 9. To the 

contrary, with the Commission’s 

disaggregation exemption for managed 

funds (the independent account 

controller exemption), there is no basis 

to believe that there will be a shortage 

of long positions in the market. He 

presents no empirical evidence to 

support his thesis that position limits 

could thus ‘‘adversely affect[ ] 

investment in the oil and gas 

industry.’’ 1709

Third, the way energy derivatives 

markets work, if there is demand on the 

short side of the market, this may create 

liquidity on the long side of the market 

to transact with at some price. Verleger 

himself notes the diversity of market 

participants—commodity-based 

exchange-traded funds, hedge funds, 

retirement funds, and the like—and 

does not document that the exclusion of 

a particular long would reduce liquidity 

from the marketplace. For example, 

commodity-based exchange-traded 

funds trade intermediate long positions 

for their investors, and if the funds 

themselves could not take long 

positions in the market, there is no 

reason to assume that the investors 

might through other vehicles take long 

positions. Verleger has an expressed 

fear, not an analysis, that liquidity in 

markets will be harmed by position 

limits.1710

c. Pirrong’s Analysis, Attached to ISDA/ 

SIFMA Comment Letter 

Professor Pirrong agrees that the 

nation’s commodity markets have been 

subject to significant and disruptive 

corners and squeezes, such as the Hunt 

Silver episode of 1979–1980.1711 He 

concedes that the ‘‘ability of position 

limits to prevent corners and squeezes 

could provide a justification for 

application of these limits during the 

spot month,’’ at least in theory.1712 He 

concedes that in theory there is such a 

thing as ‘‘sudden and unwarranted price 

fluctuations.’’ 1713 Subject to these 

concessions, Pirrong opposes many 

aspects of the rule. Overall, Pirrong 

argues that position limits are an 

undesirable solution to an economic 

problem that has not been proven to 

exist.1714 We analyze below his 

objections only when and to the extent 

that they rest on economic arguments. 

i. Amaranth and the Possible Utility of 

Position Limits in Non-Spot Months 

Pirrong states that the possibility of a 

corner or a squeeze ‘‘provides no 

justification of the necessity of imposing 

position limits outside the spot 

month.’’ 1715 Pirrong argues that 

Amaranth’s market activity in 2006 is 

not evidence of the utility of position 

limits in the non-spot month. Id. at p.2, 

¶ 7. In this context, Pirrong discusses 

corners and squeezes as the rationale for 

non-spot month position limits. Id. 

However, the Commission’s December 

2013 Position Limits Proposal discusses 

rationales other than corners and 

squeezes: Economic factors such as 

outsized market power, disorderly 

liquidation, and the ability to 

manipulate prices. 

In the context of non-spot month 

position limits, Pirrong focusses just on 

corners and squeezes. If that were the 

only regulatory concern, his analysis on 

this, see id. at ¶¶ 27–30, would be 

largely correct. Many traders exit futures 

contracts before the spot month because 

they are there for the exposure, for price 

risk transfer, not to make or take 

delivery. 

One key reason why ETFs ‘‘sunshinetrade’’ their rolls—announcing in their 

prospectus when they will roll—is 

because rolling these large positions in 

non-spot months can have a price 

impact, apart from corners and 

squeezes.1716

A good example of the risk of price 

impact in non-spot months from 

outsized positions, apart from corners 


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96920 Federal Register / Vol. 81, No. 251 / Friday, December 30, 2016 / Proposed Rules 

1717There have been other examples of price 

manipulations that extended over a period of 

months. See CFTC staff, A Study of the Silver 

Market, Report To The Congress In Response To 

Section 21 Of The Commodity Exchange Act, Part 

One at 2–4, 9–10 (May 29, 1981) (price of silver rose 

and fell over a period of months, with long futures 

positions in silver held by members of the Hunt 

family in the summer and fall of 1979 and prices 

peaking in late January 1980, and prices falling 

though the first quarter of 1980); id., Part Two at 

p.100 (‘‘behavior of silver prices during 1979–80 

appears consistent with, but is not entirely 

explained by, fundamental developments in the 

silver market over this period’’); p.112 (Hunt family 

acquired actual and potential control of 

approximately 18 percent of world silver market 

and stood for delivery on a significant portion of 

their futures contracts, causing silver prices to rise 

significantly). 

1718This observation presumes no other 

confounding events such as the occurrence of 

warmer winter. Unfortunately, we do not know 

whether or not the lower price resulted from the 

exit of Amaranth, the warmer winter, something 

else, or some combination of the preceding. 

1719 Id. at 2, ¶ 9. 

1720See Ludwig Chincarini, Natural Gas Futures 

and Spread Position Risk: Lessons from the 

Collapse of Amaranth Advisors LLC, Journal of 

Applied Finance (2008). 

1721 Id. at p.24. 

1722 Id. at p.22. 

and squeezes, is Amaranth. Amaranth’s 

position was so large that it may have 

impacted price by virtue of its outsized 

market position in not just the spot 

month, but other months. Amaranth 

may have influenced prices not just 

upon liquidation, not just when banging 

the close in the spot month, but also 

well before then, according to a 

congressional study cited in the 

Commission’s December 2013 Position 

Limits Proposal.1717

An economist could argue that 

because the commodity futures price 

should reflect all demand, Amaranth’s 

very large positions in the non-spot 

month was appropriately incorporated 

in market prices. After all, at a given 

point in time and price, demand is 

defined as the quantity desired by all 

those who are willing and able to hold 

a commodity futures position. Prof. 

Pirrong’s approach does conceive of the 

possibility that outsized market power 

in the non-spot month or the price 

impact of Amaranth’s positions could 

have deleterious effects on the 

marketplace. From a classical 

economical perspective, Amaranth’s 

outsized market position in the non-spot 

months is just an input into price 

demand. 

However, outsized market power may 

have economic outcomes that are 

undesirable. Outsized market power 

permits a player to do more than ‘‘bang 

the close,’’ and Amaranth’s natural gas 

trading is an example of this. One could 

influence prices in the swaps market 

through such aggregation of market 

powers or one could manipulate related 

markets. Amaranth’s exercise of market 

power may have been real and 

substantial. Even after it left the natural 

gas market, its activities may have left 

a lasting price effect. That is, prices of 

the underlying commodity, natural gas, 

may have been higher when Amaranth 

was in the market (including in the nonspot months), and prices were 

substantially less for a substantial time 

period after Amaranth left the 

market.1718 Pirrong’s discussion of 

Amaranth does not address this 

economic history or its possible 

relevance to non-spot position limits. 

Although Pirrong criticizes the 

Commission for not engaging in a 

‘‘rigorous empirical analysis’’ of 

Amaranth (2/10/14 ISDA/SIFMA 

Comment Letter, Annex B, at p.2, ¶ 10), 

the establishment of outsized market 

power in economics is more straight 

forward in the case of Amaranth. The 

question is whether the disappearance 

of an Amaranth from the market with its 

formerly outsized position led to a 

significant decline in price. 

By focusing simply on Amaranth’s 

activities in the spot month, Prof. 

Pirrong does not discuss the potential 

for harm arising from Amaranth’s 

outsized positions in the non-spot 

month. If someone is exerting market 

power, they can cause a negative 

externality for other purchases of 

natural gas if they, for example, bid up 

the price of natural gas. A higher price 

for a natural gas purchaser due to 

another entity’s trading may simply be 

an example of a healthy market at work. 

However, there is definite harm to 

purchasers of natural gas if the price 

they pay is higher for reasons that are 

associated with another market 

participant’s price influence though the 

exertion of market power. 

Pirrong does not provide a direct 

factual rebuttal to the Senate 

investigative report finding that 

Amaranth’s speculative activity affected 

overall price levels in natural gas. He 

argues that the Commission’s reliance 

upon a Senate investigatory report 

would not be ‘‘accepted as evidence of 

causation in any peer reviewed 

academic work.’’ 1719 Id. at 2, ¶ 9. Prof. 

Pirrong is correct that the Commission 

has not, in the case of Amaranth, shown 

causation: That it was Amaranth’s 

departure from the markets that caused 

the natural gas price decline in 

substantial part, as opposed to 

confounding factors (such as, in the case 

of natural gas, evidence that the 

upcoming winter would be warmer than 

expected). However, proof of causation 

is not required for publication in peer 

reviewed journals in a case such as this. 

To establish evidence of causation, 

one would need a theoretical model and 

empirical evidence to support it. There 

have been peer-reviewed studies on 

Amaranth such as one cited in the 

Commission’s December 2013 Position 

Limits Proposal.1720 That study 

observed that not just a Senate 

investigatory committee, but one of the 

exchanges that Amaranth was trading 

on, was alarmed by their exercise of 

market power in months prior to the 

spot months. The New York Mercantile 

Exchange (NYMEX) on August 9, 

2006: 1721

called Amaranth with continued concern 

about the September 2006 contract and 

warned that October 2006 was large as well 

and they should not simply reduce the 

September exposure by shifting contracts to 

the October contract. In fact, by the close of 

business that day, Amaranth increased their 

October 2006 position by 17,560 positions 

and their ICE positions by 105.75 

This study documents that even 

though many of the Amaranth positions 

were not with NYMEX, and instead 

with ICE, these positions were 

extremely large relative to the average 

daily trading volume of the largest 

natural gas futures exchange. ‘‘In some 

cases, the positions are hundreds of 

times the 30-day average daily trading 

volume.’’ 1722

Pirrong also argues as a normative 

matter that the costs exceed the benefits. 

While he concedes that it is ‘‘plausible’’ 

that a sudden liquidation of a large 

position by a trader facing distress’’ 

could ‘‘cause sudden and unwarranted 

price fluctuations,’’ he argues that there 

is ‘‘no evidence that this problem occurs 

with sufficient frequency, or has 

sufficiently damaging effects, to warrant 

continuously imposed constraints on 

risk transfer.’’ Id. at 6, ¶ 27. The 

Commission considers the costs and 

benefits formally elsewhere in this 

release. 

ii. The Possible Harms of Corners and 

Squeezes 

Pirrong also questions the extent of 

harm associated with activities such as 

the Hunt brothers. 2/10/14 ISDA/SIFMA 

Comment Letter, Annex B, at pp. 2–3. 

He downplays the harms of corners and 

squeezes. Id. at ¶¶ 11–12, 38–43. 

Prof. Pirrong is incorrect in asserting 

that the Commission’s view was 

groundless. In the December 2013 

Position Limits Proposal, the 

Commission did ground its concern 

about outsized speculative positions in 

particular examples. The Commission 

did present evidence of inefficient 

resource allocation with respect to the 

Hunt brothers. It is as much a public 


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1723 December 2013 Position Limits Proposal 78 

FR at 75680, 75689. 

1724Pirrong argues that the Commission’s costbenefit analysis fails to identify, let alone analyze, 

important potential costs. 2/10/14 ISDA/SIFMA 

Comment Letter, Annex B, at 4–6. The Commission 

addresses all commenter criticisms in the costbenefit section of this release. Pirrong also argues 

that the Commission’s bona fide hedging 

exemptions are unnecessarily narrow and critiques 

the Commission’s decision to establish different 

position limits for cash-settled (as opposed to 

delivery-settled) contracts. The Commission 

addresses such comments in the relevant sections 

of this release. 

policy matter as an economic matter 

how position limits fare as a solution to 

the question of these negative 

externalities. Even if one assumes away 

the existence of market imperfections, 

as Pirrong does, one is still left to 

contend with the consequences of what 

Pirrong assumes to be natural market 

events. In the case of the Hunt brothers, 

the Commission gave multiple examples 

of negative externalities in the broader 

economy. People sold their silverware 

which was melted down into silver bars. 

A photo supply company dependent on 

silver supply went out of business.1723

Pirrong’s assumption that persons act 

optimally at any given moment does not 

mean, across time, that resources have 

been allocated efficiently. While much 

of economic analysis is static, dynamic 

effects over time can have inefficient 

allocation of resources, intertemporally. 

It may have been optimal for a possessor 

of silverware to melt down their silver 

into silver bars during the Hunt silver 

market disruption, but just a few 

months later a possessor of silverware 

would likely prefer silverware to silver 

bars. See Pirrong’s Manipulation of the 

Commodity Futures Market Delivery 

Process, at p. 383, Journal of Business 

(1993) (futures market manipulations 

‘‘distorts prices and creates deadweight 

losses;’’ ‘‘causes shorts to utilize real 

resources to make excessive deliveries;’’ 

and ‘‘distorts consumption’’). 

Pirrong thus errs in asserting that the 

Commission does not provide an 

‘‘empirical basis’’ for ‘‘inefficient 

allocation of resources.’’ 2/10/14 ISDA/ 

SIFMA Comment Letter, Annex B, at 

p.3. 

iii. Claim That the Spot-Month Limits 

Are Arbitrary 

Pirrong claims that spot month limits 

are set too low at 25 percent of 

deliverable supply. Id. at p.8, ¶¶ 38–40. 

He contends that a single long trader has 

to control over 50 percent of deliverable 

supply to perfect a corner. Id. at ¶ 40. He 

is incorrect. Assuming, quite 

reasonably, that long commercials are 

going to stay in the market and 

consume, because it would be very 

expensive for them to leave the market, 

a certain percentage of deliverable 

supply is ‘‘locked up’’ in this sense. For 

example, a natural gas utility needs to 

deliver natural gas for its customers to 

heat their homes (among other things) 

and would therefore still take delivery 

of a substantial percentage of the 

deliverable supply of natural gas. 

Pirrong says that ‘‘[f]ive or more 

perfectly colluding traders each with 

positions at the 25 percent level might 

be able to manipulate the market.’’ Id. 

at p.8, ¶ 41. However, these five traders 

do not all need to collude in order to 

permit one of them to manipulate price. 

Some of these traders may simply be 

those who value the commodity highly, 

much higher than the market price, and 

therefore will not let go of their 

contractual right to delivery. Such 

commercials may be willing to stay and 

pay a higher price, even when a corner 

is in effect, because the cost, for 

example, of not providing natural gas to 

customers to heat their homes is 

substantially more. 

Many exchanges, including CME, set 

position limits lower than 25 percent. It 

is hard for Pirrong to argue that 25 

percent is excessively low when it is 

higher than CME limits for all of the 19 

CME-traded commodities covered by 

the proposed CFTC position limits. 

Pirrong’s final critique of spot month 

limits is his assertion that application of 

the same limits to short and long 

positions is arbitrary. Id. at p.9, ¶¶ 42– 

43. The reasons he gives for this are 

problematic and not well-developed. 

Pirrong states that for storable 

commodities, manipulation by long 

traders is more likely than with short 

traders. Id., ¶ 42. It may well be more 

difficult to manipulate price through a 

corner or squeeze as a short because 

there is generally a fixed limit for 

deliverable supply (unless one creates 

the impression that there is more 

deliverable supply than there is). 

Moreover, shorts may well have a bona 

fide hedging exemption anyway. 

However, for shorts as well as longs, 

position limits help to ensure an orderly 

exit and a smoother delivery process. 

For example, a short trader with a large 

position might take a partially offsetting 

long position in an illiquid market in 

the spot month; this might cause 

unwarranted price volatility due to the 

price impact of establishing the 

offsetting long position. 

Pirrong criticizes the depth of the 

Commission’s basis for treating short 

and long positions symmetrically, he 

also does not suggest an alternative or 

explain how a proper ratio should be 

calculated.1724

iv. Whether Position Limits Cause 

Economic Harm 

Pirrong contends that commodity 

ETFs, pension funds, and other ‘‘real 

money’’ investors would be harmed by 

position limits and that this is unfair 

because not all such market participants 

impose the same risks. 2/10/14 ISDA/ 

SIFMA Comment Letter, Annex B, at 

pp.3–4, ¶¶ 16–18. The claim that it is 

‘‘unfair’’ to impose limits on all market 

players uniformly is a policy argument, 

not an economic argument. 

d. Hamilton/Wu Papers on Risk Premia 

and Effects of Index Fund Investing 

Professors James Hamilton and Jing 

Cynthia Wu of the University of 

California at San Diego and University 

of Chicago Business School, 

respectively, authored a well-executed 

set of papers (well-executed because 

they used reasonably defensible models 

with relatively transparent assumptions 

and data sources) that examine the 

effect of positions on prices. 

Their paper, Hamilton and Wu, Risk 

Premia in Crude Oil Futures Prices, 

Journal of International Money and 

Finance (2013), is a well-reasoned 

explanation for how outsized 

speculative futures positions could 

impact risk premium, the return for 

accepting undiversifiable risk, a 

component of the return of holding a 

commodity futures contract. Examining 

the crude oil futures market, they find 

that crude oil risk premia fundamentally 

changed in response to financial 

investor flows into the crude oil market. 

Id. at p.31. 

Hamilton and Wu found that, for 

crude oil futures, risk premiums, post2005, were smaller than they were in 

the pre-2005 sample. This study 

contains an important conclusion 

founded in the interplay of positions 

and prices in the crude oil markets: 

While traders taking the long position in 

near contracts earned a positive return on 

average prior to 2005, that premium 

decreased substantially after 2005, becoming 

negative when the slope of the futures curve 

was high. This observation is consistent with 

the claim that historically commercial 

producers paid a premium to arbitrageurs for 

the privilege of hedging price risk, but in 

more recent periods financial investors have 

become natural counterparties for 

commercial hedgers. 

Hamilton and Wu, Risk Premia in 

Crude Oil Futures Prices, at p.10, 

Journal of International Money and 

Finance (2013). 

Their paper tests the idea that risk 

premia have been bid down by long, 

speculative investments in the crude oil 

market. That is, they test the idea that 

the futures price has become higher as 


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1725Risk premia may vary based on the amount 

of a commodity in storage at any given time. While 

discussing storage as a component of risk premia 

seems overly technical, in many of these papers, 

including the Hamilton and Wu paper, it might play 

an import role. One could go long a crude oil 

futures contract, or one could buy crude oil and 

storage it. If you do the latter, you could draw down 

the physical commodity available for near-term use. 

Also, the storing of the physical commodity has a 

real option component to it (one can take the crude 

oil out of storage and consume it relatively quickly). 

The value of the real option depends on how much 

society might need crude oil in storage, and that 

value depends on how much crude oil is stored 

elsewhere. 

1726The papers discussed in the financialization 

section suggest that the returns of financial assets 

may affect commodity returns and vice versa. 

1727Professor Kenneth Singleton found evidence 

that speculative positions Granger-causing risk 

premium on weekly time intervals during the 2007 

to 2009 period when studying the crude oil futures 

markets. Singleton, Investor Flows and the 2008 

Boom/Bust in Oil Prices (March 23, 2011 working 

paper). 

1728Sanders and Irwin, The ‘‘Necessity’’ of New 

Position Limits in Agricultural Futures Markets: The 

Verdict from Daily Firm-Level Position Data 

(working paper 3/13/2014), comment letter at 1–46. 1729Sanders and Irwin, Energy Futures Prices and 

Commodity Index Investment: New Evidence from 

Firm-Level Position Data (working paper 2/17/ 

2014), comment letter at 47–89. 

1730 Id. at 4–5. They argue that this dataset will 

be more comprehensive than the CFTC’s 

commitment of trader data, but they did not test to 

verify this assumption. They correctly observe that 

prior work using CFTC data suffers from limitations 

in the frequency of data and the availability of 

swaps data. Id. at 3, 5. 

it has been bid up by long speculators, 

so the return from holding the long 

futures contract has been lowered. In 

theory, this phenomenon would make 

hedging cheap for the short side of the 

market, but would also increase the 

price of the futures, all else being equal. 

Hamilton and Wu use a two-factor 

model for price: The futures contract 

price less the rational expectation of the 

futures price equals the risk premium, 

the component of price associated with 

holding the price risk of the futures 

contract. A commodity that is more 

likely to be affected by long passives in 

this way is crude oil, because (1) crude 

oil as a commodity dominates these 

indices—substantial portion of the GSFI 

for example; (2) the economics of 

storage. 

All else being equal, if outsized 

market positions affect price, we should 

expect risk premium to be the 

component of price that would be 

affected when market participants take 

outsized positions. That is because risk 

premium is a return for taking on 

undiversifiable risk. A risk premium 

does not include that portion of risk that 

can be easily diversified through other 

instruments. Through the workings of 

market, a participant who takes on a 

price exposure will expect to be 

compensated through a premium for 

bearing this risk. For a futures 

commodity contract, there are many 

components of the return, and the risk 

premium is only one of them. It can be 

a fairly small component, although the 

fraction depends on the commodity and 

other the market conditions. 

Hamilton and Wu construct a 

theoretical price return: The return of 

holding a long futures contract based on 

a rational expectations model. Hamilton 

and Wu, Risk Premia in Crude Oil 

Futures Prices, Journal of International 

Money and Finance (2013). Their risk 

premium is the difference between 

futures return and theoretical price 

return. They find that risk premiums for 

crude oil decreased over time and 

became more volatile. While Hamilton 

and Wu listed many assets in the 

paper’s introductory discussion of the 

theoretical model, in their empirical 

analysis they use two factors, that 

involve only futures price data. This 

omission fails to take into account 

potentially relevant data about the level 

of various commodities in storage 1725

and observations about other financial 

assets.1726 Consequently, there may be 

some disconnect between their 

theoretical and their empirical model. 

This may mean that the study’s 

theoretical price return is on less sound 

theoretical footing than it may first 

appear. Nevertheless, the benchmark 

rational expectation return may still be 

a suitable approximation. 

In a second paper, Effects of IndexFund Investing on Commodity Futures 

Prices, International Economic Review, 

(February 2015), Hamilton and Wu were 

able to replicate Singleton’s result for 

the crude oil market during the 2006– 

2009 period. They found an effect from 

speculative positions of index investors 

on risk premium in crude oil.1727

Hamilton and Wu also did not find 

evidence of speculative positions 

influencing risk premia in crude oil 

after 2009. Nor did they find evidence 

that speculative positions affected the 

risk premia in the agricultural 

commodities markets. ‘‘Our conclusion 

is that although in principle index-fund 

buying of commodity futures could 

influence pricing of risk, we do not find 

confirmation of that in the week-toweek variability of the notional value of 

reported commodity index trader 

positions.’’ Id. at p.193; see id. at p.195 

(no persuasive evidence that changes in 

index trader positions is related to risk 

premium in agricultural commodities, 

whether the data is studied for change 

on a weekly or 13-week basis). 

Consequently, they find only limited 

evidence for a theoretically reasonable 

version of the Master’s hypothesis, i.e., 

that long speculators bid down the risk 

premia and as a result induce a higher 

futures price in various commodity 

futures markets. ‘‘Overall,’’ Hamilton 

and Wu conclude, their work indicates 

that ‘‘there seems to be little evidence 

that index-fund investing is exerting a 

measurable effect on commodity futures 

prices.’’ Id. at p.204 (adding that it is 

‘‘difficult to find much empirical 

foundation for a view that continues to 

have a significant impact on policy 

decisions’’). 

e. Sanders/Irwin on the ‘‘Necessity’’ of 

Limits and Energy Futures Prices 

Professors Dwight Sanders and Scott 

Irwin submitted two working papers: (1) 

One paper arguing that new limits on 

speculation in agricultural futures 

markets are unnecessary; 1728 and (2) a 

paper on energy futures prices, using 

high frequency daily position data for 

energy markets and concluding that 

there is no compelling evidence of 

predictive links between commodity 

index investment and changes in energy 

futures prices.1729

i. The ‘‘Necessity’’ of New Position 

Limits 

In Sanders and Irwin, The 

‘‘Necessity’’ of New Position Limits in 

Agricultural Futures Markets: The 

Verdict from Daily Firm-Level Position 

Data (working paper 2014), the authors 

use price and position data shared by an 

unnamed large investment 

company.1730 They do various statistical 

analyses to concluding that the large 

investment company’s roll of its 

position does not have any lasting price 

impact on the market. The find that the 

price impact of the roll is, at most, a 

small and temporary price impact; there 

is not a day-over-day impact and the 

impact is smaller than the bid/ask 

spread. 

This result does not disprove, 

generally, the possibility that the fund’s 

long, speculative positions impact price 

because it focuses only on one aspect of 

the fund’s trading: Its rolling of 

positions. The firm data used is from a 

large commodity index fund that is 

registered investment company, and 

such a firm is likely put into their 

prospectus how they are going to roll 

their positions. This pre-announcement 

of when the commodity index fund will 

roll may dampen the price impact of 

these particular changes in position. See 

n.1682 and associated text, supra; 

Aulerich, Irwin, and Garcia, Bubbles, 

Food Prices, and Speculation: Evidence 

from the CFTC’s Daily Large Trader 

Data Files, id. at p.29 (NBER Conference 


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1731An example of a study that is, in part, 

forward-looking, is Cheng, Kirilenko, and Xiong, 

Convective Risk Flows in Commodity Futures 

Markets (working paper 2012). The authors use 

comovement methodology to conclude that in times 

of distress, financial traders reduce their net long 

position, causing risk to flow from financial traders 

to commercial hedgers. See also Acharya, 

Ramadorai, and Lochstoer, Limits to Arbitrage and 

Hedging: Evidence from the Commodity Markets, 

Journal of Financial Economics (2013) (decreases in 

financial traders’ risk capacity should lead to 

increases in hedgers’ hedging cost, all else being 

equal). 

1732Sanders and Irwin’s piece does not directly 

test the effect of pre-existing position limits in these 

markets. Examining agricultural markets for 

whether there can be price impact on positions 

generally is complicated by the fact that the 

agricultural markets have been subject to federal 

position limits since 1920s. On the other hand, in 

the case of a commodity index fund, they may well 

not be carrying substantial positions into the spot 

month, and so even their large source of firm data 

may not be useful for testing the impact or 

effectiveness of position limits during the spot 

month. 

2012) (firms preannounce their rolls, 

and thus these position changes can be 

anticipated by the marketplace and thus 

lead to less price impact). Sanders and 

Irwin’s result thus is not obviously 

extensible to any price impact of this 

large index fund’s positions apart from 

its positions and trading at the time of 

roll. 

This fund did have days of heavy 

trading, apart from rolling, but Sanders 

and Irwin did not study the price 

impact arising from these changes in 

position. The fund traded cotton 

contracts representing 5.8% of average 

daily trading in cotton and wheat trades 

constituting 3.5% of average daily 

volume in the MGEX wheat contract. 

Sanders and Irwin did not attempt to 

study price impact on these unannounced trades. They stated that 

because the sizes of the roll transactions 

are ‘‘larger than changes in outright 

position,’’ ‘‘investigating the impact of 

rolling on market spreads’’ is 

‘‘particularly interesting.’’ Id. at p.10. 

On the other hand, the non-roll position 

changes are presumptively not 

preannounced to the marketplace, so 

studying this rich dataset for price 

impacts from those position changes 

might also be interesting. 

This paper by Sanders and Irwin thus 

has a limitation of scope based on its 

focus on just the rolling of positions. 

This large commodity index fund 

presumptively pre-announced its rolling 

of positions in its prospectus. However, 

this leaves open the question of what 

would be the effect if this same fund did 

not pre-announce in the future. The 

analysis by Sanders and Irwin, if 

credited as true within a reasonable 

degree of certainty, would address 

whether regulators should employ 

position limits prophylactically to 

diminish the price impact of any future, 

non-announced rolls. At least prior to 

sunshine trading of rolls, there is 

evidence of a price impact associated 

with rolling. Frenk and Turbeville, 

Commodity Index Traders and the 

Boom/Bust Cycle in Commodities Prices 

(Better Markets 2011).1731

Moreover, not all large players preannounce their rolls. The fact that 

Sanders and Irwin found no price 

impact with respect to rolls that were 

(assumedly) pre-announced does not 

mean that unannounced rolls might be 

mistaken for informed trading by the 

marketplace and cause a price 

impact.1732

Despite these limitations in scope, 

Sanders and Irwin’s article is one of the 

more useful Granger analysis papers for 

several reasons. 

First, it does present a working 

definition of ‘‘excessive speculation:’’ 

speculation that is ‘‘causing’’ price 

fluctuations that are ‘‘sudden’’ or 

‘‘unreasonable’’ or ‘‘unwarranted.’’ 

Sanders and Irwin correctly state that 

their ‘‘definition of excessive 

speculation seemingly excludes 

speculation that cannot be shown to 

cause price changes. . . .’’ Id. at p.3. It 

is important to note, however, that 

Sanders and Irwin repeatedly use the 

word ‘‘necessary’’ to analyze the 

desirability of position limits, which 

elevates the requirements for 

establishing causation of price 

fluctuations to a very high level. High 

quality economic studies often use 

empirical data, typically the tools of 

statistics, to achieve reasonable 

certainty within a specified degree of 

error. 

Second, the data source is a novel and 

fairly comprehensive data set. It 

includes both swaps and futures, and 

encompasses many different 

commodities. The data does indicate the 

volume and nature of this large 

commodity fund’s positions in the 

market place. All positions taken by the 

firm during the 2007–2012 time period 

were long positions, not short positions. 

Id. at p.5. The fund’s total position size 

(including futures and swaps) grew from 

under $4 billion in 2007 to $12 billion 

in 2011. Id. 

Third, with respect to the paper’s 

conclusion on rolling of positions, the 

statistical result of Sanders and Irwin— 

concluding that there was no price 

impact from positions—is stronger than 

many other studies in some respects. 

Unlike Hamilton and Wu’s work on just 

a component of the return from holding 

a futures contract (risk premium), 

Sanders and Irwin consider the entire 

return from holding the futures contract. 

They studied data over a long time 

period. If their model is correct, they 

have found evidence against (at least 

their formulation of) the Masters 

hypothesis. There is a potential concern, 

however, with their statistical result. 

The price equation used for their 

Granger analysis uses both lagged 

returns and changes in positions. See id. 

at p.16 (‘‘Rt-i’’ are lagged returns and 

‘‘Positions’’ are changes in position in 

Equation 5a). To the extent that lagged 

returns and position changes are 

correlated with each other, their price 

equation may mask correlations 

between price returns and position 

changes. 

ii. Energy Futures Prices 

Using the same commodity index 

fund data, Sanders and Irwin examine 

energy contracts: Crude oil, heating oil, 

natural gas, and reformulated blend 

stock gas (with ethanol added). Sanders 

and Irwin, Energy Futures Prices and 

Commodity Index Investment: New 

Evidence from Firm-Level Position Data 

(working paper 2014). This paper 

attempts to challenge the findings of an 

impact on price from positions by 

Singleton, Hamilton and Wu. Sanders 

and Irwin contend that their richer data 

source compels a conclusion that 

positions in commodity energy markets 

do not impact price. 

This paper also has a potential 

problem with the price return equation. 

The equation, see id. at p. 15 (Equation 

No. 7), uses lagged returns and positions 

to test against a correlation with price. 

Sometimes they use multiple lagged 

returns. For example, for their natural 

gas analysis, they used two sets of 

lagged returns. Id. at p.35 (Table 5). 

Again, use of lagged returns in the price 

equation can mask a possible 

correlation. 

Sanders and Irwin argue that their 

results from a richer data source 

indicate that Singleton and Hamilton 

and Wu’s results may be ‘‘artifacts’’ of 

poor data. They contend that these 

authors’ use of agricultural data as 

proxy for energy positions was 

problematic. Id. at p.3. They suggest this 

may explain the differing results of 

Singleton, as well as Hamilton and Wu. 

But there are other explanations for 

this difference in results. Singleton, 

Hamilton and Wu focus on risk 

premium, not, as Sanders and Irwin do, 

on price returns. This distinction can be 

quite important in this context. If 

positions impact price by impacting risk 

premium, that effect will not necessarily 

reveal itself in a study of just price 

returns. Perhaps more fundamentally, 

Sanders and Irwin and are asking a 


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1733The undated CME study on conditional spotmonth limits is the only empirical work submitted 

by CME in is opposition to the position limits 

rulemaking. It has been proven wrong. The 

Commission has previously explained that CME 

made technical data errors in doing its analysis. 

Position Limits for Futures and Swaps, 76 FR 

71626, 71635 nn. 100–101 (Nov. 18, 2011). The 

European Commission publication in CME’s first 

set of submissions, Tackling the Challenges in 

Commodity Markets and Raw Materials, European 

Commission (2011) (2.2.2011), is simply a 

discussion of policy initiatives. It concedes that it 

is difficult to know which way causation forms 

between financial and physical markets and states 

that ‘‘the debate . . . is still open’’ on whether 

financial inflows have affected prices. Id. at 2, 7. 

slightly different question than 

Hamilton and Wu or Singleton. Sanders 

and Irwin are attempting to measure 

speculative position changes impact on 

price returns over a long time period, 

February of 2007 to May 2012. Hamilton 

and Wu, and also Singleton, use 

narrower timeframes in their papers and 

find a component of return, the risk 

premium, during a narrow time 

window, during a period of economic 

stress. 

f. CME Group Study Submissions 

The CME Group filed in the 

administrative record several studies 

and reports on March 28, 2011. It did so 

in three sets, all filed on March 28, 

2011. 

In the first set, CME filed: Tackling 

the Challenges in Commodity Markets 

and Raw Materials, European 

Commission (2011) (2.2.2011); Issues 

Involving the Use of the Futures Market 

to Invest in Commodity Indexes, 

Government Accountability Office 

Letter to the Hon. Collin Peterson, 

Chair, House Committee on Agriculture 

(June 30, 2009); and Korniotis, Does 

Speculation Affect Spot Price Levels? 

The Case of Metals With and Without 

Futures Markets, Working Paper of the 

Finance and Economic Discussion 

Series, Federal Reserve Board (2009). 

In a second set, CME filed: Stoll and 

Whaley, Commodity Index Investing 

and Commodity Futures Prices, Journal 

of Applied Finance (2010); and Irwin 

and Sanders, The Impact of Index and 

Swap Funds on Commodity Markets: 

Preliminary Results (OECD Food, 

Agriculture and Fisheries Working 

Papers, No. 27 2010). 

In a third set, CME filed: Celso 

Brunetti and Bahattin Bu ̈ yu ̈ ks ̧ahin, Is 

Speculation Destabilizing? (working 

paper 2009); Bahattin Bu ̈ yu ̈ ks ̧ahin and 

Jeffrey H. Harris, The Role of 

Speculators in the Crude Oil Futures 

Market (working paper 2009); and 

Interagency Task Force on Commodity 

Markets, Interim Report on Crude Oil 

(July 2008). 

Finally, CME submitted an undated 

CME study on conditional spot-month 

limits and CME Group’s white paper, 

Excessive Speculation and Position 

Limits in Energy Derivatives Markets. 

As a group, these studies are not new 

to the Commission. All of these papers, 

except the CME undated submission on 

conditional spot limits and the 

European Commission publication, 

were cited by the Commission in its 

December 2013 Position Limits Proposal 

and so are covered in the above analysis 

of various studies.1733

Conclusion 

Economists debate whether 

‘‘excessive speculation’’ meaning, as an 

economic matter, a link between large 

speculation positions and unwarranted 

price changes or price volatility, exists 

in these regulated markets, and if so to 

what degree. The question presented is 

a surprisingly difficult one to answer. 

All the empirical studies on this 

question have drawbacks, and none is 

conclusive. This inconclusivity is not 

surprising. It is inevitable, given the 

economic uncertainties that inhere in 

the data and the complexity of the 

question. There are many theoretical 

and empirical assumptions and leaps, 

that are needed to transform and 

interpret raw market data into 

meaningful and persuasive results. 

There is no decisive statistical method 

for establishing evidence for or against 

position limits in the commodity. 

Those studies that use Granger 

causality methodology tend to conclude 

that there is no evidence of excessive 

speculation or its consequences on price 

returns and price volatility, and many 

industry commenters opposed to 

position limits used this methodology. 

But that methodology is peculiarly 

sensitive to model design choices, and 

this review has highlighted the 

modelling decisions that may have 

affected the ultimate conclusions of 

these studies. Moreover, there are 

countervailing Granger studies showing 

a link between large speculative 

positions and price volatility. And 

studies such as Cheng, Kirilenko, and 

Xiong, Convective Risk Flows in 

Commodity Futures Markets (working 

paper 2012), indicate that some Granger 

studies may mask the impact of 

speculation in times of financial stress. 

Those studies that use comovement 

and cointegration methods tend to 

conclude there is evidence of 

deleterious effects of ‘‘excessive 

speculation.’’ Yet comovement tests for 

correlation, not causation, and a 

correlation between large financial 

trading in the commodity markets and 

price changes and volatility could be 

driven by a common causal agent such 

as macroeconomic factors. 

Those studies that use models of 

fundamental supply and demand reach 

a whole host of divergent opinions on 

the subject, each opinion only as strong 

as the many modelling choices. 

In this way, the economic literature is 

inconclusive. Even clearly written, wellrespected papers often contain nuances. 

It is telling that Hamilton, Causes and 

Consequences of the Oil Shock of 2007– 

2008, Brookings Paper on Economic 

Activity (2009), has been cited by both 

proponents and opponents of position 

limits. 

What can be said with certainty is 

summarized in the Commission’s Notice 

of Proposed Rulemaking: That large 

speculative positions and outsized 

market power pose risks to a wellfunctioning marketplace. These risks 

may very well differ depending on 

commodity market structure, but can in 

some markets cause real-world price 

impacts through a higher risk premium 

as a component of total price. There are 

also economic studies indicating some 

correlation between increased 

speculation and price volatility in times 

of financial stress, but this correlation 

does not imply causation. 

Comment letters on either side 

declaring that the matter is settled in 

their favor among respectable 

economists are simply incorrect. The 

best economists on both sides of the 

debate concede that there is a legitimate 

debate. This analysis concludes that the 

academic debate amongst economists 

about the effects of outsized market 

positions has reputable and legitimate 

standard-bearers for opposing positions. 

B. Appendix B—List of Comment Letters 

Cited in this Rulemaking 

1. Agri-Mark, Inc.; (CL–Agri–Mark–59609, 2/ 

10/2014) 

2. Airlines for America (‘‘A4A’’); (CL–A4A– 

59714, 2/10/2014); (CL–A4A–59686, 2/ 

10/2014) 

3. Alternative Investment Management 

Association (‘‘AIMA’’); (CL–AIMA– 

59618, 2/10/2014); (CL–AIMA–59619, 2/ 

10/2014) 

4. American Bakers Association (‘‘Bakers’’); 

(CL–Bakers–59691, 2/10/2014) 

5. American Benefits Council (‘‘ABC’’); (CL– 

ABC–59670, 2/10/2014) 

6. American Cotton Shippers Association 

(‘‘ACSA’’); (CL–ASCA–59667, 2/10/ 

2014) 

7. American Farm Bureau Federation 

(‘‘AFBF’’); (CL–AFBF–59730, 2/10/2014) 

8. American Feed Industry Association 

(‘‘AFIA’’); (CL–AFIA–60955, 7/13/2016) 

9. American Gas Association (‘‘AGA’’), (CL– 

AGA–59632, 2/10/2014); (CL–AGA– 


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59633, 2/10/2014); (CL–AGA–60382, 3/ 

30/2015); (CL–AGA–60943, 7/13/2016) 

10. American Petroleum Institute (‘‘API’’); 

(CL–API–59694, 2/10/2014); (CL–API– 

59944, 8/4/2014); (CL–API–60939, 7/13/ 

2016) 

11. American Public Gas Association 

(‘‘APGA’’); (CL–APGA–59722, 2/10/ 

2014) 

12. American Sugar Refining, Inc.; (CL–ASR– 

59668, 2/10/2014); (CL–ASR–60933, 7/ 

13/2016) 

13. Americans for Financial Reform (‘‘AFR’’); 

(CL–AFR–59711, 2/10/2014); (CL–AFR– 

59685, 2/10/2014); (CL–AFR–60953, 7/ 

13/2016) 

14. Archer Daniels Midland Company 

(‘‘ADM’’); (CL–ADM–59640, 2/10/2014); 

(CL–ADM–60300, 1/22/2015); (CL– 

ADM–60934, 7/13/2016) 

15. Armajaro Asset Management; (CL– 

Armajaro–59729, 2/10/2014) 

16. Atmos Energy Holdings, Inc. (‘‘Atmos’’); 

(CL–Atmos–59705, 2/10/2014) 

17. Better Markets, Inc.; (CL–Better Markets– 

59715, 2/10/2014); (CL–Better Markets– 

59716, 2/10/2014); (CL–Better Markets– 

60325, 1/22/2015); (CL–Better Markets– 

60401, 3/30/2015); (CL–Better Markets– 

60928, 7/13/2016) 

18. BG Energy Merchants, LLC (‘‘BG Group’’); 

(CL–BG Group–59656, 2/10/2014); (CL– 

BG Group–59937, 8/4/2014); (CL–BG 

Group–60383, 3/30/2015) 

19. Cactus Feeders, Inc., et al.; (CL–Cactus– 

59660, 2/10/2014) 

20. Calpine Corporation; (CL–Calpine–59663, 

2/10/2014) 

21. Cargill, Incorporated; (CL–Cargill–59638, 

2/10/2014) 

22. Castleton Commodities International LLC 

(‘‘CCI’’); (CL–CCI–60935, 7/13/2016) 

23. Center for Capital Markets 

Competitiveness, U.S. Chamber of 

Commerce (‘‘Chamber’’); (CL–Chamber– 

59684, 2/10/2014); (CL–Chamber–59721, 

2/10/2014) 

24. Chairman, U.S. Senate Permanent 

Subcommittee on Investigations of the 

Committee on Homeland Security and 

Governmental Affairs; (CL–Sen. Levin– 

59637, 2/10/2014) 

25. Citadel LLC; (CL–Citadel–59717, 2/10/ 

2014); (CL–Citadel–59933, 8/1/2014) 

26. CME Group Inc. (‘‘CME’’); (CL–CME– 

59719, 2/10/2014); (CL–CME–59718, 2/ 

10/2014); (CL–CME–59970, 8/4/2014); 

(CL–CME–59971, 8/4/2014); (CL–CME– 

60307, 1/22/2015); (CL–CME–60406, 3/ 

30/2015); (CL–CME–60926, 7/13/2016) 

27. Coalition of Physical Energy Companies 

(‘‘COPE’’); (CL–COPE–59662, 2/10/2014); 

(CL–COPE–59653, 2/10/2014); (CL– 

COPE–59950, 8/4/2014); (CL–COPE– 

60388, 3/30/2015); (CL–COPE–60932, 7/ 

13/2016) 

28. Commercial Energy Working Group; (CL– 

Working Group–59647, 2/10/2014) 

29. Commodities Working Group of GFMA 

(‘‘GFMA’’); (CL–GFMA–60314, 1/22/ 

2015) 

30. Commodity Markets Council (‘‘CMC’’); 

(CL–CMC–59634, 2/10/2014); (CL–CMC– 

59925, 7/25/2014); (CL–CMC–60318, 1/ 

22/2015); (CL–CMC–60391, 3/30/2015); 

(CL–CMC–60950, 7/13/2016) 

31. Commodity Markets Oversight Coalition 

(‘‘CMOC’’); (CL–CMOC–59720, 2/10/ 

2014); (CL–CMOC–60324, 1/22/2015); 

(CL–CMOC–60400, 3/30/2015) 

32. Committee on Capital Markets Regulation 

(‘‘CCMR’’); (CL–CCMR–59623, 2/10/ 

2014) 

33. Copperwood Asset Management LP 

(‘‘CAM’’); (CL–CAM–60097, 12/22/2014) 

34. Cota, Sean; (CL–Cota–59706, 2/10/2014); 

(CL–Cota–60322, 1/22/2015) 

35. CSC Sugar, LLC (‘‘CSC’’); (CL–CSC– 

59676, 2/10/2014); (CL–CSC–59677, 2/ 

10/2014) 

36. Dairy Farmers of America (‘‘DFA’’); (CL– 

DFA–59621, 2/10/2014); (CL–DFA– 

59948, 8/4/2014); (CL–DFA–60309, 1/22/ 

2015); (CL–DFA–60927, 7/13/2016) 

37. Darigold; (CL–Darigold–59651, 2/10/ 

2014) 

38. Davis Wright Tremaine LLP on behalf of 

Dairy America, Inc.; (CL–Dairy America– 

59683, 2/10/2014) 

39. DB Commodity Services LLC (‘‘DBCS’’); 

(CL–DBCS–59569, 2/6/2014) 

40. Duke Energy Utilities; (CL–DEU–59627, 

2/10/2014) 

41. Ecom Agro Industrial, Inc.; (CL–Ecom– 

60308, 1/22/2015) 

42. EDF Trading North America, LLC 

(‘‘EDF’’); (CL–EDF–59961, 8/4/2014); 

(CL–EDF–60398, 3/30/2015); (CL–EDF– 

60944, 7/13/2016) 

43. Edison Electric Institute (‘‘EEI’’); (CL– 

EEI–59945, 8/4/2014); (CL–EEI–Sup– 

60386, 3/30/2015) 

44. Electric Power Supply Association 

(‘‘EPSA’’); (CL–EPSA–55953, 8/4/2014); 

(CL–EPSA–59999, 11/12/2014); (CL– 

EPSA–60381, 3/30/2015) 

45. EEI and EPSA, jointly (‘‘EEI–EPSA’’); 

(CL–EEI–EPSA–59602, 2/7/2014); (CL– 

EEI–EPSA–60925, 7/13/2016) 

46. Energy Transfer Partners, L.P. (‘‘ETP’’); 

(CL–ET–59958, 8/4/2014); (CL–ETP– 

60915, 7/12/2016) 

47. FC Stone LLC; (CL–FCS–59675, 2/10/ 

2014) 

48. Fonterra Co-operative Group Limited 

(‘‘Fonterra’’); (CL–Fonterra–59608, 2/9/ 

2014) 

49. Futures Industry Association (‘‘FIA’’), 

(CL–FIA–59595, 2/7/2014); (CL–FIA– 

59566, 2/6/2014); (CL–FIA–59931, 7/31/ 

2014); (CL–FIA–60303, 1/22/2015); (CL– 

FIA–60392, 3/30/2015); (CL–FIA–60937, 

7/13/2016) 

50. Grain Service Corporation (‘‘GSC’’); (CL– 

GSC–59703, 2/10/2014) 

51. HP Hood LLC (‘‘Hood’’), (CL–Hood– 

59582, 2/7/2014) 

52. ICE Futures U.S., Inc.; (CL–ICE–59645, 2/ 

10/2014); (CL–ICE–59649, 2/10/2014); 

(CL–ICE–59938, 8/4/2014); (CL–ICE– 

60310, 1/22/2015); (CL–ICE–60311, 1/22/ 

2015); (CL–ICE–60378, 3/30/2015) 

53. Industrial Energy Consumers of America; 

(CL–IECA–59671, 2/10/2014); (CL– 

IECA–59713, 2/10/2014); (CL–IECA– 

59964, 8/4/2014); (CL–IECA–60389, 3/ 

30/2015) 

54. Innovation Center for US Dairy; (CL–US 

Dairy–59952, 8/4/2014) 

55. Institute for Agriculture and Trade Policy 

(‘‘IATP’’); (CL–IATP–59701, 2/10/2014); 

(CL–IATP–59704, 2/10/2014); (CL– 

IATP–60394, 3/30/2015); (CL–IATP– 

60951, 7/13/2016) 

56. IATP and AFR, jointly; (CL–IATP–60323, 

1/22/2015) 

57. Intercontinental Exchange, Inc. (‘‘ICE’’); 

(CL–ICE–59669, 2/10/2014); (CL–ICE– 

59962, 8/4/2014); (CL–ICE–59966, 8/4/ 

2014); (CL–ICE–60387, 3/30/2015); (CL– 

ICE–60929, 7/13/2016) 

58. International Dairy Foods Association 

(‘‘IDFA’’); (CL–IDFA–59771, 2/10/2014) 

59. International Energy Credit Association; 

(CL–IECAssn–9679, 2/10/2014); (CL– 

IECAssn–59957, 8/4/2014); (CL– 

IECAssn–60395, 3/30/2015); (CL– 

IECAssn–60949, 7/13/2016) 

60. International Swaps and Derivatives 

Association, Inc. (‘‘ISDA’’); (CL–ISDA– 

60370, 3/26/2015); (CL–ISDA–60931, 7/ 

13/2016) 

61. Investment Company Institute (‘‘ICI’’); 

(CL–ICI–59614, 2/10/2014) 

62. ISDA and SIFMA, jointly; (CL–ISDA/ 

SIFMA–59611, 2/10/2014); (CL–ISDA/ 

SIFMA–59917, 7/7/2014) 

63. Just Energy Group Inc.; (CL–Just–59692, 

2/10/2014) 

64. Leprino Foods Company; (CL–Leprino– 

59707, 2/10/2014) 

65. Louis Dreyfus Commodities LLC; (CL– 

LDC–59643, 2/10/2014) 

66. Managed Funds Association (‘‘MFA’’); 

(CL–MFA–59600, 2/7/2014); (CL–MFA– 

59606, 2/9/2014); (CL–MFA–60385, 3/ 

30/2015) 

67. MidAmerican Energy Holdings Company; 

(CL–MidAmerican–59585, 2/7/2014) 

68. Minneapolis Grain Exchange, Inc. 

(‘‘MGEX’’); (CL–MGEX–59610, 2/10/ 

2014); (CL–MGEX–59932, 8/1/2014); 

(CL–MGEX–60301, 1/22/2015); (CL– 

MGEX–60380, 3/30/2015); (CL–MGEX– 

60936, 7/13/2016); (CL–MGEX–60938, 7/ 

13/2016) 

69. Morgan Stanley; (CL–MSCGI–59708, 2/ 

10/2014) 

70. National Association of Wheat Growers; 

(CL–NAWG–59687, 2/10/2014) 

71. National Cattlemen’s Beef Association 

(‘‘NCBA’’); (CL–NCBA–59624, 2/10/ 

2014) 

72. National Corn Growers Association & 

American Soybeans Association, jointly; 

(CL–NCGA–ASA–60917, 7/12/2016) 

73. National Corn Growers Association & 

Natural Gas Supply Association, jointly; 

(CL–NCGA–NGSA–60919, 7/13/2016) 

74. National Cotton Council of America, 

American Cotton Shippers Association, 

and Amcot, jointly; (CL–NCC–ACSA– 

60972, 7/18/2016) 

75. National Council of Farmer Cooperatives; 

(CL–NCFC–59613, 2/10/2014); (CL– 

NCFC–59942, 8/4/2014); (CL–NCFC– 

60930, 7/13/2016) 

76. National Energy Marketers Association; 

(CL–NEM–59586, 2/7/2014); (CL–NEM– 

59620, 2/10/2014) 

77. National Grain and Feed Association; 

(CL–NGFA–59681, 2/10/2014); (CL– 

NGFA–59956, 8/4/2014); (CL–NGFA– 

60267, 1/17/2015); (CL–NGFA–60312, 1/ 

22/2015); (CL–NGFA–60941, 7/13/2016) 

78. National Milk Producers Federation; (CL– 

NMPF–59652, 2/10/2014); (CL–NMPF– 

60956, 7/13/2016) 


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79. National Rural Electric Cooperative 

Association, American Public Power 

Association, and the Large Public Power 

Council, jointly (the ‘‘NFP Electric 

Associations’’); (CL–NFP–59690, 2/10/ 

2014); (CL–NFP–59934, 8/1/2014); (CL– 

NFP–60393, 3/30/2015); (CL–NFP– 

60942, 7/13/2016) 

80. Natural Gas Supply Association; (CL– 

NGSA–59673, 2/10/2014); (CL–NGSA– 

59674, 2/10/2014); (CL–NGSA–59900, 6/ 

26/2014); (CL–NGSA–59941, 8/4/2014); 

(CL–NGSA–60379, 3/30/2015) 

81. Nebraska Cattlemen Inc.; (CL–NC–59696, 

2/10/2014) 

82. New York State Department of 

Agriculture & Markets; (CL–NYS 

Agriculture–59657, 2/10/2014) 

83. Nodal Exchange, LLC; (CL–Nodal–59695, 

2/10/2014); (CL–Nodal–60948, 7/13/ 

2016) 

84. NRG Energy, Inc.; (CL–NRG–60434, 1/20/ 

2015) 

85. Occupy the SEC (‘‘OSEC’’); (CL–OSEC– 

59972, 8/7/2014) 

86. Olam International Limited; (CL–Olam– 

59658, 2/10/2014); (CL–Olam–59946, 8/ 

4/2014) 

87. Pedestal Commodity Group, LLC; (CL– 

Pedestal–59630, 2/10/2014) 

88. Petroleum Marketers Association of 

America and the New England Fuel 

Institute; (CL–PMAA–NEFI–60952, 7/13/ 

2016) 

89. Plains All American Pipeline, L.P.; (CL– 

PAAP–59664, 2/10/2014); (CL–PAAP– 

59951, 8/4/2014) 

90. Private Equity Growth Capital Council 

(‘‘PEGCC’’); (CL–PEGCC–59650, 2/10/ 

2014); (CL–PEGCC–59913, 7/3/2014); 

(CL–PEGCC–59987, 10/24/2014) 

91. Public Citizen, Inc.; (CL–Public Citizen– 

59648, 2/10/2014); (CL–Public Citizen– 

60390, 3/30/2015); (CL–Public Citizen– 

60313, 1/22/2015); (CL–Public Citizen– 

60940, 7/13/2016) 

92. Rice Dairy LLC; (CL–Rice Dairy–59601, 2/ 

7/2014); (CL–Rice Dairy–59960, 8/4/ 

2014) 

93. RightingFinance; (CL–RF–60372, 3/28/ 

2015) 

94. Risk Management Work Group, 

Globalization Operating Committee, 

Innovation Center for US Dairy; (CL–US 

Dairy–59597, 2/7/2014) 

95. Rutkowski, Robert; (CL–Rutkowski– 

60961, 7/14/2016); (CL–Rutkowski60962, 7/14/2016) 

96. Sempra Energy; (CL–SEMP–59926, 7/25/ 

2014); (CL–SEMP–60384, 3/30/2015) 

97. SIFMA AMG (‘‘SIFMA’’); (CL–AMG– 

59709, 2/10/2014); (CL–AMG–59710, 2/ 

10/2014); (CL–AMG–59935, 8/1/2014); 

(CL–AMG–60946, 7/13/2016) 

98. Southern Company Services, Inc.; (CL– 

SCS–60399, 3/30/2015) 

99. Sutherland Asbill & Brennan LLP on 

behalf of The Commercial Energy 

Working Group; (CL–Working Group– 

59693, 2/10/2014); (CL–Working Group– 

59955, 8/4/2014); (CL–Working Group– 

59959, 8/4/2014); (CL–Working Group– 

60396, 3/30/2015); (CL–Working Group– 

60947, 7/13/2016) 

100. T.C. Jacoby & Company, Inc.; (CL– 

Jacoby–59622, 2/10/2014) 

101. Texas Cattle Feeders Association 

(‘‘TCFA’’); (CL–TCFA–59680, 2/10/ 

2014); (CL–TCFA–59723, 2/10/2014) 

102. The Andersons, Inc.; (CL–Andersons– 

60256, 1/15/2015) 

103. The McCully Group LLC; (CL–McCully– 

59592, 2/7/2014) 

104. Thornton, Pamela; (CL–Thornton– 

59702, 2/10/2014) 

105. Traditum Group LLC; (CL–Traditum– 

59655, 2/10/2014) 

106. Tri-State Coalition for Responsible 

Investment, et al.; (CL–Tri-State–59682, 

2/10/2014) 

107. United States Commodity Funds LLC 

(‘‘USCF’’); (CL–USCF–59644, 2/10/2014) 

108. Vectra Capital LLC; (CL–Vectra–60369, 

3/26/2015) 

109. Wholesale Markets Brokers Association, 

Americas (‘‘WMBA’’); (CL–WMBA– 

60945, 7/13/2016) 

110. World Economy, Ecology & 

Development (‘‘WEED’’); (CL–WEED– 

59628, 2/10/2014) 

111. World Gold Council (‘‘WGC’’); (CL– 

WGC–59558, 2/6/2014) 

List of Subjects 

17 CFR Part 1 

Agricultural commodity, Agriculture, 

Brokers, Committees, Commodity 

futures, Conflicts of interest, Consumer 

protection, Definitions, Designated 

contract markets, Directors, Major swap 

participants, Minimum financial 

requirements for intermediaries, 

Reporting and recordkeeping 

requirements, Swap dealers, Swaps. 

17 CFR Part 15 

Brokers, Commodity futures, 

Reporting and recordkeeping 

requirements, Swaps. 

17 CFR Part 17 

Brokers, Commodity futures, 

Reporting and recordkeeping 

requirements, Swaps. 

17 CFR Part 19 

Commodity futures, Cottons, Grains, 

Reporting and recordkeeping 

requirements, Swaps. 

17 CFR Part 37 

Registered entities, Registration 

application, Reporting and 

recordkeeping requirements, Swaps, 

Swap execution facilities. 

17 CFR Part 38 

Block transaction, Commodity 

futures, Designated contract markets, 

Reporting and recordkeeping 

requirements, Transactions off the 

centralized market. 

17 CFR Part 140 

Authority delegations (Government 

agencies), Conflict of interests, 

Organizations and functions 

(Government agencies). 

17 CFR Part 150 

Bona fide hedging, Commodity 

futures, Cotton, Grains, Position limits, 

Referenced Contracts, Swaps. 

17 CFR Part 151 

Bona fide hedging, Commodity 

futures, Cotton, Grains, Position limits, 

Referenced Contracts, Swaps. 

For the reasons stated in the 

preamble, the Commodity Futures 

Trading Commission proposes to amend 

17 CFR chapter I as follows: 

PART 1—GENERAL REGULATIONS 

UNDER THE COMMODITY EXCHANGE 

ACT 

■ 1. The authority citation for part 1 

continues to read as follows: 

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

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

6r, 6s, 7, 7a–1, 7a–2, 7b, 7b–3, 8, 9, 10a, 12, 

12a, 12c, 13a, 13a–1, 16, 16a, 19, 21, 23, and 

24 (2012). 

§ 1.3(z) [Removed and Reserved] 

■ 2. Remove and reserve § 1.3(z). 

§ 1.47 [Removed and Reserved] 

■ 3. Remove and reserve § 1.47. 

§ 1.48 [Removed and Reserved] 

■ 4. Remove and reserve § 1.48. 

PART 15—REPORTS—GENERAL 

PROVISIONS 

■ 5. The authority citation for part 15 

continues to read as follows: 

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

6k, 6m, 6n, 7, 7a, 9, 12a, 19, and 21, as 

amended by Title VII of the Dodd-Frank Wall 

Street Reform and Consumer Protection Act, 

Pub. L. 111–203, 124 Stat. 1376 (2010). 

■ 6. In § 15.00, revise paragraph (p) to 

read as follows: 

§ 15.00 Definitions of terms used in parts 

15 through 19, and 21 of this chapter. 

* * * * * 

(p) Reportable position means: 

(1) For reports specified in parts 17 

and 18 and in § 19.00(a)(2) and (a)(3) of 

this chapter any open contract position 

that at the close of the market on any 

business day equals or exceeds the 

quantity specified in § 15.03 of this part 

in either: 

(i) Any one futures of any commodity 

on any one reporting market, excluding 

futures contracts against which notices 

of delivery have been stopped by a 

trader or issued by the clearing 

organization of a reporting market; or 

(ii) Long or short put or call options 

that exercise into the same future of any 

commodity, or long or short put or call 

options for options on physicals that 

have identical expirations and exercise 


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into the same physical, on any one 

reporting market. 

(2) For the purposes of reports 

specified in § 19.00(a)(1) of this chapter, 

any position in commodity derivative 

contracts, as defined in § 150.1 of this 

chapter, that exceeds a position limit in 

§ 150.2 of this chapter for the particular 

commodity. 

* * * * * 

■ 7. In § 15.01, revise paragraph (d) to 

read as follows: 

§ 15.01 Persons required to report. 

* * * * * 

(d) Persons, as specified in part 19 of 

this chapter, who either: 

(1) Hold or control commodity 

derivative contracts (as defined in 

§ 150.1 of this chapter) that exceed a 

position limit in § 150.2 of this chapter 

for the commodities enumerated in that 

section; or 

(2) Are merchants or dealers of cotton 

holding or controlling positions for 

future delivery in cotton that equal or 

exceed the amount set forth in § 15.03. 

* * * * * 

■ 8. Revise § 15.02 to read as follows: 

§ 15.02 Reporting forms. 

Forms on which to report may be 

obtained from any office of the 

Commission or via the Internet (http:// 

www.cftc.gov). Forms to be used for the 

filing of reports follow, and persons 

required to file these forms may be 

determined by referring to the rule 

listed in the column opposite the form 

number. 

Form No. Title Rule 

40 ....................... Statement of Reporting Trader ............................................................................................................................ 18.04 

71 ....................... Identification of Omnibus Accounts and Sub-accounts ....................................................................................... 17.01 

101 ..................... Positions of Special Accounts ............................................................................................................................. 17.00 

102 ..................... Identification of Special Accounts, Volume Threshold Accounts, and Consolidated Accounts .......................... 17.01 

204 ..................... Statement of Cash Positions of Hedgers ............................................................................................................ 19.00 

304 ..................... Statement of Cash Positions for Unfixed-Price Cotton ‘‘On Call’’ ...................................................................... 19.00 

504 ..................... Statement of Cash Positions for Conditional Spot Month Exemptions ............................................................... 19.00 

604 ..................... Statement of Pass-Through Swap Exemptions .................................................................................................. 19.00 

(Approved by the Office of Management and 

Budget under control numbers 3038–0007, 

3038–0009, and 3038–0103.) 

PART 17—REPORTS BY REPORTING 

MARKETS, FUTURES COMMISSION 

MERCHANTS, CLEARING MEMBERS, 

AND FOREIGN BROKERS 

■ 9. The authority citation for part 17 

continues to read as follows: 

Authority: 7 U.S.C. 2, 6a, 6c, 6d, 6f, 6g, 6i, 

6t, 7, 7a, and 12a, as amended by Title VII 

of the Dodd-Frank Wall Street Reform and 

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

124 Stat. 1376 (2010). 

■ 10. In § 17.00, revise paragraph (b) to 

read as follows: 

§ 17.00 Information to be furnished by 

futures commission merchants, clearing 

members and foreign brokers. 

* * * * * 

(b) Interest in or control of several 

accounts. Except as otherwise 

instructed by the Commission or its 

designee and as specifically provided in 

§ 150.4 of this chapter, if any person 

holds or has a financial interest in or 

controls more than one account, all such 

accounts shall be considered by the 

futures commission merchant, clearing 

member or foreign broker as a single 

account for the purpose of determining 

special account status and for reporting 

purposes. 

* * * * * 

■ 11. In § 17.03, revise paragraph (h) to 

read as follows: 

§ 17.03 Delegation of authority to the 

Director of the Office of Data and 

Technology or the Director of the Division 

of Market Oversight. 

* * * * * 

(h) Pursuant to § 17.00(b), and as 

specifically provided in § 150.4 of this 

chapter, the authority shall be 

designated to the Director of the Office 

of Data and Technology to instruct a 

futures commission merchant, clearing 

member or foreign broker to consider 

otherwise than as a single account for 

the purpose of determining special 

account status and for reporting 

purposes all accounts one person holds 

or controls, or in which the person has 

a financial interest. 

* * * * * 

■ 12. Revise part 19 to read as follows: 

PART 19—REPORTS BY PERSONS 

HOLDING POSITIONS EXEMPT FROM 

POSITION LIMITS AND BY 

MERCHANTS AND DEALERS IN 

COTTON 

Sec. 

19.00 General provisions. 

19.01 Reports on stocks and fixed price 

purchases and sales. 

19.02 Reports pertaining to cotton on call 

purchases and sales. 

19.03 Reports pertaining to special 

commodities. 

19.04 Delegation of authority to the Director 

of the Division of Market Oversight. 

19.05–19.10 [Reserved] 

Appendix A to Part 19—Forms 204, 304, 504, 

604, and 704 

Authority: 7 U.S.C. 6g, 6c(b), 6i, and 

12a(5), as amended by Title VII of the DoddFrank Wall Street Reform and Consumer 

Protection Act, Pub. L. 111–203, 124 Stat. 

1376 (2010). 

§ 19.00 General provisions. 

(a) Who must file series ‘04 reports. 

The following persons are required to 

file series ‘04 reports: 

(1) Persons filing for exemption to 

speculative position limits. All persons 

holding or controlling positions in 

commodity derivative contracts, as 

defined in § 150.1 of this chapter, in 

excess of any speculative position limit 

provided under § 150.2 of this chapter 

and for any part of which a person relies 

on an exemption to speculative position 

limits under § 150.3 of this chapter as 

follows: 

(i) Conditional spot month limit 

exemption. A conditional spot month 

limit exemption under § 150.3(c) of this 

chapter for any commodity specially 

designated by the Commission under 

§ 19.03 for reporting; 

(ii) Pass-through swap exemption. A 

pass-through swap exemption under 

§ 150.3(a)(1)(i) of this chapter and as 

defined in paragraph (2)(ii)(B) of the 

definition of bona fide hedging position 

in § 150.1 of this chapter, reporting 

separately for: 

(A) Non-referenced-contract swap 

offset. A swap that is not a referenced 

contract, as that term is defined in 

§ 150.1 of this chapter, and which is 

executed opposite a counterparty for 

which the swap would qualify as a bona 

fide hedging position and for which the 

risk is offset with a referenced contract; 

and 

(B) Spot-month swap offset. A cashsettled swap, regardless of whether it is 


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a referenced contract, executed opposite 

a counterparty for which the swap 

would qualify as a bona fide hedging 

position and for which the risk is offset 

with a physical-delivery referenced 

contract in its spot month; 

(iii) Other exemption. Any other 

exemption from speculative position 

limits under § 150.3 of this chapter, 

including for a bona fide hedging 

position as defined in § 150.1 of this 

chapter or any exemption granted under 

§ 150.3(b) or (d) of this chapter; or 

(iv) Anticipatory exemption. An 

anticipatory exemption under § 150.7 of 

this chapter. 

(2) Persons filing cotton on call 

reports. Merchants and dealers of cotton 

holding or controlling positions for 

futures delivery in cotton that are 

reportable pursuant to § 15.00(p)(1)(i) of 

this chapter; or 

(3) Persons responding to a special 

call. All persons exceeding speculative 

position limits under § 150.2 of this 

chapter or all persons holding or 

controlling positions for future delivery 

that are reportable pursuant to 

§ 15.00(p)(1) of this chapter who have 

received a special call for series ‘04 

reports from the Commission or its 

designee. Persons subject to a special 

call shall file CFTC Form 204, 304, 504, 

or 604 as instructed in the special call. 

Filings in response to a special call shall 

be made within one business day of 

receipt of the special call unless 

otherwise specified in the call. For the 

purposes of this paragraph, the 

Commission hereby delegates to the 

Director of the Division of Market 

Oversight, or to such other person 

designated by the Director, authority to 

issue calls for series ‘04 reports. 

(b) Manner of reporting. The manner 

of reporting the information required in 

§ 19.01 is subject to the following: 

(1) Excluding certain source 

commodities, products or byproducts of 

the cash commodity hedged. If the 

regular business practice of the 

reporting person is to exclude certain 

source commodities, products or 

byproducts in determining his cash 

positions for bona fide hedging 

positions (as defined in § 150.1 of this 

chapter), the same shall be excluded in 

the report, provided that the amount of 

the source commodity being excluded is 

de minimis, impractical to account for, 

and/or on the opposite side of the 

market from the market participant’s 

hedging position. Such persons shall 

furnish to the Commission or its 

designee upon request detailed 

information concerning the kind and 

quantity of source commodity, product 

or byproduct so excluded. Provided 

however, when reporting for the cash 

commodity of soybeans, soybean oil, or 

soybean meal, the reporting person shall 

show the cash positions of soybeans, 

soybean oil and soybean meal. 

(2) Cross hedges. Cash positions that 

represent a commodity, or products or 

byproducts of a commodity, that is 

different from the commodity 

underlying a commodity derivative 

contract that is used for hedging, shall 

be shown both in terms of the 

equivalent amount of the commodity 

underlying the commodity derivative 

contract used for hedging and in terms 

of the actual cash commodity as 

provided for on the appropriate series 

‘04 form. 

(3) Standards and conversion factors. 

In computing their cash position, every 

person shall use such standards and 

conversion factors that are usual in the 

particular trade or that otherwise reflect 

the value-fluctuation-equivalents of the 

cash position in terms of the commodity 

underlying the commodity derivative 

contract used for hedging. Such person 

shall furnish to the Commission upon 

request detailed information concerning 

the basis for and derivation of such 

conversion factors, including: 

(i) The hedge ratio used to convert the 

actual cash commodity to the equivalent 

amount of the commodity underlying 

the commodity derivative contract used 

for hedging; and 

(ii) An explanation of the 

methodology used for determining the 

hedge ratio. 

§ 19.01 Reports on stocks and fixed price 

purchases and sales. 

(a) Information required—(1) 

Conditional spot month limit 

exemption. Persons required to file ’04 

reports under § 19.00(a)(1)(i) shall file 

CFTC Form 504 showing the 

composition of the cash position of each 

commodity underlying a referenced 

contract that is held or controlled 

including: 

(i) The as of date; 

(ii) The quantity of stocks owned of 

such commodity that either: 

(A) Is in a position to be delivered on 

the physical-delivery core referenced 

futures contract; or 

(B) Underlies the cash-settled core 

referenced futures contract; 

(iii) The quantity of fixed-price 

purchase commitments open providing 

for receipt of such cash commodity in: 

(A) The delivery period for the 

physical-delivery core referenced 

futures contract; or 

(B) The time period for cashsettlement price determination for the 

cash-settled core referenced futures 

contract; 

(iv) The quantity of unfixed-price sale 

commitments open providing for 

delivery of such cash commodity in: 

(A) The delivery period for the 

physical-delivery core referenced 

futures contract; or 

(B) The time period for cashsettlement price determination for the 

cash-settled core referenced futures 

contract; 

(v) The quantity of unfixed-price 

purchase commitments open providing 

for receipt of such cash commodity in: 

(A) The delivery period for the 

physical-delivery core referenced 

futures contract; or 

(B) The time period for cashsettlement price determination for the 

cash-settled core referenced futures 

contract; and 

(vi) The quantity of fixed-price sale 

commitments open providing for 

delivery of such cash commodity in: 

(A) The delivery period for the 

physical-delivery core referenced 

futures contract; or 

(B) The time period for cashsettlement price determination for the 

cash-settled core referenced futures 

contract. 

(2) Pass-through swap exemption. 

Persons required to file ’04 reports 

under § 19.00(a)(1)(ii) shall file CFTC 

Form 604: 

(i) Non-referenced-contract swap 

offset. For each swap that is not a 

referenced contract and which is 

executed opposite a counterparty for 

which the transaction would qualify as 

a bona fide hedging position and for 

which the risk is offset with a 

referenced contract, showing: 

(A) The underlying commodity or 

commodity reference price; 

(B) Any applicable clearing 

identifiers; 

(C) The notional quantity; 

(D) The gross long or short position in 

terms of futures-equivalents in the core 

referenced futures contract; and 

(E) The gross long or short positions 

in the referenced contract for the 

offsetting risk position; and 

(ii) Spot-month swap offset. For each 

cash-settled swap executed opposite a 

counterparty for which the transaction 

would qualify as a bona fide hedging 

position and for which the risk is offset 

with a physical-delivery referenced 

contract held into a spot month, 

showing for such cash-settled swap that 

is not a referenced contract the 

information required under paragraph 

(a)(2)(i) of this section and for such 

cash-settled swap that is a referenced 

contract: 

(A) The gross long or short position 

for such cash-settled swap in terms of 

futures-equivalents in the core 

referenced futures contract; and 


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(B) The gross long or short positions 

in the physical-delivery referenced 

contract for the offsetting risk position. 

(3) Other exemptions. Persons 

required to file ‘04 reports under 

§ 19.00(a)(1)(iii) shall file CFTC Form 

204 reports showing the composition of 

the cash position of each commodity 

hedged or underlying a reportable 

position in units of such commodity 

and in terms of futures equivalents of 

the core referenced futures contract, 

including: 

(i) The as of date, the commodity 

derivative contract held or controlled, 

and the equivalent core referenced 

futures contract; 

(ii) The quantity of stocks owned of 

such commodities and their products 

and byproducts; 

(iii) The quantity of fixed-price 

purchase commitments open in such 

cash commodities and their products 

and byproducts; 

(iv) The quantity of fixed-price sale 

commitments open in such cash 

commodities and their products and 

byproducts; 

(v) The quantity of unfixed-price 

purchase and sale commitments open in 

such cash commodities and their 

products and byproducts, in the case of 

offsetting unfixed-price cash commodity 

sales and purchases; and 

(vi) For cotton, additional information 

that includes: 

(A) The quantity of equity in cotton 

held, by merchant, producer or agent, by 

the Commodity Credit Corporation 

under the provisions of the Upland 

Cotton Program of the Agricultural 

Stabilization and Conservation Service 

of the U.S. Department of Agriculture; 

(B) The quantity of certificated cotton 

owned; and 

(C) The quantity of non-certificated 

stocks owned. 

(4) Anticipatory exemptions. Persons 

required to file ’04 reports under 

§ 19.00(a)(1)(iv) shall file CFTC Form 

204 monthly on the remaining unsold, 

unfilled and other anticipated activity 

for the Specified Period that was 

reported on such person’s most recent 

initial statement or annual update filed 

on Form 704, pursuant to § 150.7 (e) of 

this chapter. 

(b) Time and place of filing reports— 

(1) General. Except for reports specified 

in paragraphs (b)(2) or (b)(3) of this 

section, each report shall be made 

monthly: 

(i) As of the close of business on the 

last Friday of the month, and 

(ii) As specified in paragraph (b)(4) of 

this section, and not later than 9 a.m. 

Eastern Time on the third business day 

following the date of the report. 

(2) Spot month reports. Persons 

required to file ‘04 reports under 

§ 19.00(a)(1)(i) for special commodities 

as specified by the Commission under 

§ 19.03 or under § 19.00(a)(1)(ii)(B) shall 

file each report: 

(i) As of the close of business for each 

day the person exceeds the limit during 

a spot period up to and through the day 

the person’s position first falls below 

the position limit; and 

(ii) As specified in paragraph (b)(4) of 

this section, and not later than 9 a.m. 

Eastern Time on the next business day 

following the date of the report. 

(3) Special calls. Persons required to 

file ’04 reports in response to special 

calls made under § 19.00(a)(3) shall file 

each report as specified in paragraph 

(b)(4) of this section within one business 

day of receipt of the special call unless 

otherwise specified in the call. 

(4) Electronic filing. CFTC ‘04 reports 

must be transmitted using the format, 

coding structure, and electronic data 

transmission procedures approved in 

writing by the Commission. 

§ 19.02 Reports pertaining to cotton on 

call purchases and sales. 

(a) Information required. Persons 

required to file ‘04 reports under 

§ 19.00(a)(2) shall file CFTC Form 304 

reports showing the quantity of call 

cotton bought or sold on which the 

price has not been fixed, together with 

the respective futures on which the 

purchase or sale is based. As used 

herein, call cotton refers to spot cotton 

bought or sold, or contracted for 

purchase or sale at a price to be fixed 

later based upon a specified future. 

(b) Time and place of filing reports. 

Each report shall be made weekly as of 

the close of business on Friday and filed 

using the procedure under § 19.01(b)(3), 

not later than 9 a.m. Eastern Time on 

the third business day following the 

date of the report. 

§ 19.03 Reports pertaining to special 

commodities. 

From time to time to facilitate 

surveillance in certain commodity 

derivative contracts, the Commission 

may designate a commodity derivative 

contract for reporting under 

§ 19.00(a)(1)(i) and will publish such 

determination in the Federal Register 

and on its Web site. Persons holding or 

controlling positions in such special 

commodity derivative contracts must, 

beginning 30 days after notice is 

published in the Federal Register, 

comply with the reporting requirements 

under § 19.00(a)(1)(i) and file Form 504 

for conditional spot month limit 

exemptions. 

§ 19.04 Delegation of authority to the 

Director of the Division of Market Oversight. 

(1) 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 in § 19.01 to provide 

instructions or to determine the format, 

coding structure, and electronic data 

transmission procedures for submitting 

data records and any other information 

required under this part. 

(2) 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. 

(3) Nothing in this section prohibits 

the Commission, at its election, from 

exercising the authority delegated in 

this section. 

§§ 19.05–19.10 [Reserved] 

Appendix A to Part 19—Forms 204, 

304, 504, 604, and 704 

BILLING CODE 6351–01–P 


asabaliauskas on DSK3SPTVN1PROD with PROPOSALS
96930 Federal Register / Vol. 81, No. 251 / Friday, December 30, 2016 / Proposed Rules 


asabaliauskas on DSK3SPTVN1PROD with PROPOSALSEP30DE16.003</GPH>

CFTC FORM 204 

Statement of Cash Positions of Hedgers 

NOTICE: Failure to file a report required by the Commodity Exchange Act (''CEA" or the "Act")2 and the 

regulations thereunder,3 or the filing of a report with the Commodity Futures Trading Commission ("CFTC" or 

"Commission") that includes a false, misleading or fraudulent statement or omits material facts that are required to 

be reported therein or are necessary to make the report not misleading, may (a) constitute a violation of§ 6(c)(2) of 

the Act (7 U.S.C. 9), § 9(a)(3) of the Act (7 U.S.C. 13(a)(3)), and/or§ 1001 of Title 18, Crimes and Criminal 

Procedure (18 U.S.C. 1001) and (b) result in punishment by fine or imprisonment, or both. 

PRN ACY ACT NOTICE 

The Commission's authority for soliciting this information is granted in sections 4a, 4c(b), 4i, 4t and 8a(5) of the 

CEA and related regulations (see,~, 17 CFR § 19.00). The information solicited from entities and individuals 

engaged in activities covered by the CEA is required to be provided to the CFTC, and failure to comply may result 

in the imposition of criminal or administrative sanctions (see,~, 7 U.S. C.§§ 9 and 13a-l, and/or 18 U.S. C. 1001). 

The information requested is most commonly used in the Commission's market and trade practice surveillance 

activities to (a) provide information concerning the size and composition of the commodity derivatives markets, (b) 

permit the Commission to monitor and enforce speculative position limits and (c) enhance the Commission's trade 

surveillance data. The requested information may be used by the Commission in the conduct of investigations and 

litigation and, in limited circumstances, may be made public in accordance with provisions of the CEA and other 

applicable laws. It may also be disclosed to other government agencies and to contract markets to meet 

responsibilities assigned to them by law. The information will be maintained in, and any additional disclosures will 

be made in accordance with, the CFTC System of Records Notices, available on..!.!-'!-'.!..~~""-'-· 

1 This Appendix includes representations of the proposed reporting forms, which would be submitted in an 

electronic format published pursuant to the proposed rules, either via the Commission's web portal or via XMLbased, secure FTP transmission. 2 7 U.S.C. section 1, et seq. 3 Unless otherwise noted, the rules and regulations referenced in this notice are found in chapter 1 of title 17 of the 

Code of Federal Regulations; 17 CFR Chapter 1 et seq. 
Federal Register / Vol. 81, No. 251 / Friday, December 30, 2016 / Proposed Rules 96931 


asabaliauskas on DSK3SPTVN1PROD with PROPOSALSEP30DE16.004</GPH>

BACKGROUND & INSTRUCTIONS 

Applicable Regulations: 

• 17 CFR § 19.00(a)(l)(iii) and (iv) specify who must file Form 204. 

• 17 CFR § 19.00(b) specifies the manner of reporting on series '04 reports, including Form 204. 

• 17 CFR § 19.0l(a)(3) and (4)(ii) specifies the information required on Form 204. 

• 17 CFR § 19.0l(b)(l) specifies the frequency (monthly), the as of report date (close of business on the last 

Friday of the month), and the time (9 a.m. Eastern Time on the third business day following the date of the 

report), for filing Form 204. 

As appropriate, please follow the instructions below to generate and submit the required report or filing. Relevant 

regulations are cited in parentheses() for reference. Unless the context requires otherwise, the terms used herein 

shall have the same meaning as ascribed in parts 15 to 21 of the Commission's regulations. 

Complete Form 204 as follows: 

The trader identification fields should be completed by all filers. This updated Form 204 requires traders to 

identify themselves using their Public Trader Identification Number, in lieu of the CFTC Code Number required on 

previous versions of the Form 204. This number is provided to traders who have previously filed Forms 40 and 102 

with the Commission. Traders may contact the Commission to obtain this number if it is unknown. If a trader has a 

National Futures Association Identification Number ("NF AID") and/or a Legal Entity Identifier ("LEI"), he should 

also identify himself using those numbers. Form 204 requires traders to identify the name of the reporting trader or 

firm and the contact information (including full name, address, phone number, and email address) for a natural 

person the Commission may contact regarding the submitted Form 204. 

Section A of Form 204 must be completed by all filers who hold stocks and fixed-price cash positions in the 

cash commodity. Section A contains the following fields: 

Date... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . As-of date for reported position 

RC or CDC............................... Referenced Contract(§ 150.1) used for hedging or Commodity 

CRFC ..................................... . 

Futures Equivalent in CRFC .......... . 

Cash commodity hedged .............. . 

Units ...................................... . 

Stock ...................................... . 

Fixed Price Purchases ................. . 

Fixed Price Sales ....................... . 

Remaining Anticipated Activity ..... . 

Derivative Contract(§ 150.1) as required by, e.g., a special call(§ 

19.00(a)(3)) 

Corresponding Core Referenced Futures Contract(§ 150.2(d)) 

Quantity of cash commodity hedged, converted to futures equivalents 

of the CRFC. Short positions should be represented with a minus sign, 

e.g. 2,000 contract equivalents short= "-2,000" 

Cash commodity hedged by the CDC positions, e.g. "crude oil" 

Units of measure for cash commodity being hedged, e.g. "barrels" 

Stocks(§ 19.0l(a)(3)(ii)) 

Fixed-price purchase commitments(§ 19.0l(a)(3)(iii)) 

Fixed-price sale commitments(§ 19.0l(a)(3)(iv)) 

Remaining Unsold, Unfilled and Other Anticipated Activity for the 

Specified Period in Form 704 (§ 150.7(g) and§ 19.0l(a)(4)) 

Section B of Form 204 must be completed by all filers who hold unfixed-price cash positions in the cash 

commodity. Section B contains the following fields: 

Date... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . As-of date for reported position 

RC or CDC............................... Referenced Contract(§ 150.1) used for hedging or Commodity 

Derivative Contract(§ 150.1) as required by, e.g., a special call(§ 

19.00(a)(3)) 

CRFC................................... ... Corresponding Core Referenced Futures Contract(§ 150.2(d)) 
96932 Federal Register / Vol. 81, No. 251 / Friday, December 30, 2016 / Proposed Rules 


asabaliauskas on DSK3SPTVN1PROD with PROPOSALSEP30DE16.005</GPH>

Futures Equivalent in CRFC ........... . 

Cash conuuodity hedged .............. . 

Units ...................................... . 

Unfixed-price purchases .............. . 

Unfixed-price sales ...................... . 

Futures Contract Equivalent in terms of CRFC. Short positions should 

be represented with a minus sign, e.g. 2,000 contract equivalents short 

= "-2,000" 

Cash conuuodity hedged by the CDC positions, e.g. "crude oil" 

Units of measure for cash conuuodity being hedged, e.g. "barrels" 

Unfixed-price purchases(§ 19.0l(a)(3)(v)) 

Unfixed-price sales(§ 19.0l(a)(3)(v)) 

Section C of Form 204 must be completed in addition to Sections A and B of Form 204 by filers who hold 

cotton stocks. Section C contains the following fields: 

Equity Stocks............................ Equity stock in hundreds of 500-lb. bales. Traders must report separately 

equity stocks held in the trader's capacity as a merchant, producer, and/or agent. (§ 19.01(a)(3)(vi)) 

Certificated Stocks...................... Certificated stock in hundreds of 500-lb. bales. (§ 19.01(a)(3)(vi)) 

Non-certificated Stocks ................. Non-certificated stock in hundreds of 500-lb. bales. (§ 19.01(a)(3)(vi)) 

The signature/authorization page must be completed by all filers. This page must include the name and position 

of the natural person filing Form 204 as well as the name of the reporting trader represented by that person. The 

trader certifying this Form 204 on the signature/authorization page should note that filing a report that includes a 

false, misleading or fraudulent statement or omits material facts that are required to be reported therein or are 

necessary to make the report not misleading, may (a) constitute a violation of§ 6(c)(2) of the Act (7 U.S. C. 9), § 

9(a)(3) of the Act (7 U.S.C. 13(a)(3)), and/or§ 1001 of Title 18, Crimes and Criminal Procedure (18 U.S. C. 1001) 

and (b) result in punishment by fine or imprisonment, or both. 

Submitting Form 204: Once completed, please submit this form to the Conuuission pursuant to the instructions on 

[www.cftc.gov] or as otherwise directed by Commission staff. If submission attempts fail, the reporting trader shall 

contact the Conuuission at [techsupport@cftc.gov] for further technical support. 

Please be advised that pursuant to 5 CFR § 1320.5(b )(2)(i), you are not required to respond to this collection of 

information unless it displays a currently valid OMB control number. 

EP30DE16.006</GPH>asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

COMMODITY FUTURES TRADING COMMISSION 

FORM 204: 

STATEMENT OF CASH POSITIONS OF HEDGERS First Name 

Contact lnfom1ation: 

I 

Address N b II Em

um er 

I II I 

NOTICE: Failure to file a report required by the Commodity Exchange Act ("CEA'' or the "Act") and the regulations thereunder, or the filing of a report with the Commod

("CFTC" or "Commission'') that includes a false, misleading or fraudulent statement or omits material facts that are required to be reported therein or are necessary to mak

constitute a violation of§ G(c)(2) of the Act (7 U.S.C. 9), § 9(a)(3) ofthe Act (7 U.S.C. 13(a)(3)), and! or§ 1001 of Title 18, Crimes and Criminal Procedure (18 C. S.C. 100

or imprisonment, or both. Please be advised that pursuant to 5 CFR 1320. 5(b )(2)(i), you are not required to respond to this collection of information unless it displays a c

Referenced 

Contract (R C) 

Used for 

Date II Hedging or 

Commodity 

Daivative 

Contract (CDC) 

CFTC Fmm 204 (XX-XX) 

Previous Editions Obsolete 

Core 

Reterenced 

Futures 

Contract 

(CRFC) 

Quantity of Cash 

Commodity Hedged Cash 

in terms of futures Commodity 

equivalents of the Hedged 

CRFC 

Units for Cash 

Commodity 

(Specify: e.g. tons, II 

c"t, lbs., bu., 

bbls., d<:.) 

Stocks Owned Fixed-Price Purchases Fixed-Price 

EP30DE16.007</GPH>asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

Date 

Equity Stock 

COO bales) 

as Merchant 

CFTC Form204 (XX-XX) 

Previous Editions Obsolete 

Referenced Contract (RC) Used for 

Hedging or Com1nodity Derivative 

Contract (CDC) 

Equity Stock 

('00 bales) 

as Producer 

Equity Stock 

COO bales) 

as Agent 

Core Referenced Futures 

Contract (CRI'C) 

Quantity of Cash 

Commodity Hedged in 

tenns of futures 

equivalents ofthe CRFC 

Certificated Stocks 

('00 bales) 

Cash Commodity 

II edged 

Units for Cash 

Commodity (Specify

e.g. tons, cwt, lbs., 

bu., bbls., etc.) 

Non

EP30DE16.008</GPH>asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

Please sign/authenticate the Form 204 prior to submitting. 

Signature/ Electronic Authentication: 

o By checking this box and submitting this form (or by clicking "submit," "send,'' or any other analogous transmission command if transmitting 

duly authorized by the reporting trader identified below to provide the infonnation and representations submitted on this Form 204, and that to th

infonnation and representations made herein are true and correct. 

Reporting Trader Authorized Representative (Name and Position): 

________ (Name) 

_________ (Position) 

Submitted on behalf of: 

_________ (Reporting Trader Name) 

Date of Submission: 

CFTC Form 204 (XX-XX) 

Previous Editions Obsolete 

EP30DE16.009</GPH>asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

Form 204, Example A- A commercial entity has inventory of 10,000,000 barrels of crude oil, 5,000,000 barrels of crude o

contracts, and 20,000,000 barrels of crude oil fixed-price purchase contracts. The commercial entity could claim a bona f

short position of up to 25,000 contracts in the NYMEX light sweet crude oil futures contract, equivalent to 30,000,000 ba

commercial entity has other short speculative positions in the futures contract that, absent the bona fide hedging exemptio

the speculative position limit. 

A. c:ll.sli p()sitionspursuant to paiagral>)ls ()fs 19.dJ. (a).'($.) (i), (H), 

Referenced Core Quantity of Cash Units for Cash 

Contract (RC) 

Used for Hedging Referenced Commodity Iledged Cash Commodity Stocks Fixed-Price Fix

or Commodity Futures in krms of futures Commodity (Specify: e.g. Owned Purchases 

Derivative Contract equivalents of the Hedged tons. cwt, lbs., 

Contract (CDC) (CRFC) CRFC- -short bu., bbls., etc.) 

Date 

5/6/2017 CL-NYMEX II CL-NYMEX II 25,000 II Crude oil II Bbls II 10,000.000 II 2o,ooo.ooo II 5.0

Form 204, Example B- A commercial entity has filed unfilled anticipated requirements in an initial statement on form 704

of 120,000,000 MMBtu of natural gas. The current remaining unfilled anticipated requirements are 70,000,000 MMBtu. T

20,000,000 MMBtu and has entered into fixed-price purchases of30,000,000 MMBtu. The combined long cash position 

The total position being hedged, i.e., the remaining unfilled anticipatory requirements of 70,000,000 MMBtu and the long 

50,000,000 MMBtu, equals a long position of 120,000,000 MMBtu in the cash commodity. The commercial entity report

position of 10,000 contracts in the CRFC as a hedge, equivalent to short 100,000,000 MMBtu, which is less than the com

and the remaining unfilled anticipated requirements. Hence, the cash position is partially hedged. 

I }?4f$uarltto ilre paragtapll$ _l ?.Ql (a) (3)(i), {ii),JUi), 

Referenced Core Quantitv of Cash Units tor Cash 

Contract (RC) 

II Used for Hedging Referenced Commodity Hedged Cash Commodity Stocks Fixed-Price Fix

Date 

or Commodity Futures in terms of futures Commodity (Specify: e.g. Owned Purchases 

Derivative Contract equivalents of the Hedged tons, cwt, lhs., 

Contract (CDC) (CRfC) CRfC - short bu., bbls., etc.) 

I 5/6/2017 II HH-NY\1EX II NG-NY\1EX II 50,000 II Natural gas II M\1Rtu II 20,000,000 II 30,000,000 II 

I 

EP30DE16.010</GPH>asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

Form 204, Example C- A commercial entity has entered into offsetting unfixed-price purchase and sale contracts in the am

MMBtu of natural gas. The hedging position is a futures equivalent long position of 10,000 contracts and a futures equiva

10,000 contracts. 

Date 

5!6/2017 

Referenced Contract (RC) Used 

for Hedging or Commodity 

Derivative Contract (CDC) 

Core Referenced Futures 

Contract (CRFC) 

Quantity of Cash 

Commodity Hedged in 

terms of futures 

equivalents of the CRFC 

Cash Commodity 

Hedged 

Units for Cash 

Commodity (Specify

e.g. tons, c\\1, lbs., 

bu .. bbls., etc.) 

Form 204, ExampleD- A merchant reportable in cotton futures has the following inventory: no equity stock, 100 bales o

bales of non-certificated stock. 

Equity Stock 

('00 bales) 

0 

Ccrtifi catcd Stocks 

('00 bales) 

Non-
96938 Federal Register / Vol. 81, No. 251 / Friday, December 30, 2016 / Proposed Rules 


asabaliauskas on DSK3SPTVN1PROD with PROPOSALSEP30DE16.011</GPH>

CFTC FORM 304 

Statement of Cash Positions for Unfixed-Price 

Cotton "On Call" 

NOTICE: Failure to file a report required by the Commodity Exchange Act (''CEA" or the "Act") 1 and the regulations thereunder,2 or the filing of a report with the Commodity Futures Trading Commission 

("CFTC" or "Commission") that includes a false, misleading or fraudulent statement or omits material facts that are 

required to be reported therein or are necessary to make the report not misleading, may (a) constitute a violation of§ 

6(c)(2) of the Act (7 U.S.C. 9), § 9(a)(3) of the Act (7 U.S.C. 13(a)(3)), and/or§ 1001 of Title 18, Crimes and 

Criminal Procedure (18 USC 1001) and (b) result in punishment by fine or imprisonment, or both. 

PRN ACY ACT NOTICE 

The Commission's authority for soliciting this information is granted in sections 4 i and 8 of the CEA and related 

regulations ~, ~, 17 CFR § 19 .02). The information solicited from entities and individuals engaged in activities 

covered by the CEA is required to be provided to the CFTC, and failure to comply may result in the imposition of 

criminal or administrative sanctions (see,~, 7 U.S.C. §§ 9 and 13a-1, and/or 18 U.S. C. 1001). The information 

requested is most commonly used in the Commission's market and trade practice surveillance activities to (a) 

provide information concerning the size and composition of the commodity derivatives markets, (b) permit the 

Commission to monitor and enforce speculative position limits and (c) enhance the Commission's trade surveillance 

data. The requested information may be used by the Commission in the conduct of investigations and litigation and, 

in limited circumstances, may be made public in accordance with provisions of the CEA and other applicable laws. 

It may also be disclosed to other government agencies and to contract markets to meet responsibilities assigned to 

them by law. The information will be maintained in, and any additional disclosures will be made in accordance with, 

the CFTC System of Records Notices, available on..!.!...!.'-'-'-'~~""-'-· 

1 7 U.S.C. section 1, et seq. 2 Unless otherwise noted, the rules and regulations referenced in this notice are found in chapter 1 of title 17 of the 

Code of Federal Regulations; 17 CFR Chapter 1 et seq. 
Federal Register / Vol. 81, No. 251 / Friday, December 30, 2016 / Proposed Rules 96939 


asabaliauskas on DSK3SPTVN1PROD with PROPOSALSEP30DE16.012</GPH>

BACKGROUND & INSTRUCTIONS 

Applicable Regulations: 

• 17 CFR § 19.00(a)(2) specifies who must file Form 304. 

• 17 CFR § 19.00(b) specifies the manner of reporting on series '04 reports, including Form 304. 

• 17 CFR § 19.02(a) specifies the information required on Form 304. 

• 17 CFR § 19.02(b) specifies the frequency (weekly), the as of report date (close of business on Friday), and 

the time (9 a.m. Eastern Time on the third business day following the date of the report), for filing the Form 

304. 

As appropriate, please follow the instructions below to generate and submit the required report or filing. Relevant 

regulations are cited in parentheses() for reference. Unless the context requires otherwise, the terms used herein 

shall have the same meaning as ascribed in parts 15 to 21 of the Commission's regulations. 

Complete Form 304 as follows: 

The trader identification fields should be completed by all filers. This updated Form 304 requires traders to 

identify themselves using their Public Trader Identification Number, in lieu of the CFTC Code Number required on 

previous versions of the Form 304. This number is provided to traders who have previously filed Forms 40 and 102 

with the Commission. Traders may contact the Commission to obtain this number if it is unknown. If a trader has a 

National Futures Association Identification Number ("NF AID") and/or a Legal Entity Identifier ("LEI"), he should 

also identify himself using those numbers. Form 304 requires traders to identify the name of the reporting trader or 

firm and the contact information (including full name, address, phone number, and email address) for a natural 

person the Commission may contact regarding the submitted Form 304. 

Merchants and dealers of cotton must report on Form 304. Report in hundreds of 500-lb. bales unfixed-price 

cotton "on-call" pursuant to § 19.02(a). Include under "Call Purchases" stocks on hand for which price has not yet 

been fixed. For each listed stock, report the delivery month, delivery year, quantity of call purchases, and quantity of 

call sales. 

The signature/authorization page must be completed by all filers. This page must include the name and position 

of the natural person filing Form 304 as well as the name of the reporting trader represented by that person. The 

trader certifying this Form 304 on the signature/authorization page should note that filing a report that includes a 

false, misleading or fraudulent statement or omits material facts that are required to be reported therein or are 

necessary to make the report not misleading, may (a) constitute a violation of§ 6(c)(2) of the Act (7 U.S. C. 9), § 

9(a)(3) of the Act (7 U.S.C. 13(a)(3)), and/or§ 1001 of Title 18, Crimes and Criminal Procedure (18 U.S. C. 1001) 

and (b) result in punishment by fine or imprisonment, or both. 

Submitting Form 304: Once completed, please submit this form to the Commission pursuant to the instructions on 

[www.cftc.gov] or as otherwise directed by Commission staff. If submission attempts fail, the reporting trader shall 

contact the Commission at [techsupport@cftc.gov] for further technical support. 

Please be advised that pursuant to 5 CFR § 1320.5(b )(2)(i), you are not required to respond to this collection of 

information unless it displays a currently valid OMB control number. 

EP30DE16.013</GPH>asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

COMMODITY FUTURES TRADING COMMISSION 

FORM304 

STATEMENT OF CASH POSITIONS FOR UNFIXED-PRICE 

COTTON "ON-CALL" 

lD 

First Name 

Address 

OM

Name of Person to Contact Regarding T

Middle Last Name Name 

II 

Contact Information: 

Phone 

Number Email Addr

NOTICE: Failure to file a report required hy the Commodity Fxchange Act ("CFA" or the "AcC) and the regulations thereunder, or the filing of a report with the Commodity Futures T

"Commission'') that includes a false, misleading or fraudulent statement or omits material facts that are required to he reported therein or are necessary to make the report not misleadin

6(c)(2) uf!he Act (7 U.S. C. 9), § 9(a)(3) of !he Act (7 U.S.C. 13(a)(3)), aml/or § 1001 of Tille 18, Crimes and Criminal Procedure (18 U.S.C. 1001) and (b) result in punishment by line 

advised lhal pursuanllu 5 CFR § 1320.5(b )(2)(i), you are nul required lu respond lu this cullectiun of in! ormation unless il displays a currenlly valid OMB control number. 

Delivery Month 

CFTC Fonn 304 (XX-XX) 

Previous Editions Obsolete 

Delivery Year Call Purchases ('00 bales) 

EP30DE16.014</GPH>asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

Please sign/authenticate the Form 304 prior to submitting. 

Signature/ Electronic Authentication: 

o By checking this box and submitting this form (or by clicking "submit," "send," or any other analogous transmission conunand i

certify that I am duly authorized by the reporting trader identified below to provide the information and representations submitted o

the best of my know ledge the information and representations made herein are true and correct. 

Reporting Trader Authorized Representative (Name and Position): 

________ (Name) ________ (Position) 

Submitted on behalf of: 

________ (Reporting Trader Name) 

Date of Submission: _________ _ 

CFTC Fom1 304 (XX-XX) 

Previous Editions Obsolete 

EP30DE16.015</GPH>asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

Form 304, Example- July 2017 Call purchases of 200 bales and sales of 1,800 bales; October Call purchases o

of 8, 000 bales. 

C'Otton to § W, 02(a )j stock:s. on. hand for which h!/.S 11otyet bee

ofbales (SOI).Jb. · • · 

Delivery Month 

II 

Delivery Year 

I 

Call Purchases 

('00 bales) 

July I 2017 I 2 

= 
Federal Register / Vol. 81, No. 251 / Friday, December 30, 2016 / Proposed Rules 96943 


asabaliauskas on DSK3SPTVN1PROD with PROPOSALSEP30DE16.016</GPH>

CFTC FORM 504 

Statement of Cash Positions for 

Conditional Spot Month Exemptions 

NOTICE: Failure to file a report required by the Commodity Exchange Act (''CEA" or the "Act")1 and the 

regulations thereunder,2 or the filing of a report with the Commodity Futures Trading Commission ("CFTC" or 

"Commission") that includes a false, misleading or fraudulent statement or omits material facts that are required to 

be reported therein or are necessary to make the report not misleading, may (a) constitute a violation of§ 6(c)(2) of 

the Act (7 U.S.C. 9), § 9(a)(3) of the Act (7 U.S.C. 13(a)(3)), and/or§ 1001 of Title 18, Crimes and Criminal 

Procedure (18 U.S.C. 1001) and (b) result in punishment by fine or imprisonment, or both. 

PRN ACY ACT NOTICE 

The Commission's authority for soliciting this information is granted in sections 4a, 4c(b), 4i, 4t and 8a(5) of the 

CEA and related regulations (see,~, 17 CFR § 19.00). The information solicited from entities and individuals 

engaged in activities covered by the CEA is required to be provided to the CFTC, and failure to comply may result 

in the imposition of criminal or administrative sanctions~,~, 7 U.S. C.§§ 9 and 13a-1, and/or 18 U.S. C. 1001). 

The information requested is most commonly used in the Commission's market and trade practice surveillance 

activities to (a) provide information concerning the size and composition of the commodity derivatives markets, (b) 

permit the Commission to monitor and enforce speculative position limits and (c) enhance the Commission's trade 

surveillance data. The requested information may be used by the Commission in the conduct of investigations and 

litigation and, in limited circumstances, may be made public in accordance with provisions of the CEA and other 

applicable laws. It may also be disclosed to other government agencies and to contract markets to meet 

responsibilities assigned to them by law. The information will be maintained in, and any additional disclosures will 

be made in accordance with, the CFTC System of Records Notices, available on-'-'--'.!.-!.!..==""-'-· 

1 7 U.S.C. section 1, et seq. 2 Unless otherwise noted, the rules and regulations referenced in this notice are found in chapter 1 of title 17 of the 

Code of Federal Regulations; 17 CFR Chapter 1 et seq. 
96944 Federal Register / Vol. 81, No. 251 / Friday, December 30, 2016 / Proposed Rules 


asabaliauskas on DSK3SPTVN1PROD with PROPOSALSEP30DE16.017</GPH>

BACKGROUND & INSTRUCTIONS 

Applicable Regulations: 

• 17 CFR § 19.00(a)(l)(i) specifies who must file Form 504. 

• 17 CFR § 19.00(b) specifies the manner of reporting on series '04 reports, including Form 504. 

• 17 CFR § 19.0l(a)(l) specifies the information required on Form 504. 

• 17 CFR § 19.0l(b)(2) specifies the frequency (daily during the spot month), the as of report date (close of 

business for each day a person exceeds the limit, up to and including the day the person's position first falls 

below the position limit), and the time (9 a.m. Eastern Time on the next business day following the date of 

the report) for filing Form 504. 

As appropriate, please follow the instructions below to generate and submit the required report or filing. Relevant 

regulations are cited in parentheses() for reference. Unless the context requires otherwise, the terms used herein 

shall have the same meaning as ascribed in parts 15 to 21 of the Commission's regulations. 

Complete Form 504 as follows: 

The trader identification fields should be completed by all filers. This new Form 504 requires traders to identify 

themselves using their Public Trader Identification Number. This number is provided to traders who have previously 

filed Forms 40 and 102 with the Commission. Traders may contact the Commission to obtain this number if it is 

unknown. If a trader has a National Futures Association Identification Number ("NF A ID") and/or a Legal Entity 

Identifier ("LEI"), he should also identify himself using those numbers. Form 504 requires traders to identify the 

name of the reporting trader or firm and the contact information (including full name, address, phone number, and 

email address) for a natural person the Commission may contact regarding the submitted Form 504. 

Form 504 must be completed for stocks and fixed-price cash positions by all filers claiming a conditional spot 

month limit exemption. Form 504 contains the following fields: 

Date ............................................ As of date for reported position(§ 19.0l(a)(l)(i)) 

CRFC .......................................... Core Referenced Futures Contract(§ 150.2(d)) 

Cash commodity... . . . . . . . . . . . . . . . . . . . . . . . . . Cash commodity identification 

Units ............................................ Units of measure for cash commodity 

Stocks .......................................... Deliverable stored commodity(§ 19.0l(a)(l)(ii)) 

Fixed-price Purchase...................... Fixed-price purchase commitments(§ 19.0l(a)(l)(iii)) 

Fixed-price Sale............................. Fixed-price sale commitments(§ 19.0l(a)(l)(iv)) 

Unfixed-price Purchase................... Unfixed-price purchase commitments(§ 19.0l(a)(l)(v)) 

Unfixed-price Sale.......................... Unfixed-price sale commitments(§ 19.0l(a)(l)(vi)) 

The signature/authorization page must be completed by all filers. This page must include the name and position 

of the natural person filing Form 504 as well as the name of the reporting trader represented by that person. The 

trader certifying this Form 504 on the signature/authorization page should note that filing a report that includes a 

false, misleading or fraudulent statement or omits material facts that are required to be reported therein or are 

necessary to make the report not misleading, may (a) constitute a violation of§ 6(c)(2) of the Act (7 U.S. C. 9), § 

9(a)(3) of the Act (7 U.S.C. 13(a)(3)), and/or§ 1001 of Title 18, Crimes and Criminal Procedure (18 U.S.C. 1001) 

and (b) result in punishment by fine or imprisonment, or both. 

Submitting Form 504: Once completed, please submit this form to the Commission pursuant to the instructions on 

[www.cftc.gov] or as otherwise directed by Commission staff. If submission attempts fail, the reporting trader shall 

contact the Commission at [techsupport@cftc.gov] for further technical support. 

Please be advised that pursuant to 5 CFR § 1320.5(b )(2)(i), you are not required to respond to this collection of 

information unless it displays a currently valid OMB control number. 

EP30DE16.018</GPH>asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

Public Trader ID No. [provided by CFTC] II OM

COMMODITY FUTURES TRADING COMMISSION 

FORM504 

STATEMENT OF CASH POSITIONS FOR 

CONDITIONAL SPOT MONTH LIMIT EXEMPTIONS 

NFAlD 

· · 

Identification Codes: 

Jl Legal Entity ldentit1

II 

Name ofReoorting Trader or Fir

Name of Person to Contact Regarding T

I . I Middle I Name N Last Name I ame 

r--

Contact Information: 

I I Phone . I Address Number I Emml Addr

I I 

NOTICE: Failure to file a report required hy the Commodity Fxchange Act ("CFA" or the "Act'") and the regulations thereunder, or the filing of a report with the Commodity Futures T

"Commission'') that includes a false, misleading or fraudulent statement or omits material facts that are required to he reported therein or are necessary to make the report not misleadin

6(c)(2) ofthe Act (7 U.S. C. 9), § 9(a)(3) of the i\ct (7 U.S.C. 13(a)(3)), and/or§ 1001 of Title 18, Crimes and Criminal Procedure (18 U.S.C. 1001) and (b) result in punishment by tine 

au vi sell that pun;uant to 5 CFR § 1320.5(b )(2)(i), you are not requireli to responli to this collection of in! ormation unless it liisplays a currently valili OMB control number. 

Date Core Reference Futures Contract (CRFC) 

CFTC Form 504 (XX-XX) 

Cash Conunodity 

Units for Cash 

Commodity (SpecifY 

Tons. CWT, T .hs .. 

Bu., Bbls., etc.) 

Deliverable Cash 

Commodity held in Stock or 

Storage 

Fixed-price Cash 

Purchase Commitment 

Fixed-price Cash II Unfixe

Sale Commitment Purchase 

EP30DE16.019</GPH>asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

Please sign/authenticate the Form 504 prior to submitting. 

Signature/ Electronic Authentication: 

o By checking this box and submitting this form (or by clicking "submit," "send," or any other analogous transmission conunand i

certify that I am duly authorized by the reporting trader identified below to provide the information and representations submitted o

the best of my know ledge the information and representations made herein are true and correct. 

Reporting Trader Authorized Representative (Name and Position): 

________ (Name) ________ (Position) 

Subtnitted on behalf of: 

________ (Reporting Trader Name) 

Date of Submission: ________ _ 

CFTC Fom1 504 (XX-XX) 

EP30DE16.020</GPH>asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

Form 504 Example. The spot month for the physical-delivery May 2017 NYMEX Henry Hub Natural Gas (N

CRFC for natural gas) is from the close of business on April 23 through 5:15 p.m. on the last day of trading, A

A trader holds positions in cash-settled natural gas referenced contracts settling on April 25, 2017, that are in e

limit of 2, 000 contracts, but that do not exceed 10,000 contracts, on each of April 23, 24, and 25, 2017. That tr

cash-settled referenced contracts settling on April 26, 20 17; however, pursuant to § 19.01 (b )(2)(i ), a person mu

positions through the day the person's position first falls below the position limit. Consistent with claiming the 

month limit exemption, the person holds no position in the May 2017 NYMEX NG contract during the spot m

report represents each day of this conditional spot month limit exemption. 

The person's purchase and sales commitments have the same delivery period as that of the May 2017 NYMEX 

close of business on April23, 2017, the person holds: natural gas inventory of 10,000,000 MMBtus; fixed-pri

5,000,000 MMBtus; fixed price sales contracts of 10,000,000 MMBtu; unfixed-price cash purchase contracts o

and unfixed-price cash sales contracts of 5,000,000 MMBtu. The contract prices for each of the unfixed-price 

unfixed-price purchase contracts are to become fixed 20 percent per business day on April 24, 25, 26, 27, and 2

does not execute any cash transactions during the spot month. 

lcashpositlonsptltsuant.h> §I<J.01(a)(U · 

Units for Cash Commodity Deliverable Cash Fixed-price Cash 

Date Core Reference Futures Cash Commodity (Specify Tons, CWT, Lbs., Commodity held in Purchase Fixed-price Ca

Contract (CRFC) Bu., Bbls., etc.) Stock or Storage Commitment Sale Commitm

4/23/2017 NG-NYMEX Natural Gas in U.S. MMBtu 10,000,000 5,000,000 10,000,000 

4/24/2017 NG-NYMEX Natural Gas in U.S. MMBtu 10,000,000 6,000,000 11,000,000 

4/25/2017 NG-NYMEX Natural Gas in U.S. MMBtu 10,000,000 7,000,000 12,000,000 4/26/2017 NG-NYMEX Natural Gas in U.S. MMBtu 10.000,000 8,000,000 13,000.000 
96948 Federal Register / Vol. 81, No. 251 / Friday, December 30, 2016 / Proposed Rules 


asabaliauskas on DSK3SPTVN1PROD with PROPOSALSEP30DE16.021</GPH>

CFTC FORM 604 

Statement of Pass-Through Swap Exemptions 

NOTICE: Failure to file a report required by the Commodity Exchange Act (''CEA" or the "Act")1 and the 

regulations thereunder,2 or the filing of a report with the Commodity Futures Trading Commission ("CFTC" or 

"Commission") that includes a false, misleading or fraudulent statement or omits material facts that are required to 

be reported therein or are necessary to make the report not misleading, may (a) constitute a violation of§ 6(c)(2) of 

the Act (7 USC 9), § 9(a)(3) of the Act (7 U.S. C. 13(a)(3)), and/or§ 1001 of Title 18, Crimes and Criminal 

Procedure (18 U.S.C. 1001) and (b) result in punishment by fine or imprisonment, or both. 

PRN ACY ACT NOTICE 

The Commission's authority for soliciting this information is granted in sections 4a, 4c(b), 4i, 4t and 8a(5) of the 

CEA and related regulations (see,~, 17 CFR § 19.00). The information solicited from entities and individuals 

engaged in activities covered by the CEA is required to be provided to the CFTC, and failure to comply may result 

in the imposition of criminal or administrative sanctions~,~, 7 U.S. C.§§ 9 and 13a-1, and/or 18 U.S. C. 1001). 

The information requested is most commonly used in the Commission's market and trade practice surveillance 

activities to (a) provide information concerning the size and composition of the commodity derivatives markets, (b) 

permit the Commission to monitor and enforce speculative position limits and (c) enhance the Commission's trade 

surveillance data. The requested information may be used by the Commission in the conduct of investigations and 

litigation and, in limited circumstances, may be made public in accordance with provisions of the CEA and other 

applicable laws. It may also be disclosed to other government agencies and to contract markets to meet 

responsibilities assigned to them by law. The information will be maintained in, and any additional disclosures will 

be made in accordance with, the CFTC System of Records Notices, available on.!.!..!-'-"'-~~~· 

1 7 U.S.C. section 1, et seq. 2 Unless otherwise noted, the rules and regulations referenced in this notice are found in chapter 1 of title 17 of the 

Code of Federal Regulations; 17 CFR Chapter 1 et seq. 
Federal Register / Vol. 81, No. 251 / Friday, December 30, 2016 / Proposed Rules 96949 


asabaliauskas on DSK3SPTVN1PROD with PROPOSALSEP30DE16.022</GPH>

BACKGROUND & INSTRUCTIONS 

Applicable Regulations: 

• 17 CFR § 19.00(a)(l)(ii) specifies who must file Form 604. 

• 17 CFR § 19.00(b) specifies the manner of reporting on series '04 reports, including Form 604. 

• 17 CFR § 19.0l(a)(2)(i) and (ii) specify the information required on Form 604. 

• For pass-through swaps with non-referenced-contract swap offset: 17 CFR § 19.0 l(b )(1) specifies the 

frequency (monthly), the as of report date (close of business on the last Friday of the month), and the time 

(9 a.m. Eastern Time on the third business day following the date of the report) for filing Form 604. 

• For pass-through swaps with spot-month swap offset: 17 CFR § 19.0l(b)(2) specifies the frequency (daily 

during the spot month), the as of report date (close of business for each day a person exceeds the limit, up 

to and including the day the person's position first falls below the position limit), and the time (9 a.m. 

Eastern Time on the next business day following the date of the report) for filing Form 604. 

As appropriate, please follow the instructions below to generate and submit the required report or filing. Relevant 

regulations are cited in parentheses() for reference. Unless the context requires otherwise, the terms used herein 

shall have the same meaning as ascribed in parts 15 to 21 of the Commission's regulations. 

Complete Form 604 as follows: 

The trader identification fields should be completed by all filers. This new Form 604 requires traders to identify 

themselves using their Public Trader Identification Number. This number is provided to traders who have previously 

filed Forms 40 and 102 with the Commission. Traders may contact the Commission to obtain this number if it is 

unknown. If a trader has a National Futures Association Identification Number ("NF A ID") and/or a Legal Entity 

Identifier ("LEI"), he should also identify himself using those numbers. Form 604 requires traders to identify the 

name of the reporting trader or firm and the contact information (including full name, address, phone number, and 

email address) for a natural person the Commission may contact regarding the submitted Form 604. 

Section A of Form 604 must be completed by all filers who hold a non-referenced contract swap offset 

position. Section A contains the following fields: 

Date... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . As of date for reported position 

Underlying Commodity ......................... Underlying Commodity or Commodity Reference Price that is not a 

Referenced Contract(§ 19.0l(a)(2)(i)(A)) 

CRFC ............................................. Corresponding Core Referenced Futures Contract(§ 150.2(d)) 

Applicable Clearing Identifier................ Clearing Identifier (if swap is cleared)(§ 19.0l(a)(2)(i)(B)) 

Commodity Quantity Unit (CQU) ............ Unit of Measurement for Commodity 

Notional Quantity ............................... Notional Quantity in CQU (§ 19.0l(a)(2)(i)(C)) 

Position in FE in CRFC ......................... Gross long and short positions in futures equivalents of the CRFC (§ 

19.0 l(a)(2)(i)(D)) 

Position in RC for offsetting risk............. Gross long and short positions in referenced contract offset position(§ 

19.0 l(a)(2)(i)(E)) 

Section B of Form 604 must be completed by all filers who hold a spot-month swap offset position. Section B 

contains the following fields: 

Date .............................................. . 

RC or non-RC for swap offset ................ . 

CRFC ............................................ . 

Applicable Clearing Identifier .............. . 

Commodity Quantity Unit (CQU) ......... . 

Notional Quantity ............................. . 

As of date for reported position 

Underlying Commodity or Commodity Reference Price or Referenced 

Contract for swap offsetting counterparty' s bona fide hedging 

exemption(§ 19.0l(a)(2)(ii)) 

Corresponding Core Referenced Futures Contract(§ 150.2(d)) 

Clearing Identifier (if swap is cleared) (§ 19 .Ol(a)(2)(i)(B)) 

Unit of Measurement for Commodity 

Notional Quantity in CQU (§ 19.0l(a)(2)(i)(C)) 
96950 Federal Register / Vol. 81, No. 251 / Friday, December 30, 2016 / Proposed Rules 


asabaliauskas on DSK3SPTVN1PROD with PROPOSALSEP30DE16.023</GPH>

Position in FE in CRFC.................... .. Gross long and short positions in futures equivalents of the CRFC (§ 

19.0 1(a)(2)(ii)(A)) 

Position in physical delivery RC 

for offsetting risk............................... Gross long and short positions in referenced contract offset position(§ 

19.0 1(a)(2)(ii)(B)) 

The signature/authorization page must be completed by all filers. This page must include the name and position 

of the natural person filing Form 604 as well as the name of the reporting trader represented by that person. The 

trader certifying this Form 604 on the signature/authorization page should note that filing a report that includes a 

false, misleading or fraudulent statement or omits material facts that are required to be reported therein or are 

necessary to make the report not misleading, may (a) constitute a violation of§ 6(c)(2) of the Act (7 U.S. C. 9), § 

9(a)(3) of the Act (7 U.S.C. 13(a)(3)), and/or§ 1001 of Title 18, Crimes and Criminal Procedure (18 U.S.C. 1001) 

and (b) result in punishment by fine or imprisonment, or both. 

Submitting Form 604: Once completed, please submit this form to the Commission pursuant to the instructions on 

[www.cftc.gov] or as otherwise directed by Commission staff. If submission attempts fail, the reporting trader shall 

contact the Commission at [techsupport@cftc.gov] for further technical support. 

Please be advised that pursuant to 5 CFR § 1320.5(b )(2)(i), you are not required to respond to this collection of 

information unless it displays a currently valid OMB control number. 

EP30DE16.024</GPH>asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

I Public Trader ID No. [provided by CFTC] II OM

I · · 

I Identification Codes: 

I NFA lD II Legal ldentit1

II 

I Name ofRe2orting Trader or Fir

COMMODITY FUTURES TRADING COMMISSION 

I Name of Person to Contact Regarding T

FORM604 

I First Name I Middle I Last Name 

STATEMENT OF PASS-THROUGH SWAP EXEMPTIONS 

Name 

I II 

I Contact Information: 

I Address I Phone Number I Email Addr

I I 

NOTICE: Failure to file a report required hy the Commodity Fxchange Act ("CFA" or the "Act'") and the regulations thereunder, or the filing of a report with the Commodity Futures T

"Commission") that includes a false, misleading or fraudulent statement or omits material facts that are required to he reported therein or are necessary to make the report not misleadin

6(c)(2) uf!he Act (7 U.S. C. 9), § 9(a)(3) of !he Act (7 U.S.C. 13(a)(3)), aml/or § 1001 of Tille 18, Crimes and Criminal Procedure (18 U.S.C. 1001) and (b) result in punishment by line 

advised lhal pursuanllu 5 CFR § 1320.5(b )(2)(i), you are nul required lu respond lu this cullectiun of in! ormation unless il displays a currenlly valid OMB control number. 

r A. w § and ilubtmtted § X. _: .. : 

Underlying 

Commodity or Core Referenced Applicable Commodity Quantity Notional Gross long Position in Gross Short Position Uros

Date Commodity Futures contract Clearing Units Quantity in Futures Equlval ent in in Futures Equivalent in t

Reference Price that (CRFC) Identifier (Specify Tons. Lbs., CQl: the CRFC in the CFRC Of

is not a Referenced 13u., 13bls .. etc.) Pos

Contract (RC) 

I II II II II II II II II 

I 

CFTC Form 604 (XX-XX) 

EP30DE16.025</GPH>asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

S\vap offsetptl!SlJant to. repotteCI PtrtsJI}UlttQ § ,.19.0llb)(i)fotnQ1l•fefeiencf:d 

'· . "··· ,• ' .. '•• .. ·. ·.·, .. " ... ' . . : ... , __ ; .. · · ........ •/ ·.·. ·. '<· \ '·· .. ····• ,• •' ' '\ •'.' \. ,•,; · .. 

Date 

Underlying 

Commodity or 

Referenced Contract 

for cash-settled swap 

ollse!!ing BFH 

exemption of 

countetpmty 

Core Referenced 

Futures contract 

(CRFC) 

CFTC Form 604 (XX-XX) 

1\pplicahle 

Clearing 

!den tiller 

Commodity Quantity 

Units ofVlea'iurement 

(Specify Tons, Lbs., 

Bu., Bbls., etc.) -

CQU 

Notional 

Quantity in 

CQl: 

Gross Long Position 

for Cash-settled Swap 

in futures Equivalent 

in the CRFC 

Gross Short Position 

for Cash-settled Swap 

in futures Equivalent 

inthcCFRC 

Gross 

in 

deliv

Ol

Pos

EP30DE16.026</GPH>asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

Please sign/authenticate the Form 604 prior to submitting. 

Signature/ Electronic Authentication: 

o By checking this box and submitting this form (or by clicking "submit," "send," or any other analogous transmission conunand i

certify that I am duly authorized by the reporting trader identified below to provide the information and representations submitted o

the best of my know ledge the information and representations made herein are true and correct. 

Reporting Trader Authorized Representative (Name and Position): 

________ (Name) ________ (Position) 

Submitted on behalf of: 

________ (Reporting Trader Name) 

Date of Submission: ________ _ 

CFTC Form 604 (XX-XX) 

EP30DE16.027</GPH>asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

Form 604, Example A. A person offsets a long position in a cash-settled milo swap with a notional size of 5,00

the CBOT Com futures contract, as a cross-commodity hedge. The milo swap was a bona fide hedging positio

counterparty, and was not cleared. For illustrative purposes, the hedge ratio is assumed to be one-to-one betwe

I;(' offset pursuant .to § • EI.O l(a)(2)(0, reporfe\1 and submitted to § 19.Ql(b).(l) 

Underlying Commodity Commodity or Core Quantity Units of Gross Long Position Gross Short G

Commodity Referenced Applicable Measurement Notional in Futures Position in Futures Posi

Date Reference Price Futures contract Clearing (Specify Tons, Quantity Equivalent in the Equivalent in the for t

that is not a (CRFC) Identifier Lbs., Bu., Bbls., inCQU CRFC CFRC Ris

Referenced 

Contract (R C) etc.) 

1 6/28/2017 11 Milo II C-CBOT II NA II Bu 11 5,000,000 11 1,000 II 0 II 

Form 604, Example B. A person offsets a cash-settled com swap with a notional size of 5,000,000 bushels, us

futures contract during the spot month. An exemption for swap offsets is not permitted in the physical-delivery 

contract in the last five days of trading. For the May 2017 CBOT Com futures contract, the last day of trading 

specify the last trading day as the business day preceding the fifteenth calendar day of the contract month). Hen

swap offset exemption is not available in the May 2017 CBOT Com futures contract as of the close of busines

that time, the trader must comply with the 600 contract spot month limit, equivalent to 3,000,000 bushels of co

exemption. Each line represents each day's report for this swap offset position. The spot month for the CBOT 

begins at the close of trading two business days prior to the first trading day of the delivery month; hence, Apri

of the spot month for the May 2017 CBOT Com futures contract. The com swap was a bona fide hedging pos

counterparty, and was not cleared. 

EP30DE16.028</GPH>asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

... 

swaPs 

Date 

4/27/2017 

Underlymg 

Commodity or 

Referenced Contract 

for cash-settled swap 

offsetting BFH 

exemption of 

counterpartv 

Corn swap 

Core 

Referenced 

Futures 

contract 

(CRFC) 

C-CBOT 

Applicabl 

e Clearing 

Identifier 

NA 

Commodity 

Quantity Units of 

Measurement 

(Specify Tons, Lbs., 

Bu., Bbls., etc.)-

CQU 

Bu 

Notional 

Quantity in 

CQU 

5,000,000 

Gross Long Position 

for Cash-settled 

Swap in Futures 

Equivalent in the 

CRFC 

1,000 

Gross Short 

Position for Cashsettled Swap in 

Futures Equivalent 

in the CFRC 

0 

G

Po

Phy

Ot

Pos

I Corn swap II T II NA II Du 5,000,000 1,000 II 0 II 

II . II II C-CBOT I 

4/28/2017 

5; 01120 17 Corn swap NA Bu 5,000,000 1,000 0 

5/02/2017 Corn swap C-CBOT NA Bu 5,000,000 1,000 0 5/03/2017 Corn swap C-CBOT NA Bu 5,000,000 1,000 0 5/04/2017 Corn swap C-CBOT NA Bu 5,000,000 1,000 0 5/05/2017 Corn swap 11 C-CBOT NA Bushels-Bu 5,000,000 1,000 0 

- 
96956 Federal Register / Vol. 81, No. 251 / Friday, December 30, 2016 / Proposed Rules 


asabaliauskas on DSK3SPTVN1PROD with PROPOSALSEP30DE16.029</GPH>

CFTC FORM 704 

INITIAL STATEMENT AND ANNUAL UPDATE FOR 

ANTICIPATORY BONA FIDE HEDGING POSITIONS 

NOTICE: Failure to file a report required by the Commodity Exchange Act (''CEA" or the "Act")1 and the 

regulations thereunder,2 or the filing of a report with the Commodity Futures Trading Commission ("CFTC" or 

"Commission") that includes a false, misleading or fraudulent statement or omits material facts that are required to 

be reported therein or are necessary to make the report not misleading, may (a) constitute a violation of§ 6(c)(2) of 

the Act (7 USC 9), § 9(a)(3) of the Act (7 U.S. C. 13(a)(3)), and/or§ 1001 of Title 18, Crimes and Criminal 

Procedure (18 U.S.C. 1001) and (b) result in punishment by fine or imprisonment, or both. 

PRN ACY ACT NOTICE 

The Commission's authority for soliciting this information is granted in sections 4a, 4c(b), 4i, 4t and 8a(5) of the 

CEA and related regulations (see,~, 17 CFR § 19.00). The information solicited from entities and individuals 

engaged in activities covered by the CEA is required to be provided to the CFTC, and failure to comply may result 

in the imposition of criminal or administrative sanctions (see,~, 7 U.S. C.§§ 9 and 13a-l, and/or 18 U.S. C. 1001). 

The information requested is most commonly used in the Commission's market and trade practice surveillance 

activities to (a) provide information concerning the size and composition of the commodity derivatives markets, (b) 

permit the Commission to monitor and enforce speculative position limits and (c) enhance the Commission's trade 

surveillance data. The requested information may be used by the Commission in the conduct of investigations and 

litigation and, in limited circumstances, may be made public in accordance with provisions of the CEA and other 

applicable laws. It may also be disclosed to other government agencies and to contract markets to meet 

responsibilities assigned to them by law. The information will be maintained in, and any additional disclosures will 

be made in accordance with, the CFTC System of Records Notices, available on..!.!..!!-"!..~~""-'-· 

1 7 U.S.C. section 1, et seq. 2 Unless otherwise noted, the rules and regulations referenced in this notice are found in chapter 1 of title 17 of the 

Code of Federal Regulations; 17 CFR Chapter 1 et seq. 
Federal Register / Vol. 81, No. 251 / Friday, December 30, 2016 / Proposed Rules 96957 


asabaliauskas on DSK3SPTVN1PROD with PROPOSALSEP30DE16.030</GPH>

BACKGROUND & INSTRUCTIONS 

Applicable Regulations: 

• 17 CFR § 150.7(a) specifies who must file Form 704. 

• 17 CFR § 19.00(b) specifies the manner of reporting on series '04 reports, including Form 704. 

• 17 CFR § 150.7(d) specifies the information required on Form 704. 

• 17 CFR § 150.7(a) specifies that initial statements on Form 704 must be filed at least 10 days in advance of 

the date the person expects to exceed position limits. Annual updates must be filed on Form 704 each year 

thereafter. 

As appropriate, please follow the instructions below to generate and submit the required report or filing. Relevant 

regulations are cited in parentheses() for reference. Unless the context requires otherwise, the terms used herein 

shall have the same meaning as ascribed in parts 15 to 21 of the Commission's regulations. 

Complete Form 704 as follows: 

The trader identification fields should be completed by all filers. This new Form 704 requires traders to identify 

themselves using their Public Trader Identification Number. This number is provided to traders who have previously 

filed Forms 40 and 102 with the Commission. Traders may contact the Commission to obtain this number if it is 

unknown. If a trader has a National Futures Association Identification Number ("NF A ID") and/or a Legal Entity 

Identifier ("LEI"), he should also identify himself using those numbers. Form 704 requires traders to identify the 

name of the reporting trader or firm and the contact information (including full name, address, phone number, and 

email address) for a natural person the Commission may contact regarding the submitted Form 704. 

Form 704 must be completed by all filers who seek an exemption for anticipated bona fide hedging positions. 

Form 704 contains the following fields: 

Initial Statement or Annual Update . . . . . . . . . . Select Initial Statement if filing for the first time OR Annual 

Update if filing an annual update to a previously filed Form 

704 (§ 150.7(d)) 

Anticipated Activity ............................. Type of anticipated activity; choose Production, 

Requirements, Royalty Receipts, Service Contract Payments 

or Receipts. Traders filing for multiple types of anticipated 

activity must show each type on a new line of Form 704. (§ 

150.1 BFH definition paragraphs 3(iii), 4(i),4(ii), 4(iv) or (5) 

Cash Commodity ................................ Commodity being hedged(§ 150.7 (d)(l)(i)) 

Units ............................................... Units of measure for cash commodity being hedged 

CRFC .............................................. Corresponding Core Referenced Futures Contract(§ 150.2(d)) 

Same or Cross-Hedged ......................... Identify whether the cash commodity being hedged is the 

same as the commodity underlying the CRFC (type "S") or 

whether it is a cross-hedging commodity (type "C-H") (§ 

150.7 (d)(l)(iii)) 

Annual Activity .................................. Quantity of annual actual activity for each of the preceding 

three years if filing an initial statement OR the prior year if 

filing an annual update. If a filer does not have three years of 

activity to submit, she may submit a reasonable, supported 

estimate of anticipated production for review by Commission 

staff.(§ 150.7 (d)(l)(iv)(A)-(B)) 

Specific Time Period Claimed ................. Date range for which an anticipatory exemption is being 

claimed, e.g. 01/01/2017- 12/31/2017. If filing an annual 

update, select the amount of time remaining since the initial 

statement(§ 150.7 (d)(l)(v)) 

Anticipated for Specified Time ................ Quantity of total anticipated activity over entire specified time 

period in futures equivalents(§ 150.7 (d)(l)(vi)) 
96958 Federal Register / Vol. 81, No. 251 / Friday, December 30, 2016 / Proposed Rules 


asabaliauskas on DSK3SPTVN1PROD with PROPOSALSEP30DE16.031</GPH>

Fixed Price Forward Activity .................. Quantity of fixed price forward activity in cash conuuodity 

being hedged for the specified time period in futures 

equivalents(§ 150.7 (d)(l)(vii)) 

Unsold, Unfilled, Anticipated Activity ....... Unsold or unfilled anticipated production, requirements, 

royalty receipts, or service contract payments or receipts the 

risks of which have not been offset with cash positions, of 

such commodity for the specified time period(§ 150.7 

(d)(l)(viii)) 

Maximum Expected Position .................. The maximum number of long or short positions in referenced 

contracts expected to be used to offset the risks of anticipated 

activity(§ 150.7 (d)(l)(ix)) 

The signature/authorization page must be completed by all filers. This page must include the name and position 

of the natural person filing Form 704 as well as the name of the reporting trader represented by that person. The 

trader certifying this Form 704 on the signature/authorization page should note that filing a report that includes a 

false, misleading or fraudulent statement or omits material facts that are required to be reported therein or are 

necessary to make the report not misleading, may (a) constitute a violation of§ 6(c)(2) of the Act (7 U.S. C. 9), § 

9(a)(3) of the Act (7 U.S.C. 13(a)(3)), and/or§ 1001 of Title 18, Crimes and Criminal Procedure (18 U.S. C. 1001) 

and (b) result in punishment by fine or imprisonment, or both. 

Submitting Form 704: Once completed, please submit this form to the Conuuission pursuant to the instructions on 

[www.cftc.gov] or as otherwise directed by Commission staff. If submission attempts fail, the reporting trader shall 

contact the Conuuission at [techsupport@cftc.gov] for further technical support. 

Please be advised that pursuant to 5 CFR § 1320.5(b )(2)(i), you are not required to respond to this collection of 

information unless it displays a currently valid OMB control number. 

EP30DE16.032</GPH>asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

COMMODITY FUTURES TRADING COMMISSION 

FORM704 

INITIAL STATEMENT AND ANNUAL UPDATE FOR 

ANTICIPATORY BONA FIDE HEDGING POSITIONS 

lD 

First Name 

Address 

OM

Name of Person to Contact Regarding T

Middle Last Name Name 

II 

Contact Information: 

Phone 

Number Email Addr

NOTICE: Failure to file a report required hy the Commodity Fxchange Act ("CFA" or the "AcC) and the regulations thereunder, or the filing of a report with the Commodity Futures T

"Commission") that includes a false, misleading or fraudulent statement or omits material facts that are required to he reported therein or are necessary to make the report not misleadin

6(c)(2) uf!he Act (7 U.S. C. 9), § 9(a)(3) of !he Act (7 U.S.C. 13(a)(3)), ami/or§ 1001 of Tille 18, Crimes and Criminal Procedure (18 U.S.C. 1001) and (b) result in punishment by line 

advised lhal pursuanllu 5 CFR § 1320.5(b )(2)(i), you are nul required lu respond lu this collection of in! ormation unless il displays a currenlly valid OMB cunlrul number. 

Anticipated Activity 

(Production, 

Requirements, 

Royalty Receipts, 

Service Contract 

Payments or Receipt) 

Check here if filing Initial Statement: D 

Cash 

Commodity 

Lnderlying 

Anticipated 

Activity 

Units for 

Cash 

Commodity 

(Specify 

Tons,CWT, 

Lbs., 13u., 

Bbls., etc.) 

Cash 

Commodity Core Same as (S) or Referenced Cross-hedged Futures (C-H) with Core contract 

(CRI'C) Conlrad 

(CRFC) 

Annual Production, 

Requirements, 

Royally Receipts, 

Service Contract 

Payments or 

Receipts for 

Preceding l11ree 

Years (One Year if 

Annuall!pdate) 

CheckhereiffilingAnnual L

Specified Time Anticipated Fixed-Price 

Period (Date Activity for Forward sales, 

Range) for which Such specified Inventory, and 

Anticipatory Time Period in Fixed Price 

Hedge Exemption Forward 

is Claimed Equivalent Pun:hases 

EP30DE16.033</GPH>asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

Please sign/authenticate the Form 704 prior to submitting. 

Signature/ Electronic Authentication: 

o By checking this box and submitting this form (or by clicking "submit," "send," or any other analogous transmission conunand i

certify that I am duly authorized by the reporting trader identified below to provide the information and representations submitted o

the best of my know ledge the information and representations made herein are true and correct. 

Reporting Trader Authorized Representative (Name and Position): 

________ (Name) ________ (Position) 

Submitted on behalf of: 

________ (Reporting Trader Name) 

Date of Submission: ________ _ 

CFTC Form 704 (XX-XX) 

EP30DE16.034</GPH>asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

Form 704, Example A- A producer files an initial anticipatory exemption for anticipated production of crude oil fo

years. The producer had production over the prior three calendar years (15 million, 18 million, and 20 million barr

certain of anticipated production for the next 3 calendar years of 20 million barrels per year. The producer has no fo

the full 60 million barrels of anticipated production (20 million barrels of anticipated production per year for three y

anticipated production. The unit of trading for the NYMEX Light Sweet Crude Oil futures contract (CL) is 1,000 b

maximum hedge would be a short position of 60,000 contracts in the NYMEX CL contract 

II A.lnjttal swumc;*tlllltl fpt Actiyity'pliisitalltto § 1 (<l) 

Anticipated Activity 

(Production, 

Requirements, 

Royalty Receipts, 

Service Contract 

Payments or Receipt) 

Production 

Check here if liling Initial Statement: 

Cash 

Commodity 

Underlying 

Anticipated 

Activity 

Crude Oil 

Units for 

Cash 

Commodity 

(Specify 

Tons, CWT 

Lbs., BtL, 

Rh1s., etc.) 

hh1s 

Core 

Referenced 

Futures 

contract 

(CRFC) 

CL-NYMEX 

Cash 

Commodity 

Same as (S) or 

Cross-hedged 

(C-H) with Core 

Reference 

Futures Contract 

(CRFC) 

s 

/umual Production, 

Requirements, 

Royalty Receipts, 

Service Contract 

Payments or 

Receipts for 

Preceding Three 

Years (One Year if 

i\.1lllual Update) 

2014-lSm 

2015-18111 

2016-20m 

Specified Time 

Period (Date 

Range) for 

which 

Anticipatory 

Hedge 

Exemption is 

Claimed 

[/1/2017-

12/'l1/2019 

Check here if liling Annual U

Anticipated Fixed-Price Activity for Forward sales, 

Such specified Inventory, and 

Time Period in Fixed Price 

Futures Forward 

Equivalent Purchases 

GO,OOO 0 II 

EP30DE16.035</GPH>asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

Form 704, Example B. In 2018, one year after filing the initial statement, the producer in Example A files an annua

production for the prior year was 20 million barrels, as forecasted The producer remains highly certain of 40 millio

production (20 million barrels of crude oil for each of the next two years). The producer has sold forward 10 millio

remaining unsold anticipated production is 30 million barrels. The maximum hedge would be a short position of 30

the NYMEX CL contract 

11 SiaW,nteill ai1ij AI!l!tl'<lll.JPda:te for .<ici{jl)'tory'. Aalivity i'?llnlWcnt to :§ l ·.· · 

Anticipated Activity 

(Production, 

uiremenls, 

Royalty Receipts, 

Service Contract 

Payments or Receipt) 

Check here if filing Initial Statement: D 

Type and Kame 

of Cash 

Commmlity 

Underlying 

Anticipated 

Activity 

for 

Cash 

Commodity 

(Specify 

Tons,CWT 

Lhs., Bu., 

Bbls., etc.) 

Core 

Referenced 

Futures 

contract 

(CRFC) 

Cash 

Commodity 

Same as (S) or 

Cross-hedged 

(C-H) with Core 

Reference 

Futures Contract 

(CRFC) 

Annual Production, 

Requirements, 

Royalty Receipts, 

Service Contract 

Payments or 

Receipts for 

Preceding Three 

Years (One Year if 

Annual Update) 

Specified Time 

Period for which 

Antil:ipalory 

Hedge 

Exemption is 

Claimed 

Check here if filing A.nnual Up

Anticipated 

Activity for 

Such specilied 

Time Period in 

Futures 

Equivalent 

Fixed-Price 

Fonvard sales, 

Inventory, and 

Fixed Price 

Forward 

Purchases 
Federal Register / Vol. 81, No. 251 / Friday, December 30, 2016 / Proposed Rules 96963 

BILLING CODE 6351–01–C 

PART 37—SWAP EXECUTION 

FACILITIES 

■ 13. The authority citation for part 37 

continues to read as follows: 

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

2, 7b–3, and 12a, as amended by Titles VII 

and VIII of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act, Pub. L. 

111–203, 124 Stat. 1376. 

■ 14. Revise § 37.601 to read as follows: 

§ 37.601 Additional sources for 

compliance. 

A swap execution facility that is a 

trading facility must meet the 

requirements of part 150 of this chapter, 

as applicable. 

■ 15. In Appendix B to part 37, under 

the heading Core Principle 6 of Section 

5h of the Act—Position Limits or 

Accountability, revise paragraphs (A) 

and (B) to read as follows: 

Appendix B to Part 37—Guidance on, 

and Acceptable Practices in, 

Compliance with Core Principles 

* * * * * 

Core Principle 6 of Section 5h of the Act— 

Position Limits or Accountability 

(A) In general. To reduce the potential 

threat of market manipulation or congestion, 

especially during trading in the delivery 

month, a swap execution facility that is a 

trading facility shall adopt for each of the 

contracts of the facility, as is necessary and 

appropriate, position limitations or position 

accountability for speculators. 

(B) Position limits. For any contract that is 

subject to a position limitation established by 

the Commission pursuant to section 4a(a), 

the swap execution facility shall: 

(1) Set its position limitation at a level not 

higher than the Commission limitation; and 

(2) Monitor positions established on or 

through the swap execution facility for 

compliance with the limit set by the 

Commission and the limit, if any, set by the 

swap execution facility. 

(a) Guidance. 

(1) Until a swap execution facility has 

access to sufficient swap position 

information, a swap execution facility that is 

a trading facility need not demonstrate 

compliance with Core Principle 6(B). A swap 

execution facility has access to sufficient 

swap position information if, for example: 

(i) It has access to daily information about 

its market participants’ open swap positions; 

or 

(ii) It knows, including through knowledge 

gained in surveillance of heavy trading 

activity occurring on or pursuant to the rules 

of the swap execution facility, that its market 

participants regularly engage in large 

volumes of speculative trading activity that 

would cause reasonable surveillance 

personnel at a swap execution facility to 

inquire further about a market participant’s 

intentions or open swap positions. 

(2) When a swap execution facility has 

access to sufficient swap position 

information, this guidance is no longer 

applicable. At such time, a swap execution 

facility is required to demonstrate 

compliance with Core Principle 6(B). 

(b) Acceptable practices. [Reserved] 

* * * * * 

PART 38—DESIGNATED CONTRACT 

MARKETS 

■ 16. The authority citation for part 38 

continues to read as follows: 

Authority: 7 U.S.C. 1a, 2, 6, 6a, 6c, 6d, 6e, 

6f, 6g, 6i, 6j, 6k, 6l, 6m, 6n, 7, 7a–2, 7b, 7b– 

1, 7b–3, 8, 9, 15, and 21, as amended by the 

Dodd-Frank Wall Street Reform and 

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

124 Stat. 1376. 

■ 17. Revise § 38.301 to read as follows: 

§ 38.301 Position limitations and 

accountability. 

A designated contract market must 

meet the requirements of part 150 of this 

chapter, as applicable. 

■ 18. In Appendix B to part 38, under 

the heading Core Principle 5 of section 

5(d) of the Act: Position Limitations or 

Accountability, revise paragraphs (A) 

and (B) to read as follows: 

Appendix B to Part 38—Guidance on, 

and Acceptable Practices in, 

Compliance with Core Principles 

* * * * * 

Core Principle 5 of Section 5(d) of the Act: 

Position Limitations or Accountability 

(A) In general.—To reduce the potential 

threat of market manipulation or congestion 

(especially during trading in the delivery 

month), the board of trade shall adopt for 

each contract of the board of trade, as is 

necessary and appropriate, position 

limitations or position accountability for 

speculators. 

(B) Maximum allowable position 

limitation.—For any contract that is subject 

to a position limitation established by the 

Commission pursuant to section 4a(a), the 

board of trade shall set the position 

limitation of the board of trade at a level not 

higher than the position limitation 

established by the Commission. 

(a) Guidance. 

(1) Until a board of trade has access to 

sufficient swap position information, a board 

of trade need not demonstrate compliance 

with Core Principle 5(B) with respect to 

swaps. A board of trade has access to 

sufficient swap position information if, for 

example: 

(i) It has access to daily information about 

its market participants’ open swap positions; 

or 

(ii) It knows, including through knowledge 

gained in surveillance of heavy trading 

activity occurring on or pursuant to the rules 

of the designated contract market, that its 

market participants regularly engage in large 

volumes of speculative trading activity that 

would cause reasonable surveillance 

personnel at a board of trade to inquire 

further about a market participant’s 

intentions or open swap positions. 

(2) When a board of trade has access to 

sufficient swap position information, this 

guidance is no longer applicable. At such 

time, a board of trade is required to 

demonstrate compliance with Core Principle 

5(B) with respect to swaps. 

(b) Acceptable Practices. [Reserved] 

* * * * * 

PART 140—ORGANIZATION, 

FUNCTIONS, AND PROCEDURES OF 

THE COMMISSION 

■ 19. The authority citation for part 140 

continues to read as follows: 

Authority: 7 U.S.C. 2(a)(12), 12a, 13(c), 

13(d), 13(e), and 16(b). 

§ 140.97 [Removed and reserved] 

■ 20. Remove and reserve § 140.97. 

PART 150—LIMITS ON POSITIONS 

■ 21. The authority citation for part 150 

continues to read as follows: 

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

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

Dodd-Frank Wall Street Reform and 

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

124 Stat. 1376 (2010). 

■ 22. Revise § 150.1 to read as follows: 

§ 150.1 Definitions. 

As used in this part— 

Bona fide hedging position means— 

(1) Hedges of an excluded commodity. 

For a position in commodity derivative 

contracts in an excluded commodity, as 

that term is defined in section 1a(19) of 

the Act: 

(i) Such position is economically 

appropriate to the reduction of risks in 

the conduct and management of a 

commercial enterprise and is 

enumerated in paragraph (3), (4) or (5) 

of this definition; or 

(ii) Is otherwise recognized as a bona 

fide hedging position by the designated 

contract market or swap execution 

facility that is a trading facility, 

pursuant to such market’s rules 

submitted to the Commission, which 

rules may include risk management 

exemptions consistent with Appendix A 

of this part; and 

(2) Hedges of a physical commodity— 

general definition. For a position in 

commodity derivative contracts in a 

physical commodity: 

(i) Such position: 

(A) 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; 

(B) Is economically appropriate to the 

reduction of risks in the conduct and 

management of a commercial enterprise; 

(C) Arises from the potential change 

in the value of— 


asabaliauskas on DSK3SPTVN1PROD with PROPOSALS
96964 Federal Register / Vol. 81, No. 251 / Friday, December 30, 2016 / Proposed Rules 

(1) Assets which a person owns, 

produces, manufactures, processes, or 

merchandises or anticipates owning, 

producing, manufacturing, processing, 

or merchandising; 

(2) Liabilities which a person owes or 

anticipates incurring; or 

(3) Services that a person provides, 

purchases, or anticipates providing or 

purchasing; or 

(ii)(A) Pass-through swap offsets. 

Such position reduces risks attendant to 

a position resulting from a swap in the 

same physical commodity that was 

executed opposite a counterparty for 

which the swap would qualify as a bona 

fide hedging position pursuant to 

paragraph (2)(i) of this definition (a 

pass-through swap counterparty), 

provided that the bona fides of the passthrough swap counterparty may be 

determined at the time of the 

transaction; 

(B) Pass-through swaps. Such swap 

position was executed opposite a passthrough swap counterparty and to the 

extent such swap position has been 

offset pursuant to paragraph (2)(ii)(A) of 

this definition; or 

(C) Offsets of bona fide hedging swap 

positions. Such position reduces risks 

attendant to a position resulting from a 

swap that meets the requirements of 

paragraph (2)(i) of this definition. 

(iii) Additional requirements for 

enumeration or other recognition. 

Notwithstanding the foregoing general 

definition, a position in commodity 

derivative contracts in a physical 

commodity shall be classified as a bona 

fide hedging position only if: 

(A) The position satisfies the 

requirements of paragraph (2)(i) of this 

definition and is enumerated in 

paragraph (3), (4), or (5) of this 

definition; 

(B) The position satisfies the 

requirements of paragraph (2)(ii) of this 

definition, provided that no offsetting 

position is maintained in any physicaldelivery commodity derivative contract 

during the lesser of the last five days of 

trading or the time period for the spot 

month in such physical-delivery 

commodity derivative contract; or 

(C) The position has been otherwise 

recognized as a non-enumerated bona 

fide hedging position by either a 

designated contract market or swap 

execution facility, each in accordance 

with § 150.9(a); or by the Commission. 

(3) Enumerated hedging positions. A 

bona fide hedging position includes any 

of the following specific positions: 

(i) Hedges of inventory and cash 

commodity purchase contracts. Short 

positions in commodity derivative 

contracts that do not exceed in quantity 

ownership or fixed-price purchase 

contracts in the contract’s underlying 

cash commodity by the same person. 

(ii) Hedges of cash commodity sales 

contracts. Long positions in commodity 

derivative contracts that do not exceed 

in quantity the fixed-price sales 

contracts in the contract’s underlying 

cash commodity by the same person and 

the quantity equivalent of fixed-price 

sales contracts of the cash products and 

by-products of such commodity by the 

same person. 

(iii) Hedges of unfilled anticipated 

requirements. Provided that such 

positions in a physical-delivery 

commodity derivative contract, during 

the lesser of the last five days of trading 

or the time period for the spot month in 

such physical-delivery contract, do not 

exceed the person’s unfilled anticipated 

requirements of the same cash 

commodity for that month and for the 

next succeeding month: 

(A) Long positions in commodity 

derivative contracts that do not exceed 

in quantity unfilled anticipated 

requirements of the same cash 

commodity, for processing, 

manufacturing, or use by the same 

person; and 

(B) Long positions in commodity 

derivative contracts that do not exceed 

in quantity unfilled anticipated 

requirements of the same cash 

commodity for resale by a utility to its 

customers. 

(iv) Hedges by agents. Long or short 

positions in commodity derivative 

contracts 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 agent is 

responsible for merchandising the cash 

positions that are being offset in 

commodity derivative contracts and the 

agent has a contractual arrangement 

with the person who owns the 

commodity or holds the cash market 

commitment being offset. 

(4) Other enumerated hedging 

positions. A bona fide hedging position 

also includes the following specific 

positions, provided that no such 

position is maintained in any physicaldelivery commodity derivative contract 

during the lesser of the last five days of 

trading or the time period for the spot 

month in such physical-delivery 

contract: 

(i) Hedges of unsold anticipated 

production. Short positions in 

commodity derivative contracts that do 

not exceed in quantity unsold 

anticipated production of the same 

commodity by the same person. 

(ii) Hedges of offsetting unfixed-price 

cash commodity sales and purchases. 

Short and long positions in commodity 

derivative contracts that do not exceed 

in quantity that amount of the same 

cash commodity that has been bought 

and sold by the same person at unfixed 

prices: 

(A) Basis different delivery months in 

the same commodity derivative 

contract; or 

(B) Basis different commodity 

derivative contracts in the same 

commodity, regardless of whether the 

commodity derivative contracts are in 

the same calendar month. 

(iii) Hedges of anticipated royalties. 

Short positions in commodity derivative 

contracts offset by the anticipated 

change in value of mineral royalty rights 

that are owned by the same person, 

provided that the royalty rights arise out 

of the production of the commodity 

underlying the commodity derivative 

contract. 

(iv) Hedges of services. Short or long 

positions in commodity derivative 

contracts offset by the anticipated 

change in value of receipts or payments 

due or expected to be due under an 

executed contract for services held by 

the same person, provided that the 

contract for services arises out of the 

production, manufacturing, processing, 

use, or transportation of the commodity 

underlying the commodity derivative 

contract. 

(5) Cross-commodity hedges. 

Positions in commodity derivative 

contracts described in paragraph (2)(ii), 

paragraphs (3)(i) through (iv) and 

paragraphs (4)(i) through (iv) of this 

definition may also be used to offset the 

risks arising from a commodity other 

than the same cash commodity 

underlying a commodity derivative 

contract, provided that the fluctuations 

in value of the position in the 

commodity derivative contract, or the 

commodity underlying the commodity 

derivative contract, are substantially 

related to the fluctuations in value of 

the actual or anticipated cash position 

or pass-through swap and no such 

position is maintained in any physicaldelivery commodity derivative contract 

during the lesser of the last five days of 

trading or the time period for the spot 

month in such physical-delivery 

contract. 

(6) Offsets of commodity trade 

options. For purposes of this definition, 

a commodity trade option, meeting the 

requirements of § 32.3 of this chapter for 

a commodity option transaction, may be 

deemed a cash commodity purchase or 

sales contract, as appropriate, provided 

that such option is adjusted on a 

futures-equivalent basis. By way of 

example, a commodity trade option 

with a fixed strike price may be 

converted to a futures-equivalent basis, 

and, on that futures-equivalent basis, 


asabaliauskas on DSK3SPTVN1PROD with PROPOSALS
Federal Register / Vol. 81, No. 251 / Friday, December 30, 2016 / Proposed Rules 96965 

1The definition of the term, eligible entity, was 

amended by the Commission in a final rule 

published on December 16, 2016 (81 FR 91454, 

91489). The unamended version of the definition 

presented here is included solely to maintain the 

continuity of this regulatory section and for the 

convenience of the reader. The definition of the 

term, eligible entity, is not a subject of this 

reproposal and will be revised when the amended 

definition takes effect on February 14, 2017. 

2The definition of the term, independent account 

controller, was amended by the Commission in a 

final rule published on December 16, 2016 (81 FR 

91454, 91489). The unamended version of the 

definition presented here is included solely to 

maintain the continuity of this regulatory section 

and for the convenience of the reader. The 

definition of the term, independent account 

controller, is not a subject of this reproposal and 

will be revised when the amended definition takes 

effect on February 14, 2017. 

deemed a cash commodity sale, in the 

case of a short call option or long put 

option, or a cash commodity purchase, 

in the case of a long call option or short 

put option. 

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 the settlement price of another 

contract month or another series of 

contract months’ settlement prices for 

the same agreement, contract or 

transaction. 

Commodity derivative contract 

means, for this part, any futures, option, 

or swap contract in a commodity (other 

than a security futures product as 

defined in section 1a(45) of the Act). 

Commodity index contract means an 

agreement, contract, or transaction that 

is not a location basis contract or any 

type of spread contract, based on an 

index comprised of prices of 

commodities that are not the same or 

substantially the same. 

Core referenced futures contract 

means a futures contract that is listed in 

§ 150.2(d). 

Eligible affiliate. An eligible affiliate 

means an entity with respect to which 

another person: 

(1) Directly or indirectly holds either: 

(i) A majority of the equity securities 

of such entity, or 

(ii) The right to receive upon 

dissolution of, or the contribution of, a 

majority of the capital of such entity; 

(2) Reports its financial statements on 

a consolidated basis under Generally 

Accepted Accounting Principles or 

International Financial Reporting 

Standards, and such consolidated 

financial statements include the 

financial results of such entity; and 

(3) Is required to aggregate the 

positions of such entity under § 150.4 

and does not claim an exemption from 

aggregation for such entity. 

Eligible entity 1 means a commodity 

pool operator, the operator of a trading 

vehicle which is excluded or who itself 

has qualified for exclusion from the 

definition of the term ‘‘pool’’ or 

‘‘commodity pool operator,’’ 

respectively, under § 4.5 of this chapter; 

the limited partner or shareholder in a 

commodity pool the operator of which 

is exempt from registration under § 4.13 

of this chapter; a commodity trading 

advisor; a bank or trust company; a 

savings association; an insurance 

company; or the separately organized 

affiliates of any of the above entities: 

(1) Which authorizes an independent 

account controller independently to 

control all trading decisions for 

positions it holds directly or indirectly, 

or on its behalf, but without its day-today direction; and 

(2) Which maintains: 

(i) Only such minimum control over 

the independent account controller as is 

consistent with its fiduciary 

responsibilities and necessary to fulfill 

its duty to supervise diligently the 

trading done on its behalf; or 

(ii) If a limited partner or shareholder 

of a commodity pool the operator of 

which is exempt from registration under 

§ 4.13 of this chapter, only such limited 

control as is consistent with its status. 

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. 

Futures-equivalent means 

(1) An option contract, whether an 

option on a future or an option that is 

a swap, which has been adjusted by an 

economically reasonable and 

analytically supported risk factor, or 

delta coefficient, for that option 

computed as of the previous day’s close 

or the current day’s close or 

contemporaneously during the trading 

day, and converted to an economically 

equivalent amount of an open position 

in a core referenced futures contract, 

provided however, if a participant’s 

position exceeds position limits as a 

result of an option assignment, that 

participant is allowed one business day 

to liquidate the excess position without 

being considered in violation of the 

limits; 

(2) A futures contract which has been 

converted to an economically equivalent 

amount of an open position in a core 

referenced futures contract; and 

(3) A swap which has been converted 

to an economically equivalent amount 

of an open position in a core referenced 

futures contract. 

Independent account controller 2

means a person— 

(1) Who specifically is authorized by 

an eligible entity, as defined in this 

section, independently to control 

trading decisions on behalf of, but 

without the day-to-day direction of, the 

eligible entity; 

(2) Over whose trading the eligible 

entity maintains only such minimum 

control as is consistent with its 

fiduciary responsibilities to fulfill its 

duty to supervise diligently the trading 

done on its behalf or as is consistent 

with such other legal rights or 

obligations which may be incumbent 

upon the eligible entity to fulfill; 

(3) Who trades independently of the 

eligible entity and of any other 

independent account controller trading 

for the eligible entity; 

(4) Who has no knowledge of trading 

decisions by any other independent 

account controller; and 

(5) Who is registered as a futures 

commission merchant, an introducing 

broker, a commodity trading advisor, an 

associated person or any such registrant, 

or is a general partner of a commodity 

pool the operator of which is exempt 

from registration under § 4.13 of this 

chapter. 

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. 

Intermarket spread position means a 

long (short) position in one or more 

commodity derivative contracts in a 

particular commodity, or its products or 

its by-products, at a particular 

designated contract market or swap 

execution facility and a short (long) 

position in one or more commodity 

derivative contracts in that same, or 

similar, commodity, or its products or 

its by-products, away from that 

particular designated contract market or 

swap execution facility. 

Intramarket spread position means a 

long position in one or more commodity 

derivative contracts in a particular 

commodity, or its products or its byproducts, and a short position in one or 

more commodity derivative contracts in 

the same, or similar, commodity, or its 

products or its by-products, on the same 

designated contract market or swap 

execution facility. 

Location basis contract means a 

commodity derivative contract that is 

cash-settled based on the difference in: 

(1) The price, directly or indirectly, 

of: 

(i) A particular core referenced futures 

contract; or 


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(ii) A commodity deliverable on a 

particular core referenced futures 

contract, whether at par, a fixed 

discount to par, or a premium to par; 

and 

(2) The price, at a different delivery 

location or pricing point than that of the 

same particular core referenced futures 

contract, directly or indirectly, of: 

(i) A commodity deliverable on the 

same particular core referenced futures 

contract, whether at par, a fixed 

discount to par, or a premium to par; or 

(ii) A commodity that is listed in 

Appendix B to this part as substantially 

the same as a commodity underlying the 

same core referenced futures contract. 

Long position means, on a futuresequivalent basis, a long call option, a 

short put option, a long underlying 

futures contract, or a swap position that 

is equivalent to a long futures contract. 

Physical commodity means any 

agricultural commodity as that term is 

defined in § 1.3 of this chapter or any 

exempt commodity as that term is 

defined in section 1a(20) of the Act. 

Pre-enactment swap means any swap 

entered into prior to enactment of the 

Dodd-Frank Act of 2010 (July 21, 2010), 

the terms of which have not expired as 

of the date of enactment of that Act. 

Pre-existing position means any 

position in a commodity derivative 

contract acquired in good faith prior to 

the effective date of any bylaw, rule, 

regulation or resolution that specifies an 

initial speculative position limit level or 

a subsequent change to that level. 

Referenced contract means a core 

referenced futures contract listed in 

§ 150.2(d) or, on a futures equivalent 

basis with respect to a particular core 

referenced futures contract, a futures 

contract, options contract, or swap that 

is: 

(1) Directly or indirectly linked, 

including being partially or fully settled 

on, or priced at a fixed differential to, 

the price of that particular core 

referenced futures contract; or 

(2) Directly or indirectly linked, 

including being partially or fully settled 

on, or priced at a fixed differential to, 

the price of the same commodity 

underlying that particular core 

referenced futures contract for delivery 

at the same location or locations as 

specified in that particular core 

referenced futures contract. 

(3) The definition of referenced 

contract does not include any guarantee 

of a swap, a location basis contract, a 

commodity index contract, or a trade 

option that meets the requirements of 

§ 32.3 of this chapter. 

Short position means, on a futuresequivalent basis, a short call option, a 

long put option, a short underlying 

futures contract, or a swap position that 

is equivalent to a short futures contract. 

Speculative position limit means the 

maximum position, either net long or 

net short, in a commodity derivatives 

contract that may be held or controlled 

by one person, absent an exemption, 

such as an exemption for a bona fide 

hedging position. This limit may apply 

to a person’s combined position in all 

commodity derivative contracts in a 

particular commodity (all-monthscombined), a person’s position in a 

single month of commodity derivative 

contracts in a particular commodity, or 

a person’s position in the spot month of 

commodity derivative contacts in a 

particular commodity. Such a limit may 

be established under federal regulations 

or rules of a designated contract market 

or swap execution facility. An exchange 

may also apply other limits, such as a 

limit on gross long or gross short 

positions, or a limit on holding or 

controlling delivery instruments. 

Spot month means— 

(1) For physical-delivery core 

referenced futures contracts, the period 

of time beginning at the earlier of the 

close of business on the trading day 

preceding the first day on which 

delivery notices can be issued by the 

clearing organization of a contract 

market, or the close of business on the 

trading day preceding the third-to-last 

trading day, until the contract expires, 

except as follows: 

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

(SB) referenced contract, the spot month 

means the period of time beginning at 

the opening of trading on the second 

business day following the expiration of 

the regular option contract traded on the 

expiring futures contract until the 

contract expires; 

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

(SF) referenced contract, the spot month 

means the period of time beginning on 

the third-to-last trading day of the 

contract month until the contract 

expires; 

(iii) For Chicago Mercantile Exchange 

Live Cattle (LC) referenced contract, the 

spot month means the period of time 

beginning at the close trading on the 

fifth business day of the contract month 

until the contract expires; 

(2) For cash-settled core referenced 

futures contracts: 

(i) [Reserved] 

(3) For referenced contracts other than 

core referenced futures contracts, the 

spot month means the same period as 

that of the relevant core referenced 

futures contract. 

Spread contract means either a 

calendar spread contract or an 

intercommodity spread contract. 

Swap means ‘‘swap’’ as that term is 

defined in section 1a of the Act and as 

further defined in § 1.3 of this chapter. 

Swap dealer means ‘‘swap dealer’’ as 

that term is defined in section 1a of the 

Act and as further defined in § 1.3 of 

this chapter. 

Transition period swap means a swap 

entered into during the period 

commencing after the enactment of the 

Dodd-Frank Act of 2010 (July 21, 2010), 

and ending 60 days after the publication 

in the Federal Register of final 

amendments to this part implementing 

section 737 of the Dodd-Frank Act of 

2010. 

■ 23. Revise § 150.2 to read as follows: 

§ 150.2 Speculative position limits. 

(a) Spot-month speculative position 

limits. No person may hold or control 

positions in referenced contracts in the 

spot month, net long or net short, in 

excess of the level specified by the 

Commission for: 

(1) Physical-delivery referenced 

contracts; and, separately, 

(2) Cash-settled referenced contracts; 

(b) Single-month and all-monthscombined speculative position limits. 

No person may hold or control 

positions, net long or net short, in 

referenced contracts in a single month 

or in all months combined (including 

the spot month) in excess of the levels 

specified by the Commission. 

(c) For purposes of this part: 

(1) The spot month and any single 

month shall be those of the core 

referenced futures contract; and 

(2) An eligible affiliate is not required 

to comply separately with speculative 

position limits. 

(d) Core referenced futures contracts. 

Speculative position limits apply to 

referenced contracts based on the core 

referenced futures contracts listed in 

Table Core Referenced Futures 

Contracts: 

CORE REFERENCED FUTURES CONTRACTS

Commodity type Designated contract market Core referenced futures contract 1

Legacy Agricultural .................................................... Chicago Board of Trade ........................................... Corn (C). 


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CORE REFERENCED FUTURES CONTRACTS—Continued 

Commodity type Designated contract market Core referenced futures contract 1

Oats (O). 

Soybeans (S). 

Soybean Meal (SM). 

Soybean Oil (SO). 

Wheat (W). 

Hard Winter Wheat (KW). 

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

Minneapolis Grain Exchange .................................... Hard Red Spring Wheat (MWE). 

Other Agricultural ....................................................... Chicago Board of Trade ........................................... Rough Rice (RR). 

Chicago Mercantile Exchange .................................. Live Cattle (LC). 

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

Coffee C (KC). 

FCOJ–A (OJ). 

U.S. Sugar No. 11 (SB). 

U.S. Sugar No. 16 (SF). 

Energy ....................................................................... New York Mercantile Exchange ............................... Light Sweet Crude Oil (CL). 

NY Harbor ULSD (HO). 

RBOB Gasoline (RB). 

Henry Hub Natural Gas (NG). 

Metals ........................................................................ Commodity Exchange, Inc. ....................................... Gold (GC). 

Silver (SI). 

Copper (HG). 

New York Mercantile Exchange ............................... Palladium (PA). 

Platinum (PL). 

1The core referenced futures contract includes any successor contracts. 

(e) Levels of speculative position 

limits—(1) Initial levels. The initial 

levels of speculative position limits are 

fixed by the Commission at the levels 

listed in Appendix D to this part; 

provided however, compliance with 

such initial speculative limits shall not 

be required until January 3, 2018, which 

date shall be the initial establishment 

date for purposes of paragraphs (e)(3) 

and (4) of this section. 

(2) Subsequent levels. (i) The 

Commission shall fix subsequent levels 

of speculative position limits in 

accordance with the procedures in this 

section and publish such levels on the 

Commission’s Web site at http://

www.cftc.gov. 

(ii) Such subsequent speculative 

position limit levels shall each apply 

beginning on the close of business of the 

last business day of the second complete 

calendar month after publication of 

such levels; provided however, if such 

close of business is in a spot month of 

a core referenced futures contract, the 

subsequent spot-month level shall apply 

beginning with the next spot month for 

that contract. 

(iii) All subsequent levels of 

speculative position limits shall be 

rounded up to the nearest hundred 

contracts. 

(3) Procedure for computing levels of 

spot-month limits. (i) No less frequently 

than every two calendar years, the 

Commission shall fix the level of the 

spot-month limit no greater than onequarter of the estimated spot-month 

deliverable supply in the relevant core 

referenced futures contract. Unless the 

Commission determines to rely on its 

own estimate of deliverable supply, the 

Commission shall utilize the estimated 

spot-month deliverable supply provided 

by a designated contract market. If the 

Commission determines to rely on its 

own estimate of deliverable supply, 

then the Commission shall publish such 

estimate for public comment in the 

Federal Register; provided however, 

that the Commission may determine to 

fix the level of the spot-month limit at 

a level, recommended by the designated 

contract market listing the relevant core 

referenced futures contract for good 

cause shown, that is less than onequarter of the estimated spot-month 

deliverable supply, or not to change the 

level of the spot-month limit. 

(ii) Estimates of deliverable supply. 

(A) Each designated contract market in 

a core referenced futures contract shall 

supply to the Commission an estimated 

spot-month deliverable supply. A 

designated contract market may use the 

guidance regarding deliverable supply 

in Appendix C to part 38 of this chapter. 

Each estimate must be accompanied by 

a description of the methodology used 

to derive the estimate and any statistical 

data supporting the estimate, and must 

be submitted no later than the 

following: 

(1) For energy commodities, January 

31 of the second calendar year following 

the most recent Commission action 

establishing such limit levels; 

(2) For metals commodities, March 31 

of the second calendar year following 

the most recent Commission action 

establishing such limit levels; 

(3) For legacy agricultural 

commodities, May 31 of the second 

calendar year following the most recent 

Commission action establishing such 

limit levels; and 

(4) For other agricultural 

commodities, August 31 of the second 

calendar year following the most recent 

Commission action establishing such 

limit levels. 

(B) Notwithstanding paragraph 

(e)(3)(ii)(A) of this section, each 

designated contract market may petition 

the Commission not less than two 

calendar months before the due date for 

submission of an estimate of deliverable 

supply under paragraph (e)(3)(ii)(A) of 

this section, recommending that the 

Commission not change the spot-month 

limit. Such recommendation should 

include a summary of the designated 

contract market’s experience 

administering its spot-month limit. The 

Commission shall determine not less 

than one calendar month before such 

due date whether to accept the 

designated contract market’s 

recommendation. If the Commission 

accepts such recommendation, then the 

designated contract market need not 

submit an estimated spot-month 

deliverable supply for such due date. 

(4) Procedure for computing levels of 

single-month and all-months-combined 

limits. No less frequently than every two 

calendar years, the Commission shall fix 

the level, for each referenced contract, 

of the single-month limit and the allVerDate Sep<11>2014 23:37 Dec 29, 2016 Jkt 241001 PO 00000 Frm 00265 Fmt 4701 Sfmt 4702 E:\FR\FM\30DEP2.SGM 30DEP2

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months-combined limit. Each such limit 

shall be based on 10 percent of the 

estimated average open interest in 

referenced contracts, up to 25,000 

contracts, with a marginal increase of 

2.5 percent thereafter; provided 

however, the Commission may 

determine not to change the level of the 

single-month limit or the all-monthscombined limit. 

(i) Time periods for average open 

interest. The Commission shall estimate 

average open interest in referenced 

contracts based on the largest annual 

average open interest computed for each 

of the past two calendar years. The 

Commission may estimate average open 

interest in referenced contracts using 

either month-end open contracts or 

open contracts for each business day in 

the time period, as practical. 

(ii) Data sources for average open 

interest. The Commission shall estimate 

average open interest in referenced 

contracts using data reported to the 

Commission pursuant to part 16 of this 

chapter, and open swaps reported to the 

Commission pursuant to part 20 of this 

chapter or data obtained by the 

Commission from swap data 

repositories collecting data pursuant to 

part 45 of this chapter. Options listed on 

designated contract markets shall be 

adjusted using an option delta reported 

to the Commission pursuant to part 16 

of this chapter. Swaps shall be counted 

on a futures equivalent basis, equal to 

the economically equivalent amount of 

core referenced futures contracts 

reported pursuant to part 20 of this 

chapter or as calculated by the 

Commission using swap data collected 

pursuant to part 45 of this chapter. 

(iii) Publication of average open 

interest. The Commission shall publish 

estimates of average open interest in 

referenced contracts on a monthly basis, 

as practical, after such data is submitted 

to the Commission. 

(iv) Minimum levels. Provided 

however, notwithstanding the above, the 

minimum levels shall be the greater of 

the level of the spot month limit 

determined under paragraph (e)(3) of 

this section or 5,000 contracts. 

(f) Pre-existing positions—(1) Preexisting positions in a spot-month. 

Other than pre-enactment and transition 

period swaps exempted under 

§ 150.3(d), a person shall comply with 

spot month speculative position limits. 

(2) Pre-existing positions in a nonspot-month. A single-month or allmonths-combined speculative position 

limit established under this section 

shall not apply to any commodity 

derivative contract acquired in good 

faith prior to the effective date of such 

limit, provided however, that if such 

position is not a pre-enactment or 

transition period swap then that 

position shall be attributed to the person 

if the person’s position is increased after 

the effective date of such limit. 

(g) Positions on foreign boards of 

trade. The aggregate speculative 

position limits established under this 

section shall apply to a person with 

positions in referenced contracts 

executed on, or pursuant to the rules of 

a foreign board of trade, provided that: 

(1) Such referenced contracts settle 

against any price (including the daily or 

final settlement price) of one or more 

contracts listed for trading on a 

designated contract market or swap 

execution facility that is a trading 

facility; and 

(2) 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. 

(h) Anti-evasion provision. For the 

purposes of applying the speculative 

position limits in this section, a 

commodity index contract used to 

circumvent speculative position limits 

shall be considered to be a referenced 

contract. 

(i) Delegation of authority to the 

Director of the Division of Market 

Oversight. (1) 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 in 

paragraph (e) of this section to fix and 

publish subsequent levels of speculative 

position limits, including the authority 

not to change levels of such limits, and 

the authority in paragraph (e)(3)(iii) of 

this section to relieve a designated 

contract market from the requirement to 

submit an estimate of deliverable 

supply. 

(2) 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. 

(3) Nothing in this section prohibits 

the Commission, at its election, from 

exercising the authority delegated in 

this section. 

(j) The Commission will periodically 

update these initial levels for 

speculative position limits and publish 

such subsequent levels on its Web site 

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

■ 24. Revise § 150.3 to read as follows: 

§ 150.3 Exemptions. 

(a) Positions which may exceed limits. 

The position limits set forth in § 150.2 

may be exceeded to the extent that: 

(1) Such positions are: 

(i) Bona fide hedging positions that 

comply with the definition in § 150.1, 

provided that: 

(A) For non-enumerated bona fide 

hedges, the person has not otherwise 

been notified by the Commission under 

§ 150.9(d)(4) or, under rules adopted 

pursuant to § 150.9(a)(4)(iv)(B), by the 

designated contract market or swap 

execution facility; and 

(B) For anticipatory bona fide hedging 

positions under paragraphs (3)(iii), 

(4)(i), (4)(iii), (4)(iv) and (5) of the bona 

fide hedging position definition in 

§ 150.1, the person complies with the 

filing requirements found in § 150.7 or 

the filing requirements adopted, in 

accordance with § 150.11(a)(3), by a 

designated contract market or swap 

execution facility, as applicable; 

(ii) Financial distress positions 

exempted under paragraph (b) of this 

section; 

(iii) Conditional spot-month limit 

positions exempted under paragraph (c) 

of this section; 

(iv) Spread positions recognized by a 

designated contract market or swap 

execution facility, each in accordance 

with § 150.10(a), or the Commission, 

provided that the person has not 

otherwise been notified by the 

Commission under § 150.10(d)(4) or by 

the designated contract market or swap 

execution facility under rules adopted 

pursuant to § 150.10(a)(4)(iv)(B); or 

(v) Other positions exempted under 

paragraph (e) of this section; and that 

(2) The recordkeeping requirements of 

paragraph (g) of this section are met; 

and further that 

(3) The reporting requirements of part 

19 of this chapter are met. 

(b) Financial distress exemptions. 

Upon specific request made to the 

Commission, the Commission may 

exempt a person or related persons 

under financial distress circumstances 

for a time certain from any of the 

requirements of this part. Financial 

distress circumstances include 

situations involving the potential 

default or bankruptcy of a customer of 

the requesting person or persons, an 

affiliate of the requesting person or 

persons, or a potential acquisition target 

of the requesting person or persons. 

(c) Conditional spot-month limit 

exemption. The position limit set forth 

in § 150.2 may be exceeded for natural 

gas cash-settled referenced contracts, 

provided that such positions do not 

exceed 10,000 contracts and the person 

holding or controlling such positions 

does not hold or control positions in 

spot-month physical-delivery referenced 

contracts. 


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(d) Pre-enactment and transition 

period swaps exemption. The 

speculative position limits set forth in 

§ 150.2 shall not apply to positions 

acquired in good faith in any preenactment swap, or in any transition 

period swap, in either case as defined 

by § 150.1; provided however, that a 

person may net such positions with 

post-effective date commodity 

derivative contracts for the purpose of 

complying with any non-spot-month 

speculative position limit. 

(e) Other exemptions. Any person 

engaging in risk-reducing practices 

commonly used in the market, which 

they believe may not be specifically 

enumerated in the definition of bona 

fide hedging position in § 150.1, may 

request: 

(1) An interpretative letter from 

Commission staff, under § 140.99 of this 

chapter, concerning the applicability of 

the bona fide hedging position 

exemption; or 

(2) Exemptive relief from the 

Commission under section 4a(a)(7) of 

the Act. 

(3) Appendix C to this part provides 

a non-exhaustive list of examples of 

bona fide hedging positions as defined 

under § 150.1. 

(f) Previously granted exemptions. (1) 

Exemptions granted by the Commission 

under § 1.47 of this chapter for risk 

management of positions in financial 

instruments shall not apply to positions 

in financial instruments entered into 

after the effective date of initial position 

limits implementing section 737 of the 

Dodd-Frank Act of 2010. 

(2) Exemptions for risk management 

of positions in financial instruments 

granted by a designated contract market 

or swap execution facility shall not 

apply to positions in financial 

instruments entered into after the 

effective date of initial position limits 

implementing section 737 of the DoddFrank Act of 2010, provided that, for 

positions in financial instruments 

entered into on or before the effective 

date of initial position limits 

implementing section 737 of the DoddFrank Act of 2010, the exemption shall 

apply for purposes of position limits 

under § 150.2 if the exemption: 

(i) Applies to positions outside of the 

spot month only; and 

(ii) Was granted prior to the 

compliance date provided under 

§ 150.2(e)(1). 

(g) Recordkeeping. (1) Persons who 

avail themselves of exemptions under 

this section, including exemptions 

granted under section 4a(a)(7) of the 

Act, shall keep and maintain complete 

books and records concerning all details 

of their related cash, forward, futures, 

futures options and swap positions and 

transactions, including anticipated 

requirements, production and royalties, 

contracts for services, cash commodity 

products and by-products, and crosscommodity hedges, and shall make such 

books and records, including a list of 

pass-through swap counterparties, 

available to the Commission upon 

request under paragraph (h) of this 

section. 

(2) Further, a party seeking to rely 

upon the pass-through swap offset in 

paragraph (2)(B) of the definition of 

‘‘bona fide hedging position’’ in § 150.1, 

in order to exceed the position limits of 

§ 150.2 with respect to such a swap, 

may only do so if its counterparty 

provides a written representation (e.g., 

in the form of a field or other 

representation contained in a mutually 

executed trade confirmation) that, as to 

such counterparty, the swap qualifies in 

good faith as a ‘‘bona fide hedging 

position,’’ as defined in § 150.1, 

provided that the bona fides of the passthrough swap counterparty may be 

determined at the time of the 

transaction. That written representation 

shall be retained by the parties to the 

swap for a period of at least two years 

following the expiration of the swap and 

furnished to the Commission upon 

request. 

(3) Any person that represents to 

another person that a swap qualifies as 

a pass-through swap under paragraph 

(2)(ii)(B) of the definition of ‘‘bona fide 

hedging position’’ in § 150.1 shall keep 

and make available to the Commission 

upon request all relevant books and 

records supporting such a 

representation for a period of at least 

two years following the expiration of the 

swap. 

(h) Call for information. Upon call by 

the Commission, the Director of the 

Division of Market Oversight or the 

Director’s delegee, any person claiming 

an exemption from speculative position 

limits under this section must provide 

to the Commission such information as 

specified in the call relating to the 

positions owned or controlled by that 

person; trading done pursuant to the 

claimed exemption; the commodity 

derivative contracts or cash market 

positions which support the claim of 

exemption; and the relevant business 

relationships supporting a claim of 

exemption. 

(i) Aggregation of accounts. Entities 

required to aggregate accounts or 

positions under § 150.4 of this part shall 

be considered the same person for the 

purpose of determining whether they 

are eligible for a bona fide hedging 

position exemption under paragraph 

(a)(1)(i) of this section with respect to 

such aggregated account or position. 

(j) Delegation of authority to the 

Director of the Division of Market 

Oversight. (1) 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 in 

paragraph (b) of this section to provide 

exemptions in circumstances of 

financial distress. 

(2) 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. 

(3) Nothing in this section prohibits 

the Commission, at its election, from 

exercising the authority delegated in 

this section. 

■ 25. Revise § 150.5 to read as follows: 

§ 150.5 Exchange-set position limits. 

(a) Requirements and acceptable 

practices for commodity derivative 

contracts subject to federal position 

limits. (1) For any commodity derivative 

contract that is subject to a speculative 

position limit under § 150.2, a 

designated contract market or swap 

execution facility that is a trading 

facility shall set a speculative position 

limit no higher than the level specified 

in § 150.2. 

(2) Exemptions to exchange-set 

limits—(i) Grant of exemption. Any 

designated contract market or swap 

execution facility that is a trading 

facility may grant exemptions from any 

speculative position limits it sets under 

paragraph (a)(1) of this section, provided 

that exemptions from federal limits 

conform to the requirements specified 

in § 150.3, and provided further that any 

exemptions to exchange-set limits not 

conforming to § 150.3 are capped at the 

level of the applicable federal limit in 

§ 150.2. 

(ii) Application for exemption. Any 

designated contract market or swap 

execution facility that grants 

exemptions under paragraph (a)(2)(i) of 

this section: 

(A) Must require traders to file an 

application requesting such exemption 

in advance of the date that such position 

would be in excess of the limits then in 

effect, provided however, that it may 

adopt rules that allow a trader to file an 

application for an enumerated bona fide 

hedging exemption within five business 

days after the trader assumed the 

position that exceeded a position limit. 

(B) Must require, for any exemption 

granted, that the trader reapply for the 

exemption at least on an annual basis. 


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(C) May deny any such application, or 

limit, condition, or revoke any such 

exemption, at any time, including if it 

determines such positions would not be 

in accord with sound commercial 

practices, or would exceed an amount 

that may be established and liquidated 

in an orderly fashion. 

(3) Pre-enactment and transition 

period swap positions. Speculative 

position limits set forth in § 150.2 shall 

not apply to positions acquired in good 

faith in any pre-enactment swap, or in 

any transition period swap, in either 

case as defined by § 150.1. Provided 

however, that a designated contract 

market or swap execution facility that is 

a trading facility shall allow a person to 

net such position with post-effective 

date commodity derivative contracts for 

the purpose of complying with any nonspot month speculative position limit. 

(4) Pre-existing positions—(i) Preexisting positions in a spot-month. A 

designated contract market or swap 

execution facility that is a trading 

facility must require compliance with 

spot month speculative position limits 

for pre-existing positions in commodity 

derivative contracts other than preenactment and transition period swaps. 

(ii) Pre-existing positions in a nonspot month. A single-month or all 

months-combined speculative position 

limit established under § 150.2 shall not 

apply to any commodity derivative 

contract acquired in good faith prior to 

the effective date of such limit, provided 

however, that such position shall be 

attributed to the person if the person’s 

position is increased after the effective 

date of such limit. 

(5) Aggregation. Designated contract 

markets and swap execution facilities 

that are trading facilities must have 

aggregation rules that conform to 

§ 150.4. 

(6) Additional acceptable practices. A 

designated contract market or swap 

execution facility that is a trading 

facility may: 

(i) Impose additional restrictions on a 

person with a long position in the spot 

month of a physical-delivery contract 

who stands for delivery, takes that 

delivery, then re-establishes a long 

position; 

(ii) Establish limits on the amount of 

delivery instruments that a person may 

hold in a physical-delivery contract; and 

(iii) Impose such other restrictions as 

it deems necessary to reduce the 

potential threat of market manipulation 

or congestion, to maintain orderly 

execution of transactions, or for such 

other purposes consistent with its 

responsibilities. 

(b) Requirements and acceptable 

practices for commodity derivative 

contracts in a physical commodity as 

defined in § 150.1 that are not subject to 

the limits set forth in § 150.2—(1) Levels 

at initial listing. At the time of each 

commodity derivative contract’s initial 

listing, a designated contract market or 

swap execution facility that is a trading 

facility should base speculative position 

limits on the following: 

(i) Spot month position limits—(A) 

Commodities with a measurable 

deliverable supply. For all commodity 

derivative contracts not subject to the 

limits set forth in § 150.2 that are based 

on a commodity with a measurable 

deliverable supply, the spot month limit 

level should be established at a level 

that is no greater than one-quarter of the 

estimated spot month deliverable 

supply, calculated separately for each 

month to be listed (Designated Contract 

Markets and Swap Execution Facilities 

may refer to the guidance in paragraph 

(b)(1)(i) of Appendix C of part 38 of this 

chapter for guidance on estimating spotmonth deliverable supply); 

(B) Commodities without a 

measurable deliverable supply. For 

commodity derivative contracts that are 

based on a commodity with no 

measurable deliverable supply, the spot 

month limit level should be set at a 

level that is necessary and appropriate 

to reduce the potential threat of market 

manipulation or price distortion of the 

contract’s or the underlying 

commodity’s price or index. 

(ii) Individual non-spot or all-months 

combined position limits. For 

agricultural or exempt commodity 

derivative contracts not subject to the 

limits set forth in § 150.2, the individual 

non-spot or all-months-combined levels 

should be equal to or less than the 

greater of: The level of the spot month 

limit; or 5,000 contracts, when the 

notional quantity per contract is no 

larger than a typical cash market 

transaction in the underlying 

commodity. If the notional quantity per 

contract is larger than the typical cash 

market transaction, then the individual 

non-spot month limit or all-months 

combined limit level should be scaled 

down accordingly. If the commodity 

derivative contract is substantially the 

same as a pre-existing commodity 

derivative contract, then the designated 

contract market or swap execution 

facility may adopt the same limit as 

applies to that pre-existing commodity 

derivative contract. 

(iii) Commodity derivative contracts 

that are cash-settled by referencing a 

daily settlement price of an existing 

contract. For commodity derivative 

contracts that are cash-settled by 

referencing a daily settlement price of 

an existing contract listed on a 

designated contract market or swap 

execution facility that is a trading 

facility, the cash-settled contract should 

adopt spot-month, individual non-spotmonth, and all-months combined 

position limits comparable to those of 

the original price referenced contract. 

(2) Adjustments to levels. Designated 

contract markets and swap execution 

facilities that are trading facilities 

should adjust their speculative limit 

levels as follows: 

(i) Spot month position limits. The 

spot month position limit level should 

be reviewed no less than once every 

twenty-four months from the date of 

initial listing and should be maintained 

at a level that is: 

(A) No greater than one-quarter of the 

estimated spot month deliverable 

supply, calculated separately for each 

month to be listed; or 

(B) In the case of a commodity 

derivative contract based on a 

commodity without a measurable 

deliverable supply, necessary and 

appropriate to reduce the potential 

threat of market manipulation or price 

distortion of the contract’s or the 

underlying commodity’s price or index. 

(ii) Individual non-spot or all-monthscombined position limits. Individual 

non-spot or all-months-combined levels 

should be based on position sizes 

customarily held by speculative traders 

on the contract market or equal to or 

less than the greater of: The spot-month 

position limit level; 10% of the average 

combined futures and delta adjusted 

option month-end open interest for the 

most recent calendar year up to 25,000 

contracts, with a marginal increase of 

2.5% thereafter; or 5,000 contracts. In 

any case, such levels should be 

reviewed no less than once every 

twenty-four months from the date of 

initial listing. 

(3) Position accountability in lieu of 

speculative position limits. A designated 

contract market or swap execution 

facility that is a trading facility may 

adopt a bylaw, rule, regulation, or 

resolution, substituting for the 

exchange-set speculative position limits 

specified under this paragraph (b), an 

exchange rule requiring traders to 

consent to provide information about 

their position upon request by the 

exchange and to consent to halt 

increasing further a trader’s position or 

to reduce their positions in an orderly 

manner, in each case upon request by 

the exchange as follows: 

(i) Physical commodity derivative 

contracts. On a physical commodity 

derivative contract that is not subject to 

the limits set forth in § 150.2, having an 

average month-end open interest of 

50,000 contracts and an average daily 


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volume of 5,000 or more contracts 

during the most recent calendar year 

and a liquid cash market, a designated 

contract market or swap execution 

facility that is a trading facility may 

adopt individual non-spot month or allmonths-combined position 

accountability levels, provided however, 

that such designated contract market or 

swap execution facility that is a trading 

facility should adopt a spot month 

speculative position limit with a level 

no greater than one-quarter of the 

estimated spot month deliverable 

supply. 

(ii) New commodity derivative 

contracts that are substantially the same 

as an existing contract. On a new 

commodity derivative contract that is 

substantially the same as an existing 

commodity derivative contract listed for 

trading on a designated contract market 

or swap execution facility that is a 

trading facility, which has adopted 

position accountability in lieu of 

position limits, the designated contract 

market or swap execution facility may 

adopt for the new contract when it is 

initially listed for trading the position 

accountability levels of the existing 

contract. 

(4) Calculation of trading volume and 

open interest. For purposes of this 

paragraph, trading volume and open 

interest should be calculated by: 

(i) Open interest. (A) Averaging the 

month-end open positions in a futures 

contract and its related option contract, 

on a delta-adjusted basis, for all months 

listed during the most recent calendar 

year; and 

(B) Averaging the month-end futures 

equivalent amount of open positions in 

swaps in a particular commodity (such 

as, for swaps that are not referenced 

contracts, by combining the notional 

month-end open positions in swaps in 

a particular commodity, including 

options in that same commodity that are 

swaps on a delta-adjusted basis, and 

dividing by a notional quantity per 

contract that is no larger than a typical 

cash market transaction in the 

underlying commodity), except that a 

designated contract market or swap 

execution facility that is a trading 

facility shall include swaps in their 

open interest calculation only if such 

entities administer position limits on 

swap contracts of their facilities. 

(ii) Trading volume. (A) Counting the 

number of contracts in a futures contract 

and its related option contract, on a 

delta-adjusted basis, transacted during 

the most recent calendar year; and 

(B) Counting the futures-equivalent 

number of swaps in a particular 

commodity transacted during the most 

recent calendar year, except that a 

designated contract market or swap 

execution facility that is a trading 

facility shall include swaps in their 

trading volume count only if such 

entities administer position limits on 

swap contracts of their facilities. 

(5) Exemptions—(i) Hedge exemption. 

(A) Any hedge exemption rules adopted 

by a designated contract market or a 

swap execution facility that is a trading 

facility should conform to the definition 

of bona fide hedging position in § 150.1 

and may provide for recognition as a 

non-enumerated bona fide hedge in a 

manner consistent with the process 

described in § 150.9(a). 

(B) Any hedge exemption rules 

adopted under paragraph (b)(5)(i)(A) of 

this section may allow a person to file 

an application for enumerated hedging 

positions, which application should be 

filed not later than five business days 

after the person assumed the position 

that exceeded a position limit. 

(ii) Other exemptions. A designated 

contract market or swap execution 

facility may grant other exemptions for: 

(A) Financial distress. Upon specific 

request made to the designated contract 

market or swap execution facility that is 

a trading facility, the designated 

contract market or swap execution 

facility that is a trading facility may 

exempt a person or related persons 

under financial distress circumstances 

for a time certain from any of the 

requirements of this part. Financial 

distress circumstances include 

situations involving the potential 

default or bankruptcy of a customer of 

the requesting person or persons, an 

affiliate of the requesting person or 

persons, or a potential acquisition target 

of the requesting person or persons. 

(B) Conditional spot-month limit 

exemption. Exchange-set spot-month 

speculative position limits may be 

exceeded for cash-settled contracts, 

provided that such positions should not 

exceed two times the level of the spotmonth limit specified by the designated 

contract market or swap execution 

facility that is a trading facility, that lists 

a physical-delivery contract to which 

the cash-settled contracts are directly or 

indirectly linked, and the person 

holding or controlling such positions 

should not hold or control positions in 

such spot-month physical-delivery 

contract. 

(C) Intramarket spread positions and 

intermarket spread positions, each as 

defined in § 150.1, provided that the 

designated contract market or swap 

execution facility, in considering 

whether to grant an application for such 

exemption, should take into account 

whether exempting the spread position 

from position limits would, to the 

maximum extent practicable, ensure 

sufficient market liquidity for bona fide 

hedgers, and not unduly reduce the 

effectiveness of position limits to: 

(1) Diminish, eliminate, or prevent 

excessive speculation; 

(2) Deter and prevent market 

manipulation, squeezes, and corners; 

and 

(3) Ensure that the price discovery 

function of the underlying market is not 

disrupted. 

(iii) Application for exemption. 

Traders should be required to apply to 

the designated contract market or swap 

execution facility that is a trading 

facility for any exemption from its 

speculative position limit rules. In 

considering whether to grant such an 

application for exemption, a designated 

contract market or swap execution 

facility that is a trading facility should 

take into account whether the requested 

exemption is in accord with sound 

commercial practices and results in a 

position that does not exceed an amount 

that may be established and liquidated 

in an orderly fashion. 

(6) Pre-enactment and transition 

period swap positions. Speculative 

position limits should not apply to 

positions acquired in good faith in any 

pre-enactment swap, or in any transition 

period swap, in either case as defined 

by § 150.1. Provided however, that a 

designated contract market or swap 

execution facility that is a trading 

facility may allow a person to net such 

position with post-effective date 

commodity derivative contracts for the 

purpose of complying with any nonspot month speculative position limit. 

(7) Pre-existing positions—(i) 

Preexisting positions in a spot-month. A 

designated contract market or swap 

execution facility that is a trading 

facility should require compliance with 

spot month speculative position limits 

for pre-existing positions in commodity 

derivative contracts other than preenactment and transition period swaps. 

(ii) Pre-existing positions in a nonspot month. A single-month or allmonths-combined speculative position 

limit should not apply to any 

commodity derivative contract acquired 

in good faith prior to the effective date 

of such limit, provided however, that 

such position should be attributed to the 

person if the person’s position is 

increased after the effective date of such 

limit. 

(8) Aggregation. Designated contract 

markets and swap execution facilities 

that are trading facilities must have 

aggregation rules that conform to 

§ 150.4. 

(9) Additional acceptable practices. 

Particularly in the spot month, a 


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designated contract market or swap 

execution facility that is a trading 

facility may: 

(i) Impose additional restrictions on a 

person with a long position in the spot 

month of a physical-delivery contract 

who stands for delivery, takes that 

delivery, then re-establishes a long 

position; 

(ii) Establish limits on the amount of 

delivery instruments that a person may 

hold in a physical-delivery contract; and 

(iii) Impose such other restrictions as 

it deems necessary to reduce the 

potential threat of market manipulation 

or congestion, to maintain orderly 

execution of transactions, or for such 

other purposes consistent with its 

responsibilities. 

(c) Requirements and acceptable 

practices for excluded commodity 

derivative contracts as defined in 

section 1a(19) of the Act—(1) Levels at 

initial listing. At the time of each 

excluded commodity derivative 

contract’s initial listing, a designated 

contract market or swap execution 

facility that is a trading facility should 

base speculative position limits on the 

following: 

(i) Spot month position limits.—(A) 

Excluded commodity derivative 

contracts with a measurable deliverable 

supply. For all excluded commodity 

derivative contracts that are based on a 

commodity with a measurable 

deliverable supply, the spot month limit 

level should be established at a level 

that is no greater than one-quarter of the 

estimated spot month deliverable 

supply, calculated separately for each 

month to be listed (Designated Contract 

Markets and Swap Execution Facilities 

may refer to the guidance in paragraph 

(b)(1)(i) of Appendix C of part 38 of this 

chapter for guidance on estimating spotmonth deliverable supply); 

(B) Excluded commodity derivative 

contracts without a measurable 

deliverable supply. For excluded 

commodity derivative contracts that are 

based on a commodity with no 

measurable deliverable supply, the spot 

month limit level should be set at a 

level that is necessary and appropriate 

to reduce the potential threat of market 

manipulation or price distortion of the 

contract’s or the underlying 

commodity’s price or index. 

(ii) Individual non-spot or all-months 

combined position limits. For excluded 

commodity derivative contracts, the 

individual non-spot or all-monthscombined levels should be equal to or 

less than the greater of: The level of the 

spot month limit; or 5,000 contracts, 

when the notional quantity per contract 

is no larger than a typical cash market 

transaction in the underlying 

commodity. If the notional quantity per 

contract is larger than the typical cash 

market transaction, then the individual 

non-spot month limit or all-months 

combined limit level should be scaled 

down accordingly. If the commodity 

derivative contract is substantially the 

same as a pre-existing commodity 

derivative contract, then the designated 

contract market or swap execution 

facility may adopt the same limit as 

applies to that pre-existing commodity 

derivative contract. 

(iii) Commodity derivative contracts 

that are cash-settled by referencing a 

daily settlement price of an existing 

contract. For excluded commodity 

derivative contracts that are cash-settled 

by referencing a daily settlement price 

of an existing contract listed on a 

designated contract market or swap 

execution facility that is a trading 

facility, the cash-settled contract should 

adopt spot-month, individual non-spotmonth, and all-months combined 

position limits that are comparable to 

those of the original price referenced 

contract. 

(2) Adjustments to levels. Designated 

contract markets and swap execution 

facilities that are trading facilities 

should adjust their speculative limit 

levels as follows: 

(i) Spot month position limits. The 

spot month position limit level for 

excluded commodity derivative 

contracts should be reviewed no less 

than once every twenty-four months 

from the date of initial listing and 

should be maintained at a level that is 

necessary and appropriate to reduce the 

potential threat of market manipulation 

or price distortion of the contract’s or 

the underlying commodity’s price or 

index. 

(ii) Individual non-spot or all-monthscombined position limits. Individual 

non-spot or all-months-combined levels 

should be based on position sizes 

customarily held by speculative traders 

on the contract market or equal to or 

less than the greater of: the spot-month 

position limit level; 10% of the average 

combined futures and delta adjusted 

option month-end open interest for the 

most recent calendar year up to 25,000 

contracts, with a marginal increase of 

2.5% thereafter; or 5,000 contracts. In 

any case, such levels should be 

reviewed no less than once every 

twenty-four months from the date of 

initial listing. 

(3) Position accountability in lieu of 

speculative position limits. A designated 

contract market or swap execution 

facility that is a trading facility may 

adopt a bylaw, rule, regulation, or 

resolution, substituting for the 

exchange-set speculative position limits 

specified under this paragraph (c), an 

exchange rule requiring traders to 

consent to provide information about 

their position upon request by the 

exchange and to consent to halt 

increasing further a trader’s position or 

to reduce their positions in an orderly 

manner, in each case upon request by 

the exchange as follows: 

(i) Spot month. On an excluded 

commodity derivative contract for 

which there is a highly liquid cash 

market and no legal impediment to 

delivery, a designated contract market 

or swap execution facility that is a 

trading facility may adopt position 

accountability in lieu of position limits 

in the spot month. For an excluded 

commodity derivative contract based on 

a commodity without a measurable 

deliverable supply, a designated 

contract market or swap execution 

facility that is a trading facility may 

adopt position accountability in lieu of 

position limits in the spot month. For 

all other excluded commodity 

derivative contracts, a designated 

contract market or swap execution 

facility that is a trading facility should 

adopt a spot-month position limit with 

a level no greater than one-quarter of the 

estimated deliverable supply; 

(ii) Individual non-spot or all-months 

combined position limits. On an 

excluded commodity derivative 

contract, a designated contract market or 

swap execution facility that is a trading 

facility may adopt position 

accountability levels in lieu of position 

limits in the individual non-spot month 

or all-months-combined. 

(iii) New commodity derivative 

contracts that are substantially the same 

as an existing contract. On a new 

commodity derivative contract on an 

excluded commodity derivative contract 

that is substantially the same as an 

existing commodity derivative contract 

listed for trading on a designated 

contract market or swap execution 

facility that is a trading facility, which 

has adopted position accountability in 

lieu of position limits, the designated 

contract market or swap execution 

facility may adopt for the new contract 

when it is initially listed for trading the 

position accountability levels of the 

existing contract. 

(4) Calculation of trading volume and 

open interest. For purposes of this 

paragraph, trading volume and open 

interest should be calculated by: 

(i) Open interest. (A) Averaging the 

month-end open positions in a futures 

contract and its related option contract, 

on a delta-adjusted basis, for all months 

listed during the most recent calendar 

year; and 


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(B) Averaging the month-end futures 

equivalent amount of open positions in 

swaps in a particular commodity (such 

as, for swaps that are not referenced 

contracts, by combining the notional 

month-end open positions in swaps in 

a particular commodity, including 

options in that same commodity that are 

swaps on a delta-adjusted basis, and 

dividing by a notional quantity per 

contract that is no larger than a typical 

cash market transaction in the 

underlying commodity), except that a 

designated contract market or swap 

execution facility that is a trading 

facility should include swaps in their 

open interest calculation only if such 

entities administer position limits on 

swap contracts of their facilities. 

(ii) Trading volume. (A) Counting the 

number of contracts in a futures contract 

and its related option contract, on a 

delta-adjusted basis, transacted during 

the most recent calendar year; and 

(B) Counting the futures-equivalent 

number of swaps in a particular 

commodity transacted during the most 

recent calendar year, except that a 

designated contract market or swap 

execution facility that is a trading 

facility should include swaps in their 

trading volume count only if such 

entities administer position limits on 

swap contracts of their facilities. 

(5) Exemptions—(i) Hedge 

exemptions. Any hedge exemption rules 

adopted by a designated contract market 

or a swap execution facility that is a 

trading facility should conform to the 

definition of bona fide hedging position 

in § 150.1. 

(ii) Other exemptions for excluded 

commodities. A designated contract 

market or swap execution facility may 

grant, in addition to the exemptions 

under paragraphs (b)(5)(ii)(A), 

(b)(5)(ii)(B), and (b)(5)(ii)(C) of this 

section, a risk management exemption 

pursuant to rules submitted to the 

Commission, including for a position 

that is consistent with the guidance in 

Appendix A of this part. 

(iii) Application for exemption. 

Traders should be required to apply to 

the designated contract market or swap 

execution facility that is a trading 

facility for any exemption from its 

speculative position limit rules. Such 

exchange may allow a person to file an 

application after the person assumed the 

position that exceeded a position limit. 

In considering whether to grant such an 

application for exemption, a designated 

contract market or swap execution 

facility that is a trading facility should 

take into account whether the requested 

exemption is in accord with sound 

commercial practices and results in a 

position that does not exceed an amount 

that may be established and liquidated 

in an orderly fashion. 

(6) Pre-enactment and transition 

period swap positions. Speculative 

position limits should not apply to 

positions acquired in good faith in any 

pre-enactment swap, or in any transition 

period swap, in either case as defined 

by § 150.1. Provided however, that a 

designated contract market or swap 

execution facility that is a trading 

facility may allow a person to net such 

position with post-effective date 

commodity derivative contracts for the 

purpose of complying with any nonspot month speculative position limit. 

(7) Pre-existing positions—(i) Preexisting positions in a spot-month. A 

designated contract market or swap 

execution facility that is a trading 

facility should require compliance with 

spot month speculative position limits 

for pre-existing positions in commodity 

derivative contracts. 

(ii) Pre-existing positions in a nonspot month. A single-month or allmonths-combined speculative position 

limit should not apply to any 

commodity derivative contract acquired 

in good faith prior to the effective date 

of such limit, provided however, that 

such position should be attributed to the 

person if the person’s position is 

increased after the effective date of such 

limit. 

(8) Aggregation. Designated contract 

markets and swap execution facilities 

that are trading facilities should have 

aggregation rules for excluded 

commodity derivative contracts that 

conform to § 150.4. 

(9) Additional acceptable practices. A 

designated contract market or swap 

execution facility that is a trading 

facility may impose such other 

restrictions on excluded commodity 

derivative contracts as it deems 

necessary to reduce the potential threat 

of market manipulation or congestion, 

to maintain orderly execution of 

transactions, or for such other purposes 

consistent with its responsibilities. 

(d) Requirements for security futures 

products. For security futures products, 

position limitations and position 

accountability requirements are 

specified in § 41.25(a)(3) of this chapter. 

■ 26. Revise § 150.6 to read as follows: 

§ 150.6 Ongoing application of the Act and 

Commission regulations. 

This part shall only be construed as 

having an effect on position limits set by 

the Commission or a designated contract 

market or swap execution facility, 

including any associated recordkeeping 

and reporting regulations. Nothing in 

this part shall be construed to affect any 

other provisions of the Act or 

Commission regulations, including but 

not limited to those relating to 

manipulation, attempted manipulation, 

corners, squeezes, fraudulent or 

deceptive conduct or prohibited 

transactions, unless incorporated by 

reference. 

■ 27. Add §§ 150.7 through 150.11 to 

read as follows: 

§ 150.7 Requirements for anticipatory 

bona fide hedging position exemptions. 

(a) Statement. Any person who 

wishes to avail himself of exemptions 

for unfilled anticipated requirements, 

unsold anticipated production, 

anticipated royalties, anticipated 

services contract payments or receipts, 

or anticipatory cross-commodity hedges 

under the provisions of paragraphs 

(3)(iii), (4)(i), 4(iii), 4(iv), or (5), 

respectively, of the definition of bona 

fide hedging position in § 150.1 shall 

file an application on Form 704 with the 

Commission in advance of the date the 

person expects to exceed the position 

limits established under this part. 

Filings in conformity with the 

requirements of this section shall be 

effective ten days after submission, 

unless otherwise notified by the 

Commission. 

(b) Commission notification. At any 

time, the Commission may, by notice to 

any person filing an application or 

annual update on Form 704, specify its 

determination as to what portion, if any, 

of the amounts described in such filing 

does not meet the requirements for bona 

fide hedging positions. In no case shall 

such person’s anticipatory bona fide 

hedging positions exceed the levels 

specified in paragraph (f) of this section. 

(c) Call for additional information. At 

any time, the Commission may request 

a person who has on file an application 

or annual update Form 704 under 

paragraph (a) of this section to file 

specific additional or updated 

information with the Commission to 

support a determination that the 

application or annual update on file 

accurately reflects unsold anticipated 

production, unfilled anticipated 

requirements, anticipated royalties, or 

anticipated services contract payments 

or receipts. 

(d) Initial statement and annual 

update. Initial Form 704 concerning the 

classification of positions as bona fide 

hedging pursuant to paragraphs (3)(iii), 

or 4(i), 4(iii), 4(iv) or anticipatory crosscommodity hedges under paragraph (5) 

of the definition of bona fide hedging 

position in § 150.1 shall be filed with 

the Commission at least ten days in 

advance of the date that such positions 

would be in excess of limits then in 

effect pursuant to section 4a of the Act. 


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Each person that has filed an initial 

statement on Form 704 for an 

anticipatory bona fide hedge exemption 

shall provide annual updates on the 

utilization of the anticipatory 

exemption, including actual cash 

activity utilizing the anticipatory 

exemption for the preceding year, as 

well as the cumulative utilization since 

the filing of the initial or most recent 

annual statement. Such statements shall 

set forth in detail for a specified 

operating period the person’s 

anticipated activity, i.e., unfilled 

anticipated requirements, unsold 

anticipated production, anticipated 

royalties, or anticipated services 

contract payments or receipts, and 

explain the method of determination 

thereof, including, but not limited to, 

the following information: 

(1) For each anticipated activity: (i) 

The type of cash commodity underlying 

the anticipated activity; 

(ii) The name of the actual cash 

commodity underlying the anticipated 

activity and the units in which the cash 

commodity is measured; 

(iii) An indication of whether the cash 

commodity is the same commodity 

(grade and quality) that underlies a core 

referenced futures contract or whether a 

cross-hedge will be used and, if so, 

additional information for cross hedges 

specified in paragraph (d)(2) of this 

section; 

(iv)(A) Annual production, 

requirements, royalty receipts or service 

contract payments or receipts, in terms 

of futures equivalents, of such 

commodity for the three complete fiscal 

years preceding the current fiscal year, 

if filing an initial statement; or 

(B) For the prior fiscal year if filing an 

annual update; 

(v) The specified time period for 

which the anticipatory hedge exemption 

is claimed; 

(vi) Anticipated production, 

requirements, royalty receipts or service 

contract payments or receipts, in terms 

of futures equivalents, of such 

commodity for such specified time 

period; 

(vii) Fixed-price forward sales, 

inventory, and fixed-price forward 

purchases of such commodity, 

including any quantity in process of 

manufacture and finished goods and 

byproducts of manufacture or 

processing (in terms of such 

commodity); 

(viii) Unsold anticipated production, 

unfilled anticipated requirements, 

unsold anticipated royalty receipts, and 

anticipated service contract payments or 

receipts the risks of which have not 

been offset with cash positions, of such 

commodity for the specified time 

period; and 

(ix) The maximum number of long 

positions and short positions in 

referenced contracts expected to be used 

to offset the risks of such anticipated 

activity. 

(2) Additional information for cross 

hedges. Cash positions that represent a 

commodity, or products or byproducts 

of a commodity, that is different from 

the commodity underlying a commodity 

derivative contract that is expected to be 

used for hedging, shall be shown both 

in terms of the equivalent amount of the 

commodity underlying the commodity 

derivative contract used for hedging and 

in terms of the actual cash commodity 

as provided for on Form 704. In 

computing their cash position, every 

person shall use such standards and 

conversion factors that are usual in the 

particular trade or that otherwise reflect 

the value-fluctuation-equivalents of the 

cash position in terms of the commodity 

underlying the commodity derivative 

contract used for hedging. Such person 

shall furnish to the Commission upon 

request detailed information concerning 

the basis for and derivation of such 

conversion factors, including: 

(i) The hedge ratio used to convert the 

actual cash commodity to the equivalent 

amount of the commodity underlying 

the commodity derivative contract used 

for hedging; and 

(ii) An explanation of the 

methodology used for determining the 

hedge ratio. 

(e) Monthly reporting. Monthly 

reporting of remaining anticipated 

hedge exemption shall be reported on 

Form 204, along with reporting other 

exemptions pursuant to § 19.01(a)(3)(vii) 

of this chapter. 

(f) Maximum sales and purchases. 

Sales or purchases of commodity 

derivative contracts considered to be 

bona fide hedging positions under 

paragraphs (3)(iii)(A) or (4)(i) of the 

bona fide hedging position definition in 

§ 150.1 shall at no time exceed the lesser 

of: 

(1) A person’s anticipated activity 

(including production, requirements, 

royalties and services) as described by 

the information most recently filed 

pursuant to this section that has not 

been offset with cash positions; or 

(2) Such lesser amount as determined 

by the Commission pursuant to 

paragraph (b) of this section. 

(g) Delegation of authority to the 

Director of the Division of Market 

Oversight. (1) 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: 

(i) In paragraph (b) of this section to 

provide notice to a person that some or 

all of the amounts described in a Form 

704 filing does not meet the 

requirements for bona fide hedging 

positions; 

(ii) In paragraph (c) of this section to 

request a person who has filed an 

application or annual update on Form 

704 under paragraph (a) of this section 

to file specific additional or updated 

information with the Commission to 

support a determination that the Form 

704 filed accurately reflects unsold 

anticipated production, unfilled 

anticipated requirements, anticipated 

royalties, or anticipated services 

contract payments or receipts; and 

(iii) In paragraph (d)(2) of this section 

to request detailed information 

concerning the basis for and derivation 

of conversion factors used in computing 

the cash position provided in any 

applications or annual updates filed on 

Form 704. 

(2) 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. 

(3) Nothing in this section prohibits 

the Commission, at its election, from 

exercising the authority delegated in 

this section. 

§ 150.8 Severability. 

If any provision of this part, or the 

application thereof to any person or 

circumstances, is held invalid, such 

invalidity shall not affect other 

provisions or application of such 

provision to other persons or 

circumstances which can be given effect 

without the invalid provision or 

application. 

§ 150.9 Process for recognition of 

positions as non-enumerated bona fide 

hedges. 

(a) Requirements for a designated 

contract market or swap execution 

facility to recognize non-enumerated 

bona fide hedging positions. (1) A 

designated contract market or swap 

execution facility that elects to process 

non-enumerated bona fide hedging 

position applications to demonstrate 

why a derivative position satisfies the 

requirements of section 4a(c) of the Act 

shall maintain rules, submitted to the 

Commission pursuant to part 40 of this 

chapter, establishing an application 

process for recognition of nonenumerated bona fide hedging positions 

consistent with the requirements of this 

section and the general definition of 

bona fide hedging position in § 150.1. A 


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designated contract market or swap 

execution facility may elect to process 

non-enumerated bona fide hedging 

position applications for positions in 

commodity derivative contracts only if, 

in each case: 

(i) The commodity derivative contract 

is a referenced contract; 

(ii) Such designated contract market 

or swap execution facility lists such 

commodity derivative contract for 

trading; 

(iii) Such commodity derivative 

contract is actively traded on such 

designated contract market or swap 

execution facility; 

(iv) Such designated contract market 

or swap execution facility has 

established position limits for such 

commodity derivative contract; and 

(v) Such designated contract market 

or swap execution facility has at least 

one year of experience and expertise 

administering position limits for a 

referenced contract in a particular 

commodity. A designated contract 

market or swap execution facility shall 

not recognize a non-enumerated bona 

fide hedging position involving a 

commodity index contract and one or 

more referenced contracts. 

(2) A designated contract market or 

swap execution facility may establish 

different application processes for 

persons to demonstrate why a derivative 

position constitutes a non-enumerated 

bona fide hedging position under novel 

facts and circumstances and under facts 

and circumstances substantially similar 

to a position for which a summary has 

been published on such designated 

contract market’s or swap execution 

facility’s Web site, pursuant to 

paragraph (a)(7) of this section. 

(3) Any application process that is 

established by a designated contract 

market or swap execution facility shall 

elicit sufficient information to allow the 

designated contract market or swap 

execution facility to determine, and the 

Commission to verify, whether the facts 

and circumstances in respect of a 

derivative position satisfy the 

requirements of section 4a(c) of the Act 

and the general definition of bona fide 

hedging position in § 150.1, and 

whether it is appropriate to recognize 

such position as a non-enumerated bona 

fide hedging position, including at a 

minimum: 

(i) A description of the position in the 

commodity derivative contract for 

which the application is submitted and 

the offsetting cash positions; 

(ii) Information to demonstrate why 

the position satisfies the requirements of 

section 4a(c) of the Act and the general 

definition of bona fide hedging position 

in § 150.1; 

(iii) A statement concerning the 

maximum size of all gross positions in 

derivative contracts for which the 

application is submitted; 

(iv) Information regarding the 

applicant’s activity in the cash markets 

for the commodity underlying the 

position for which the application is 

submitted during the past year; and 

(v) Any other information necessary 

to enable the designated contract market 

or swap execution facility to determine, 

and the Commission to verify, whether 

it is appropriate to recognize such 

position as a non-enumerated bona fide 

hedging position. 

(4) Under any application process 

established under this section, a 

designated contract market or swap 

execution facility shall: 

(i) Require each person intending to 

exceed position limits to submit an 

application, to reapply at least on an 

annual basis by updating that 

application, and to receive notice of 

recognition from the designated contract 

market or swap execution facility of a 

position as a non-enumerated bona fide 

hedging position in advance of the date 

that such position would be in excess of 

the limits then in effect pursuant to 

section 4a of the Act; 

(ii) Notify an applicant in a timely 

manner if a submitted application is not 

complete. If an applicant does not 

amend or resubmit such application 

within a reasonable amount of time after 

such notice, a designated contract 

market or swap execution facility may 

reject the application; 

(iii) Determine in a timely manner 

whether a derivative position for which 

a complete application has been 

submitted satisfies the requirements of 

section 4a(c) of the Act and the general 

definition of bona fide hedging position 

in § 150.1, and whether it is appropriate 

to recognize such position as a nonenumerated bona fide hedging position; 

(iv) Have the authority to revoke, at 

any time, any recognition issued 

pursuant to this section if it determines 

the recognition is no longer in accord 

with section 4a(c) of the Act and the 

general definition of bona fide hedging 

position in § 150.1; and 

(v) Notify an applicant in a timely 

manner: 

(A) That the derivative position for 

which a complete application has been 

submitted has been recognized by the 

designated contract market or swap 

execution facility as a non-enumerated 

bona fide hedging position under this 

section, and the details and all 

conditions of such recognition; 

(B) That its application is rejected, 

including the reasons for such rejection; 

or 

(C) That the designated contract 

market or swap execution facility has 

asked the Commission to consider the 

application under paragraph (a)(8) of 

this section. 

(5) An applicant’s derivatives position 

shall be deemed to be recognized as a 

non-enumerated bona fide hedging 

position exempt from federal position 

limits at the time that a designated 

contract market or swap execution 

facility notifies an applicant that such 

designated contract market or swap 

execution facility will recognize such 

position as a non-enumerated bona fide 

hedging position. 

(6) A designated contract market or 

swap execution facility that elects to 

process non-enumerated bona fide 

hedging position applications shall file 

new rules or rule amendments pursuant 

to part 40 of this chapter, establishing or 

amending requirements for an applicant 

to file reports pertaining to the use of 

any such exemption that has been 

granted in the manner, form, and 

frequency, as determined by the 

designated contract market or swap 

execution facility. 

(7) After recognition of each unique 

type of derivative position as a nonenumerated bona fide hedging position, 

based on novel facts and circumstances, 

a designated contract market or swap 

execution facility shall publish on its 

Web site, on at least a quarterly basis, 

a summary describing the type of 

derivative position and explaining why 

it was recognized as a non-enumerated 

bona fide hedging position. 

(8) If a non-enumerated bona fide 

hedging position application presents 

novel or complex issues or is potentially 

inconsistent with section 4a(c) of the 

Act and the general definition of bona 

fide hedging position in § 150.1, a 

designated contract market or swap 

execution facility may ask the 

Commission to consider the application 

under the process set forth in paragraph 

(d) of this section. The Commission 

may, in its discretion, agree to or reject 

any such request by a designated 

contract market or swap execution 

facility. 

(b) Recordkeeping. (1) A designated 

contract market or swap execution 

facility that elects to process nonenumerated bona fide hedging position 

applications shall keep full, complete, 

and systematic records, which include 

all pertinent data and memoranda, of all 

activities relating to the processing of 

such applications and the disposition 

thereof, including the recognition by the 

designated contract market or swap 

execution facility of any derivative 

position as a non-enumerated bona fide 

hedging position, the revocation or 


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modification of any such recognition, 

the rejection by the designated contract 

market or swap execution facility of an 

application, or the withdrawal, 

supplementation or updating of an 

application by the applicant. Included 

among such records shall be: 

(i) All information and documents 

submitted by an applicant in connection 

with its application; 

(ii) Records of oral and written 

communications between such 

designated contract market or swap 

execution facility and such applicant in 

connection with such application; and 

(iii) All information and documents in 

connection with such designated 

contract market’s or swap execution 

facility’s analysis of and action on such 

application. 

(2) All books and records required to 

be kept pursuant to this section shall be 

kept in accordance with the 

requirements of § 1.31 of this chapter. 

(c) Reports to the Commission. (1) A 

designated contract market or swap 

execution facility that elects to process 

non-enumerated bona fide hedging 

position applications shall submit to the 

Commission a report for each week as 

of the close of business on Friday 

showing the following information: 

(i) For each commodity derivative 

position that had been recognized that 

week by the designated contract market 

or swap execution facility as a nonenumerated bona fide hedging position, 

and for any revocation or modification 

of a previously granted recognition: 

(A) The date of disposition, 

(B) The effective date of the 

disposition, 

(C) The expiration date of any 

recognition, 

(D) Any unique identifier assigned by 

the designated contract market or swap 

execution facility to track the 

application, 

(E) Any unique identifier assigned by 

the designated contract market or swap 

execution facility to a type of recognized 

non-enumerated bona fide hedging 

position, 

(F) The identity of the applicant, 

(G) The listed commodity derivative 

contract to which the application 

pertains, 

(H) The underlying cash commodity, 

(I) The maximum size of the 

commodity derivative position that is 

recognized by the designated contract 

market or swap execution facility as a 

non-enumerated bona fide hedging 

position, 

(J) Any size limitation established for 

such commodity derivative position on 

the designated contract market or swap 

execution facility, and 

(K) A concise summary of the 

applicant’s activity in the cash markets 

for the commodity underlying the 

commodity derivative position; and 

(ii) The summary of any nonenumerated bona fide hedging position 

published pursuant to paragraph (a)(7) 

of this section, or revised, since the last 

summary submitted to the Commission. 

(2) Unless otherwise instructed by the 

Commission, a designated contract 

market or swap execution facility that 

elects to process non-enumerated bona 

fide hedging position applications shall 

submit to the Commission, no less 

frequently than monthly, any report 

such designated contract market or 

swap execution facility requires to be 

submitted by an applicant to such 

designated contract market or swap 

execution facility pursuant to rules 

required under paragraph (a)(6) of this 

section. 

(3) Unless otherwise instructed by the 

Commission, a designated contract 

market or swap execution facility that 

elects to process non-enumerated bona 

fide hedging position applications shall 

submit to the Commission the 

information required by paragraphs 

(c)(1) and (2) of this section, as follows: 

(i) As specified by the Commission on 

the Forms and Submissions page at 

www.cftc.gov; 

(ii) Using the format, coding structure, 

and electronic data transmission 

procedures approved in writing by the 

Commission; and 

(iii) Not later than 9:00 a.m. Eastern 

time on the third business day following 

the date of the report. 

(d) Review of applications by the 

Commission. (1) The Commission may 

in its discretion at any time review any 

non-enumerated bona fide hedging 

position application submitted to a 

designated contract market or swap 

execution facility, and all records 

required to be kept by such designated 

contract market or swap execution 

facility pursuant to paragraph (b) of this 

section in connection with such 

application, for any purpose, including 

to evaluate whether the disposition of 

the application is consistent with 

section 4a(c) of the Act and the general 

definition of bona fide hedging position 

in § 150.1. 

(i) The Commission may request from 

such designated contract market or 

swap execution facility records required 

to be kept by such designated contract 

market or swap execution facility 

pursuant to paragraph (b) of this section 

in connection with such application. 

(ii) The Commission may request 

additional information in connection 

with such application from such 

designated contract market or swap 

execution facility or from the applicant. 

(2) If the Commission preliminarily 

determines that any non-enumerated 

bona fide hedging position application 

or the disposition thereof by a 

designated contract market or swap 

execution facility presents novel or 

complex issues that require additional 

time to analyze, or that an application 

or the disposition thereof by such 

designated contract market or swap 

execution facility is potentially 

inconsistent with section 4a(c) of the 

Act and the general definition of bona 

fide hedging position in § 150.1, the 

Commission shall: 

(i) Notify such designated contract 

market or swap execution facility and 

the applicable applicant of the issues 

identified by the Commission; and 

(ii) Provide them with 10 business 

days in which to provide the 

Commission with any supplemental 

information. 

(3) The Commission shall determine 

whether it is appropriate to recognize 

the derivative position for which such 

application has been submitted as a 

non-enumerated bona fide hedging 

position, or whether the disposition of 

such application by such designated 

contract market or swap execution 

facility is consistent with section 4a(c) 

the Act and the general definition of 

bona fide hedging position in § 150.1. 

(4) If the Commission determines that 

the disposition of such application is 

inconsistent with section 4a(c) of the 

Act and the general definition of bona 

fide hedging position in § 150.1, the 

Commission shall notify the applicant 

and grant the applicant a commercially 

reasonable amount of time to liquidate 

the derivative position or otherwise 

come into compliance. This notification 

will briefly specify the nature of the 

issues raised and the specific provisions 

of the Act or the Commission’s 

regulations with which the application 

is, or appears to be, inconsistent. 

(e) Review of summaries by the 

Commission. The Commission may in 

its discretion at any time review any 

summary of a type of non-enumerated 

bona fide hedging position required to 

be published on a designated contract 

market’s or swap execution facility’s 

Web site pursuant to paragraph (a)(7) of 

this section for any purpose, including 

to evaluate whether the summary 

promotes transparency and fair and 

open access by all market participants to 

information regarding bona fide hedges. 

If the Commission determines that a 

summary is deficient in any way, the 

Commission shall notify such 

designated contract market or swap 

execution facility, and grant to the 

designated contract market or swap 


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execution facility a reasonable amount 

of time to revise the summary. 

(f) Delegation of authority to the 

Director of the Division of Market 

Oversight. (1) 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: 

(i) In paragraph (a)(8) of this section 

to agree to or reject a request by a 

designated contract market or swap 

execution facility to consider a nonenumerated bona fide hedging position 

application; 

(ii) In paragraph (c) of this section to 

provide instructions regarding the 

submission to the Commission of 

information required to be reported by 

a designated contract market or swap 

execution facility, to specify the manner 

for submitting such information on the 

Forms and Submissions page at 

www.cftc.gov, and to determine the 

format, coding structure, and electronic 

data transmission procedures for 

submitting such information; 

(iii) In paragraph (d)(1) of this section 

to review any non-enumerated bona fide 

hedging position application and all 

records required to be kept by a 

designated contract market or swap 

execution facility in connection with 

such application, to request such 

records from such designated contract 

market or swap execution facility, and 

to request additional information in 

connection with such application from 

such designated contract market or 

swap execution facility or from the 

applicant; 

(iv) In paragraph (d)(2) of this section 

to preliminarily determine that a nonenumerated bona fide hedging position 

application or the disposition thereof by 

a designated contract market or swap 

execution facility presents novel or 

complex issues that require additional 

time to analyze, or that such application 

or the disposition thereof is potentially 

inconsistent with section 4a(c) of the 

Act and the general definition of bona 

fide hedging position in § 150.1, to 

notify the designated contract market or 

swap execution facility and the 

applicable applicant of the issues 

identified, and to provide them with 10 

business days in which to file 

supplemental information; and 

(v) In paragraph (e) of this section to 

review any summary of a type of nonenumerated bona fide hedging position 

required to be published on a 

designated contract market’s or swap 

execution facility’s Web site, to 

determine that any such summary is 

deficient, to notify a designated contract 

market or swap execution facility of a 

deficient summary, and to grant such 

designated contract market or swap 

execution facility a reasonable amount 

of time to revise such summary. 

(2) 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. 

(3) Nothing in this section prohibits 

the Commission, at its election, from 

exercising the authority delegated in 

this section. 

§ 150.10 Process for designated contract 

market or swap execution facility exemption 

from position limits for certain spread 

positions. 

(a) Requirements for a designated 

contract market or swap execution 

facility to exempt from position limits 

certain positions normally known to the 

trade as spreads. (1) A designated 

contract market or swap execution 

facility that elects to process 

applications for exemptions from 

position limits for certain positions 

normally known to the trade as spreads 

shall maintain rules, submitted to the 

Commission pursuant to part 40 of this 

chapter, establishing an application 

process for exempting positions 

normally known to the trade as spreads 

consistent with the requirements of this 

section. A designated contract market or 

swap execution facility may elect to 

process applications for such spread 

exemptions only if, in each case: 

(i) Such designated contract market or 

swap execution facility lists for trading 

at least one contract that is either a 

component of the spread or a referenced 

contract that is a component of the 

spread; 

(ii) The contract, in paragraph (a)(1)(i) 

of this section, in a particular 

commodity is actively traded on such 

designated contract market or swap 

execution facility; 

(iii) Such designated contract market 

or swap execution facility has 

established position limits for at least 

one contract that is either a component 

of the spread or a referenced contract 

that is a component of the spread; and 

(iv) Such designated contract market 

or swap execution facility has at least 

one year of experience and expertise 

administering position limits for at least 

one contract that is either a component 

of the spread or a referenced contract 

that is a component of the spread. A 

designated contract market or swap 

execution facility shall not approve a 

spread exemption involving a 

commodity index contract and one or 

more referenced contracts. 

(2) Spreads that a designated contract 

market or swap execution facility may 

approve under this section include: 

(i) Calendar spreads; 

(ii) Quality differential spreads; 

(iii) Processing spreads; and 

(iv) Product or by-product differential 

spreads. 

(3) Any application process that is 

established by a designated contract 

market or swap execution facility under 

this section shall elicit sufficient 

information to allow the designated 

contract market or swap execution 

facility to determine, and the 

Commission to verify, whether the facts 

and circumstances demonstrate that it is 

appropriate to exempt a spread position 

from position limits, including at a 

minimum: 

(i) A description of the spread 

position for which the application is 

submitted; 

(ii) Information to demonstrate why 

the spread position should be exempted 

from position limits, including how the 

exemption would further the purposes 

of section 4a(a)(3)(B) of the Act; 

(iii) A statement concerning the 

maximum size of all gross positions in 

derivative contracts for which the 

application is submitted; and 

(iv) Any other information necessary 

to enable the designated contract market 

or swap execution facility to determine, 

and the Commission to verify, whether 

it is appropriate to exempt such spread 

position from position limits. 

(4) Under any application process 

established under this section, a 

designated contract market or swap 

execution facility shall: 

(i) Require each person requesting an 

exemption from position limits for its 

spread position to submit an 

application, to reapply at least on an 

annual basis by updating that 

application, and to receive approval in 

advance of the date that such position 

would be in excess of the limits then in 

effect pursuant to section 4a of the Act; 

(ii) Notify an applicant in a timely 

manner if a submitted application is not 

complete. If an applicant does not 

amend or resubmit such application 

within a reasonable amount of time after 

such notice, a designated contract 

market or swap execution facility may 

reject the application; 

(iii) Determine in a timely manner 

whether a spread position for which a 

complete application has been 

submitted satisfies the requirements of 

paragraph (a)(4)(vi) of this section, and 

whether it is appropriate to exempt such 

spread position from position limits; 

(iv) Have the authority to revoke, at 

any time, any spread exemption issued 

pursuant to this section if it determines 


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the spread exemption no longer satisfies 

the requirements of paragraph (a)(4)(vi) 

of this section and it is no longer 

appropriate to exempt the spread from 

position limits; 

(v) Notify an applicant in a timely 

manner: 

(A) That a spread position for which 

a complete application has been 

submitted has been exempted by the 

designated contract market or swap 

execution facility from position limits, 

and the details and all conditions of 

such exemption; 

(B) That its application is rejected, 

including the reasons for such rejection; 

or 

(C) That the designated contract 

market or swap execution facility has 

asked the Commission to consider the 

application under paragraph (a)(8) of 

this section; and 

(vi) Determine whether exempting the 

spread position from position limits 

would, to the maximum extent 

practicable, ensure sufficient market 

liquidity for bona fide hedgers, and not 

unreasonably reduce the effectiveness of 

position limits to: 

(A) Diminish, eliminate or prevent 

excessive speculation; 

(B) Deter and prevent market 

manipulation, squeezes, and corners; 

and 

(C) Ensure that the price discovery 

function of the underlying market is not 

disrupted. 

(5) An applicant’s derivatives position 

shall be deemed to be recognized as a 

spread position exempt from federal 

position limits at the time that a 

designated contract market or swap 

execution facility notifies an applicant 

that such designated contract market or 

swap execution facility will exempt 

such spread position. 

(6) A designated contract market or 

swap execution facility that elects to 

process applications to exempt spread 

positions from position limits shall file 

new rules or rule amendments pursuant 

to part 40 of this chapter, establishing or 

amending requirements for an applicant 

to file reports pertaining to the use of 

any such exemption that has been 

granted in the manner, form, and 

frequency, as determined by the 

designated contract market or swap 

execution facility. 

(7) After exemption of each unique 

type of spread position, a designated 

contract market or swap execution 

facility shall publish on its Web site, on 

at least a quarterly basis, a summary 

describing the type of spread position 

and explaining why it was exempted. 

(8) If a spread exemption application 

presents complex issues or is potentially 

inconsistent with the purposes of 

section 4a(a)(3)(B) of the Act, a 

designated contract market or swap 

execution facility may ask the 

Commission to consider the application 

under the process set forth in paragraph 

(d) of this section. The Commission 

may, in its discretion, agree to or reject 

any such request by a designated 

contract market or swap execution 

facility. 

(b) Recordkeeping. (1) A designated 

contract market or swap execution 

facility that elects to process spread 

exemption applications shall keep full, 

complete, and systematic records, 

which include all pertinent data and 

memoranda, of all activities relating to 

the processing of such applications and 

the disposition thereof, including the 

exemption of any spread position, the 

revocation or modification of any 

exemption, the rejection by the 

designated contract market or swap 

execution facility of an application, or 

the withdrawal, supplementation or 

updating of an application by the 

applicant. Included among such records 

shall be: 

(i) All information and documents 

submitted by an applicant in connection 

with its application; 

(ii) Records of oral and written 

communications between such 

designated contract market or swap 

execution facility and such applicant in 

connection with such application; and 

(iii) All information and documents in 

connection with such designated 

contract market’s or swap execution 

facility’s analysis of and action on such 

application. 

(2) All books and records required to 

be kept pursuant to this section shall be 

kept in accordance with the 

requirements of § 1.31 of this chapter. 

(c) Reports to the Commission. (1) A 

designated contract market or swap 

execution facility that elects to process 

spread exemption applications shall 

submit to the Commission a report for 

each week as of the close of business on 

Friday showing the following 

information: 

(i) The disposition of any spread 

exemption application, including the 

exemption of any spread position, the 

revocation or modification of any 

exemption, or the rejection of any 

application, as well as the following 

details: 

(A) The date of disposition, 

(B) The effective date of the 

disposition, 

(C) The expiration date of any 

exemption, 

(D) Any unique identifier assigned by 

the designated contract market or swap 

execution facility to track the 

application, 

(E) Any unique identifier assigned by 

the designated contract market or swap 

execution facility to a type of exempt 

spread position, 

(F) The identity of the applicant, 

(G) The listed commodity derivative 

contract to which the application 

pertains, 

(H) The underlying cash commodity, 

(I) The size limitations on any exempt 

spread position, specified by contract 

month if applicable, and 

(J) Any conditions on the exemption; 

and 

(ii) The summary of any exempt 

spread position newly published 

pursuant to paragraph (a)(7) of this 

section, or revised, since the last 

summary submitted to the Commission. 

(2) Unless otherwise instructed by the 

Commission, a designated contract 

market or swap execution facility that 

elects to process applications to exempt 

spread positions from position limits 

shall submit to the Commission, no less 

frequently than monthly, any report 

such designated contract market or 

swap execution facility requires to be 

submitted by an applicant to such 

designated contract market or swap 

execution facility pursuant to rules 

required by paragraph (a)(6) of this 

section. 

(3) Unless otherwise instructed by the 

Commission, a designated contract 

market or swap execution facility that 

elects to process applications to exempt 

spread positions from position limits 

shall submit to the Commission the 

information required by paragraphs 

(c)(1) and (2) of this section, as follows: 

(i) As specified by the Commission on 

the Forms and Submissions page at 

www.cftc.gov; 

(ii) Using the format, coding structure, 

and electronic data transmission 

procedures approved in writing by the 

Commission; and 

(iii) Not later than 9:00 a.m. Eastern 

time on the third business day following 

the date of the report. 

(d) Review of applications by the 

Commission. (1) The Commission may 

in its discretion at any time review any 

spread exemption application submitted 

to a designated contract market or swap 

execution facility, and all records 

required to be kept by such designated 

contract market or swap execution 

facility pursuant to paragraph (b) of this 

section in connection with such 

application, for any purpose, including 

to evaluate whether the disposition of 

the application is consistent with the 

purposes of section 4a(a)(3)(B) of the 

Act. 

(i) The Commission may request from 

such designated contract market or 

swap execution facility records required 


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to be kept by such designated contract 

market or swap execution facility 

pursuant to paragraph (b) of this section 

in connection with such application. 

(ii) The Commission may request 

additional information in connection 

with such application from such 

designated contract market or swap 

execution facility or from the applicant. 

(2) If the Commission preliminarily 

determines that any application to 

exempt a spread position from position 

limits, or the disposition thereof by a 

designated contract market or swap 

execution facility, presents novel or 

complex issues that require additional 

time to analyze, or that an application 

or the disposition thereof by such 

designated contract market or swap 

execution facility is potentially 

inconsistent with the Act, the 

Commission shall: 

(i) Notify such designated contract 

market or swap execution facility and 

the applicable applicant of the issues 

identified by the Commission; and 

(ii) Provide them with 10 business 

days in which to provide the 

Commission with any supplemental 

information. 

(3) The Commission shall determine 

whether it is appropriate to exempt the 

spread position for which such 

application has been submitted from 

position limits, or whether the 

disposition of such application by such 

designated contract market or swap 

execution facility is consistent with the 

purposes of section 4a(a)(3)(B) of the 

Act. 

(4) If the Commission determines that 

it is not appropriate to exempt the 

spread position for which such 

application has been submitted from 

position limits, or that the disposition of 

such application is inconsistent with 

the Act, the Commission shall notify the 

applicant and grant the applicant a 

commercially reasonable amount of 

time to liquidate the spread position or 

otherwise come into compliance. This 

notification will briefly specify the 

nature of the issues raised and the 

specific provisions of the Act or the 

Commission’s regulations with which 

the application is, or appears to be, 

inconsistent. 

(e) Review of summaries by the 

Commission. The Commission may in 

its discretion at any time review any 

summary of a type of spread position 

required to be published on a 

designated contract market’s or swap 

execution facility’s Web site pursuant to 

paragraph (a)(7) of this section for any 

purpose, including to evaluate whether 

the summary promotes transparency 

and fair and open access by all market 

participants to information regarding 

spread exemptions. If the Commission 

determines that a summary is deficient 

in any way, the Commission shall notify 

such designated contract market or 

swap execution facility, and grant to the 

designated contract market or swap 

execution facility a reasonable amount 

of time to revise the summary. 

(f) Delegation of authority to the 

Director of the Division of Market 

Oversight. (1) 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: 

(i) In paragraph (a)(8) of this section 

to agree to or reject a request by a 

designated contract market or swap 

execution facility to consider a spread 

exemption application; 

(ii) In paragraph (c) of this section to 

provide instructions regarding the 

submission to the Commission of 

information required to be reported by 

a designated contract market or swap 

execution facility, to specify the manner 

for submitting such information on the 

Forms and Submissions page at 

www.cftc.gov, and to determine the 

format, coding structure, and electronic 

data transmission procedures for 

submitting such information; 

(iii) In paragraph (d)(1) of this section 

to review any spread exemption 

application and all records required to 

be kept by a designated contract market 

or swap execution facility in connection 

with such application, to request such 

records from such designated contract 

market or swap execution facility, and 

to request additional information in 

connection with such application from 

such designated contract market or 

swap execution facility, or from the 

applicant; 

(iv) In paragraph (d)(2) of this section 

to preliminarily determine that a spread 

exemption application or the 

disposition thereof by a designated 

contract market or swap execution 

facility presents complex issues that 

require additional time to analyze, or 

that such application or the disposition 

thereof is potentially inconsistent with 

the Act, to notify the designated 

contract market or swap execution 

facility and the applicable applicant of 

the issues identified, and to provide 

them with 10 business days in which to 

file supplemental information; and 

(v) In paragraph (e) of this section to 

review any summary of a type of spread 

exemption required to be published on 

a designated contract market’s or swap 

execution facility’s Web site, to 

determine that any such summary is 

deficient, to notify a designated contract 

market or swap execution facility of a 

deficient summary, and to grant such 

designated contract market or swap 

execution facility a reasonable amount 

of time to revise such summary. 

(2) 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. 

(3) Nothing in this section prohibits 

the Commission, at its election, from 

exercising the authority delegated in 

this section. 

§ 150.11 Process for recognition of 

positions as bona fide hedges for unfilled 

anticipated requirements, unsold 

anticipated production, anticipated 

royalties, anticipated service contract 

payments or receipts, or anticipatory crosscommodity hedge positions. 

(a) Requirements for a designated 

contract market or swap execution 

facility to recognize certain enumerated 

anticipatory bona fide hedging 

positions. (1) A designated contract 

market or swap execution facility that 

elects to process applications for 

recognition of positions as hedges of 

unfilled anticipated requirements, 

unsold anticipated production, 

anticipated royalties, anticipated service 

contract payments or receipts, or 

anticipatory cross-commodity hedges 

under the provisions of paragraphs 

(3)(iii), (4)(i), (iii), (iv), or (5), 

respectively, of the definition of bona 

fide hedging position in § 150.1 shall 

maintain rules, submitted to the 

Commission pursuant to part 40 of this 

chapter, establishing an application 

process for such anticipatory bona fide 

hedges consistent with the requirements 

of this section. A designated contract 

market or swap execution facility may 

elect to process such anticipatory hedge 

applications for positions in commodity 

derivative contracts only if, in each 

case: 

(i) The commodity derivative contract 

is a referenced contract; 

(ii) Such designated contract market 

or swap execution facility lists such 

commodity derivative contract for 

trading; 

(iii) Such commodity derivative 

contract is actively traded on such 

derivative contract market; 

(iv) Such designated contract market 

or swap execution facility has 

established position limits for such 

commodity derivative contract; and 

(v) Such designated contract market 

or swap execution facility has at least 

one year of experience and expertise 

administering position limits for a 

referenced contract in a particular 

commodity. 

(2) Any application process that is 

established by a designated contract 


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market or swap execution facility shall 

require, at a minimum, the information 

required under § 150.7(d). 

(3) Under any application process 

established under this section, a 

designated contract market or swap 

execution facility shall: 

(i) Require each person intending to 

exceed position limits to submit an 

application, and to reapply at least on 

an annual basis by updating that 

application, as required under 

§ 150.7(d), and to receive notice of 

recognition from the designated contract 

market or swap execution facility of a 

position as a bona fide hedging position 

in advance of the date that such position 

would be in excess of the limits then in 

effect pursuant to section 4a of the Act; 

(ii) Notify an applicant in a timely 

manner if a submitted application is not 

complete. If the applicant does not 

amend or resubmit such application 

within a reasonable amount of time after 

notification from the designated 

contract market or swap execution 

facility, the designated contract market 

or swap execution facility may reject the 

application; 

(iii) Inform an applicant within ten 

days of receipt of such application by 

the designated contract market or swap 

execution facility that: 

(A) The derivative position for which 

a complete application has been 

submitted has been recognized by the 

designated contract market or swap 

execution facility as a bona fide hedging 

position, and the details and all 

conditions of such recognition; 

(B) The application is rejected, 

including the reasons for such rejection; 

or 

(C) The designated contract market or 

swap execution facility has asked the 

Commission to consider the application 

under paragraph (a)(6) of this section; 

and 

(iv) Have the authority to revoke, at 

any time, any recognition issued 

pursuant to this section if it determines 

the position no longer complies with the 

filing requirements under paragraph 

(a)(2) of this section. 

(4) An applicant’s derivatives position 

shall be deemed to be recognized as a 

bona fide hedging position at the time 

that a designated contract market or 

swap execution facility notifies an 

applicant that such designated contract 

market or swap execution facility will 

recognize such position as a bona fide 

hedging position. 

(5) A designated contract market or 

swap execution facility that elects to 

process bona fide hedging position 

applications shall file new rules or rule 

amendments pursuant to part 40 of this 

chapter, establishing or amending 

requirements for an applicant to file the 

supplemental reports, as required under 

§ 150.7(e), pertaining to the use of any 

such exemption that has been granted. 

(6) A designated contract market or 

swap execution facility may ask the 

Commission to consider any application 

made under this section. The 

Commission may, in its discretion, agree 

to or reject any such request by a 

designated contract market or swap 

execution facility, provided that, if the 

Commission agrees to the request, it will 

have 10 business days from the time of 

the request to carry out its review. 

(b) Recordkeeping. (1) A designated 

contract market or swap execution 

facility that elects to process bona fide 

hedging position applications under this 

section shall keep full, complete, and 

systematic records, which include all 

pertinent data and memoranda, of all 

activities relating to the processing of 

such applications and the disposition 

thereof, including the recognition of any 

derivative position as a bona fide 

hedging position, the revocation or 

modification of any recognition, the 

rejection by the designated contract 

market or swap execution facility of an 

application, or withdrawal, 

supplementation or updating of an 

application. Included among such 

records shall be: 

(i) All information and documents 

submitted by an applicant in connection 

with its application; 

(ii) Records of oral and written 

communications between such 

designated contract market or swap 

execution facility and such applicant in 

connection with such application; and 

(iii) All information and documents in 

connection with such designated 

contract market’s or swap execution 

facility’s analysis of and action on such 

application. 

(2) All books and records required to 

be kept pursuant to this section shall be 

kept in accordance with the 

requirements of § 1.31 of this chapter. 

(c) Reports to the Commission. (1) A 

designated contract market or swap 

execution facility that elects to process 

bona fide hedging position applications 

under this section shall submit to the 

Commission a report for each week as 

of the close of business on Friday 

showing the following information: 

(i) The disposition of any application, 

including the recognition of any 

position as a bona fide hedging position, 

the revocation or modification of any 

recognition, as well as the following 

details: 

(A) The date of disposition, 

(B) The effective date of the 

disposition, 

(C) The expiration date of any 

recognition, 

(D) Any unique identifier assigned by 

the designated contract market or swap 

execution facility to track the 

application, 

(E) Any unique identifier assigned by 

the designated contract market or swap 

execution facility to a bona fide hedge 

recognized under this section; 

(F) The identity of the applicant, 

(G) The listed commodity derivative 

contract to which the application 

pertains, 

(H) The underlying cash commodity, 

(I) The maximum size of the 

commodity derivative position that is 

recognized by the designated contract 

market or swap execution facility as a 

bona fide hedging position, 

(J) Any size limitation established for 

such commodity derivative position on 

the designated contract market or swap 

execution facility, and 

(K) A concise summary of the 

applicant’s activity in the cash market 

for the commodity underlying the 

position for which the application was 

submitted. 

(2) Unless otherwise instructed by the 

Commission, a designated contract 

market or swap execution facility that 

elects to process bona fide hedging 

position applications shall submit to the 

Commission the information required 

by paragraph (c)(1) of this section, as 

follows: 

(i) As specified by the Commission on 

the Forms and Submissions page at 

www.cftc.gov; 

(ii) Using the format, coding structure, 

and electronic data transmission 

procedures approved in writing by the 

Commission; and 

(iii) Not later than 9:00 a.m. Eastern 

time on the third business day following 

the date of the report. 

(d) Review of applications by the 

Commission. (1) The Commission may 

in its discretion at any time review any 

bona fide hedging position application 

submitted to a designated contract 

market or swap execution facility under 

this section, and all records required to 

be kept by such designated contract 

market or swap execution facility 

pursuant to paragraph (b) of this section 

in connection with such application, for 

any purpose, including to evaluate 

whether the disposition of the 

application is consistent with the Act. 

(i) The Commission may request from 

such designated contract market or 

swap execution facility records required 

to be kept by such designated contract 

market or swap execution facility 

pursuant to paragraph (b) of this section 

in connection with such application. 


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(ii) The Commission may request 

additional information in connection 

with such application from such 

designated contract market or swap 

execution facility or from the applicant. 

(2) If the Commission preliminarily 

determines that any anticipatory hedge 

application is inconsistent with the 

filing requirements of § 150.11(a)(2), the 

Commission shall: 

(i) Notify such designated contract 

market or swap execution facility and 

the applicable applicant of the 

deficiencies identified by the 

Commission; and 

(ii) Provide them with 10 business 

days in which to provide the 

Commission with any supplemental 

information. 

(3) If the Commission determines that 

the anticipatory hedge application is 

inconsistent with the filing 

requirements of § 150.11(a)(2), the 

Commission shall notify the applicant 

and grant the applicant a commercially 

reasonable amount of time to liquidate 

the derivative position or otherwise 

come into compliance. This notification 

will briefly specify the specific 

provisions of the filing requirements of 

§ 150.11(a)(2), with which the 

application is, or appears to be, 

inconsistent. 

(e) Delegation of authority to the 

Director of the Division of Market 

Oversight. (1) 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: 

(i) In paragraph (a)(6) of this section 

to agree to or reject a request by a 

designated contract market or swap 

execution facility to consider a bona 

fide hedge application; 

(ii) In paragraph (c) of this section to 

provide instructions regarding the 

submission to the Commission of 

information required to be reported by 

a designated contract market or swap 

execution facility, to specify the manner 

for submitting such information on the 

Forms and Submissions page at 

www.cftc.gov, and to determine the 

format, coding structure, and electronic 

data transmission procedures for 

submitting such information; 

(iii) In paragraph (d)(1) of this section 

to review any bona fide hedging 

position application and all records 

required to be kept by a designated 

contract market or swap execution 

facility in connection with such 

application, to request such records 

from such designated contract market or 

swap execution facility, and to request 

additional information in connection 

with such application from such 

designated contract market or swap 

execution facility or from the applicant; 

and 

(iv) In paragraph (d)(2) of this section 

to determine that it is not appropriate to 

recognize a derivative position for 

which an application for recognition has 

been submitted as a bona fide hedging 

position, or that the disposition of such 

application by a designated contract 

market or swap execution facility is 

inconsistent with the Act, and, in 

connection with such a determination, 

to grant the applicant a reasonable 

amount of time to liquidate the 

derivative position or otherwise come 

into compliance. 

(2) 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. 

(3) Nothing in this section prohibits 

the Commission, at its election, from 

exercising the authority delegated in 

this section. 

■ 28. In Part 150, add Appendices A 

through E to read as follows: 

Appendix A to Part 150—Guidance on 

Risk Management Exemptions for 

Commodity Derivative Contracts in 

Excluded Commodities 

(1) This appendix provides non-exclusive 

interpretative guidance on risk management 

exemptions for commodity derivative 

contracts in excluded commodities permitted 

under the definition of bona fide hedging 

position in § 150.1. The rules of a designated 

contract market or swap execution facility 

that is a trading facility may recognize 

positions consistent with this guidance as 

bona fide hedging positions. The 

Commission recognizes that risk management 

positions in commodity derivative contracts 

in excluded commodities may not conform to 

the general definition of bona fide hedging 

positions applicable to commodity derivative 

contracts in physical commodities, as 

provided under section 4a(c)(2) of the Act, 

and may not conform to enumerated bona 

fide hedging positions applicable to 

commodity derivative contracts in physical 

commodities under the definition of bona 

fide hedging position in § 150.1. 

This interpretative guidance for core 

principle 5 for designated contract markets, 

section 5(d)(5) of the Act, and core principle 

6 for swap execution facilities that are 

trading facilities, section 5h(f)(6) of the Act, 

is illustrative only of the types of positions 

for which a trading facility may elect to 

provide a risk management exemption and is 

not intended to be used as a mandatory 

checklist. Other positions might also be 

included appropriately within a risk 

management exemption. 

(2)(a) No temporary substitute criterion. 

Risk management positions in commodity 

derivative contracts in excluded commodities 

need not be expected to represent a substitute 

for a subsequent transaction or position in a 

physical marketing channel. There need not 

be any requirement to replace a commodity 

derivative contract with a cash market 

position in order to qualify for a risk 

management exemption. 

(b) Cross-commodity hedging is permitted. 

Risks that are offset in commodity derivative 

contracts in excluded commodities need not 

arise from the same commodities underlying 

the commodity derivative contracts. For 

example, a trading facility may recognize a 

risk management exemption based on the net 

interest rate risk arising from a bank’s 

balance sheet of loans and deposits that is 

offset using Treasury security futures 

contracts or short-term interest rate futures 

contracts. 

(3) Examples of risk management 

positions. This section contains examples of 

risk management positions that may be 

appropriate for management of risk in the 

operation of a commercial enterprise. 

(a) Balance sheet hedging. A commercial 

enterprise may have risks arising from its net 

position in assets and liabilities. 

(i) Foreign currency translation. One form 

of balance sheet hedging involves offsetting 

net exposure to changes in currency 

exchange rates for the purpose of stabilizing 

the domestic dollar accounting value of net 

assets and/or liabilities which are 

denominated in a foreign currency. For 

example, a bank may make loans in a foreign 

currency and take deposits in that same 

foreign currency. Such a bank is exposed to 

net foreign currency translation risk when 

the amount of loans is not equal to the 

amount of deposits. A bank with a net long 

exposure to a foreign currency may hedge by 

establishing an offsetting short position in a 

foreign currency commodity derivative 

contract. 

(ii) Interest rate risk. Another form of 

balance sheet hedging involves offsetting net 

exposure to changes in values of assets and 

liabilities of differing durations. Examples 

include: 

(A) A pension fund may invest in short 

term securities and have longer term 

liabilities. Such a pension fund has a 

duration mismatch. Such a pension fund may 

hedge by establishing a long position in 

Treasury security futures contracts to 

lengthen the duration of its assets to match 

the duration of its liabilities. This is 

economically equivalent to using a long 

position in Treasury security futures 

contracts to shorten the duration of its 

liabilities to match the duration of its assets. 

(B) A bank may make a certain amount of 

fixed-rate loans of one maturity and fund 

such assets through taking fixed-rate deposits 

of a shorter maturity. Such a bank is exposed 

to interest rate risk, in that an increase in 

interest rates may result in a greater decline 

in value of the assets than the decline in 

value of the deposit liabilities. A bank may 

hedge by establishing a short position in 

short-term interest rate futures contracts to 

lengthen the duration of its liabilities to 

match the duration of its assets. This is 

economically equivalent to using a short 

position in short-term interest rate futures 

contracts, for example, to shorten the 

duration of its assets to match the duration 

of its liabilities. 

(b) Unleveraged synthetic positions. An 

investment fund may have risks arising from 


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a delayed investment in an asset allocation 

promised to investors. Such a fund may 

synthetically gain exposure to an asset class 

using a risk management strategy of 

establishing a long position in commodity 

derivative contracts that does not exceed 

cash set aside in an identifiable manner, 

including short-term investments, any funds 

deposited as margin and accrued profits on 

such commodity derivative contract 

positions. For example: 

(i) A collective investment fund that 

invests funds in stocks pursuant to an asset 

allocation strategy may obtain immediate 

stock market exposure upon receipt of new 

monies by establishing a long position in 

stock index futures contracts (‘‘equitizing 

cash’’). Such a long position may qualify as 

a risk management exemption under trading 

facility rules provided such long position 

does not exceed the cash set aside. The long 

position in stock index futures contracts need 

not be converted to a position in stock. 

(ii) Upon receipt of new funds from 

investors, an insurance company that invests 

in bond holdings for a separate account 

wishes to lengthen synthetically the duration 

of the portfolio by establishing a long 

position in Treasury futures contracts. Such 

a long position may qualify as a risk 

management exemption under trading 

facility rules provided such long position 

does not exceed the cash set aside. The long 

position in Treasury futures contracts need 

not be converted to a position in bonds. 

(c) Temporary asset allocations. A 

commercial enterprise may have risks arising 

from potential transactional costs in 

temporary asset allocations (altering portfolio 

exposure to certain asset classes such as 

equity securities and debt securities). Such 

an enterprise may hedge existing assets 

owned by establishing a short position in an 

appropriate commodity derivative contract 

and synthetically gain exposure to an 

alternative asset class using a risk 

management strategy of establishing a long 

position in another commodity derivative 

contract that does not exceed: the value of 

the existing asset at the time the temporary 

asset allocation is established or, in the 

alternative, the hedged value of the existing 

asset plus any accrued profits on such risk 

management positions. For example: 

(i) A collective investment fund that 

invests funds in bonds and stocks pursuant 

to an asset allocation strategy may believe 

that market considerations favor a temporary 

increase in the fund’s equity exposure 

relative to its bond holdings. The fund 

manager may choose to accomplish the 

reallocation using commodity derivative 

contracts, such as a short position in 

Treasury security futures contracts and a long 

position in stock index futures contracts. The 

short position in Treasury security futures 

contracts may qualify as a hedge of interest 

rate risk arising from the bond holdings. A 

trading facility may adopt rules to recognize 

as a risk management exemption such a long 

position in stock index futures. 

(ii) Reserved. 

(4) Clarification of bona fides of short 

positions. 

(a) Calls sold. A seller of a call option 

establishes a short call option. A short call 

option is a short position in a commodity 

derivative contract with respect to the 

underlying commodity. A bona fide hedging 

position includes such a written call option 

that does not exceed in quantity the 

ownership or fixed-price purchase contracts 

in the contract’s underlying cash commodity 

by the same person. 

(b) Puts purchased and portfolio insurance. 

A buyer of a put option establishes a long put 

option. However, a long put option is a short 

position in a commodity derivative contract 

with respect to the underlying commodity. A 

bona fide hedging position includes such an 

owned put that does not exceed in quantity 

the ownership or fixed-price purchase 

contracts in the contract’s underlying cash 

commodity by the same person. 

The Commission also recognizes as bona 

fide hedging positions strategies that provide 

protection against a price decline equivalent 

to an owned position in a put option for an 

existing portfolio of securities owned. A 

dynamically managed short position in a 

futures contract may replicate the 

characteristics of a long position in a put 

option. 

(c) Synthetic short futures contracts. A 

person may establish a synthetic short 

futures position by purchasing a put option 

and selling a call option, when each option 

has the same notional amount, strike price, 

expiration date and underlying commodity. 

Such a synthetic short futures position is a 

short position in a commodity derivative 

contract with respect to the underlying 

commodity. A bona fide hedging position 

includes such a synthetic short futures 

position that does not exceed in quantity the 

ownership or fixed-price purchase contracts 

in the contract’s underlying cash commodity 

by the same person. 

Appendix B to Part 150—Commodities 

Listed as Substantially the Same for 

Purposes of the Definition of Location 

Basis Contract 

The following table lists core referenced 

futures contracts and commodities that are 

treated as substantially the same as a 

commodity underlying a core referenced 

futures contract for purposes of the definition 

of location basis contract in § 150.1. 

LOCATION BASIS CONTRACT LIST OF SUBSTANTIALLY THE SAME COMMODITIES

Core referenced futures contract 

Commodities considered substantially the 

same 

(regardless of location) 

Source(s) for specification of quality 

NYMEX Light Sweet Crude Oil futures contract 

(CL) 

1. Light Louisiana Sweet (LLS) Crude Oil ....... NYMEX Argus LLS vs. WTI (Argus) Trade 

Month futures contract (E5). 

NYMEX LLS (Argus) vs. WTI Financial futures 

contract (WJ). 

ICE Futures Europe Crude Diff—Argus LLS 

vs WTI 1st Line Swap futures contract 

(ARK). 

ICE Futures Europe Crude Diff—Argus LLS 

vs WTI Trade Month Swap futures contract 

(ARL). 

NYMEX New York Harbor ULSD Heating Oil futures contract (HO) 1. Chicago ULSD ............................................. NYMEX Chicago ULSD (Platts) vs. NY Harbor 

ULSD Heating Oil futures contract (5C). 

2. Gulf Coast ULSD ......................................... NYMEX Group Three ULSD (Platts) vs. NY 

Harbor ULSD Heating Oil futures contract 

(A6). 

NYMEX Gulf Coast ULSD (Argus) Up-Down 

futures contract (US). 

NYMEX Gulf Coast ULSD (Argus) Up-Down 

BALMO futures contract (GUD). 

NYMEX Gulf Coast ULSD (Platts) Up-Down 

BALMO futures contract (1L). 

NYMEX Gulf Coast ULSD (Platts) Up-Down 

Spread futures contract (LT). 


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LOCATION BASIS CONTRACT LIST OF SUBSTANTIALLY THE SAME COMMODITIES—Continued 

Core referenced futures contract 

Commodities considered substantially the 

same 

(regardless of location) 

Source(s) for specification of quality 

ICE Futures Europe Diesel Diff—Gulf Coast 

vs Heating Oil 1st Line Swap futures contract (GOH). 

CME Clearing Europe Gulf Coast ULSD( 

Platts) vs. New York Heating Oil (NYMEX) 

Spread Calendar swap (ELT). 

CME Clearing Europe New York Heating Oil 

(NYMEX) vs. European Gasoil (IC) Spread 

Calendar swap (EHA). 

3. California Air Resources Board Spec ULSD 

(CARB no. 2 oil).

NYMEX Los Angeles CARB Diesel (OPIS) vs. 

NY Harbor ULSD Heating Oil futures contract (KL). 

4. Gas Oil Deliverable in Antwerp, Rotterdam, 

or Amsterdam Area.

ICE Futures Europe Gasoil futures contract 

(G). 

ICE Futures Europe Heating Oil Arb—Heating 

Oil 1st Line vs Gasoil 1st Line Swap futures 

contract (HOT). 

ICE Futures Europe Heating Oil Arb—Heating 

Oil 1st Line vs Low Sulphur Gasoil 1st Line 

Swap futures contract (ULL). 

NYMEX NY Harbor ULSD Heating Oil vs. 

Gasoil futures contract (HA). 

NYMEX RBOB Gasoline futures contract (RB) 1. Chicago Unleaded 87 gasoline ................... NYMEX Chicago Unleaded Gasoline (Platts) 

vs. RBOB Gasoline futures contract (3C). 

NYMEX Group Three Unleaded Gasoline 

(Platts) vs. RBOB Gasoline futures contract 

(A8). 

2. Gulf Coast Conventional Blendstock for 

Oxygenated Blending (CBOB) 87.

NYMEX Gulf Coast CBOB Gasoline A1 

(Platts) vs. RBOB Gasoline futures contract 

(CBA). 

NYMEX Gulf Coast Unl 87 (Argus) Up-Down 

futures contract (UZ). 

3. Gulf Coast CBOB 87 (Summer Assessment).NYMEX Gulf Coast CBOB Gasoline A2 

(Platts) vs. RBOB Gasoline futures contract 

(CRB). 

4. Gulf Coast Unleaded 87 (Summer Assessment).NYMEX Gulf Coast 87 Gasoline M2 (Platts) 

vs. RBOB Gasoline futures contract (RVG). 

NYMEX Gulf Coast 87 Gasoline M2 (Platts) 

vs. RBOB Gasoline BALMO futures contract (GBB). 

NYMEX Gulf Coast 87 Gasoline M2 (Argus) 

vs. RBOB Gasoline BALMO futures contract (RBG). 

5. Gulf Coast Unleaded 87 .............................. NYMEX Gulf Coast Unl 87 (Platts) Up-Down 

BALMO futures contract (1K). 

NYMEX Gulf Coast Unl 87 Gasoline M1 

(Platts) vs. RBOB Gasoline futures contract 

(RV). 

CME Clearing Europe Gulf Coast Unleaded 

87 Gasoline M1 (Platts) vs. New York 

RBOB Gasoline (NYMEX) Spread Calendar 

swap (ERV). 

6. Los Angeles California Reformulated 

Blendstock for Oxygenate Blending 

(CARBOB) Regular.

NYMEX Los Angeles CARBOB Gasoline 

(OPIS) vs. RBOB Gasoline futures contract 

(JL). 

7. Los Angeles California Reformulated 

Blendstock for Oxygenate Blending 

(CARBOB) Premium.

NYMEX Los Angeles CARBOB Gasoline 

(OPIS) vs. RBOB Gasoline futures contract 

(JL). 

8. Euro-BOB OXY NWE Barges ...................... NYMEX RBOB Gasoline vs. Euro-bob Oxy 

NWE Barges (Argus) (1000mt) futures contract (EXR). 

CME Clearing Europe New York RBOB Gasoline (NYMEX) vs. European Gasoline Eurobob Oxy Barges NWE (Argus) (1000mt) 

Spread Calendar swap (EEXR). 

9. Euro-BOB OXY FOB Rotterdam ................. ICE Futures Europe Gasoline Diff—RBOB 

Gasoline 1st Line vs. Argus Euro-BOB OXY 

FOB Rotterdam Barge Swap futures contract (ROE). 


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1Participant A could also choose to hedge on a 

gross basis. In that event, Participant A could 

establish a short position in the March Chicago 

Board of Trade Corn futures contract equivalent to 

seven million bushels of corn to offset the price risk 

of its inventory and establish a long position in the 

May Chicago Board of Trade Corn futures contract 

equivalent to five million bushels of corn to offset 

the price risk of its fixed-price forward sale 

contracts. 

Appendix C to Part 150—Examples of 

Bona Fide Hedging Positions for 

Physical Commodities 

A non-exhaustive list of examples meeting 

the definition of bona fide hedging position 

under § 150.1 is presented below. With 

respect to a position that does not fall within 

an example in this appendix, a person 

seeking to rely on a bona fide hedging 

position exemption under § 150.3 may seek 

guidance from the Division of Market 

Oversight. References to paragraphs in the 

examples below are to the definition of bona 

fide hedging position in § 150.1. 

1. Portfolio Hedge Under Paragraph (3)(i) of 

the Bona Fide Hedging Definition 

Fact Pattern: It is currently January and 

Participant A owns seven million bushels of 

corn located in its warehouses. Participant A 

has entered into fixed-price forward sale 

contracts with several processors for a total 

of five million bushels of corn that will be 

delivered by May of this year. Participant A 

has no fixed-price corn purchase contracts. 

Participant A’s gross long cash position is 

equal to seven million bushels of corn. 

Because Participant A has sold forward five 

million bushels of corn, its net cash position 

is equal to long two million bushels of corn. 

To reduce price risk associated with 

potentially lower corn prices, Participant A 

chooses to establish a short position of 400 

contracts in the CBOT Corn futures contract, 

equivalent to two million bushels of corn, in 

the same crop year as the inventory. 

Analysis: The short position in a contract 

month in the current crop year for the CBOT 

Corn futures contract, equivalent to the 

amount of inventory held, satisfies the 

general requirements for a bona fide hedging 

position under paragraphs (2)(i)(A)–(C) and 

the provisions associated with owning a 

commodity under paragraph (3)(i).1 Because 

the firm’s net cash position is two million 

bushels of unsold corn, the firm is exposed 

to price risk. Participant A’s hedge of the two 

million bushels represents a substitute for a 

fixed-price forward sale at a later time in the 

physical marketing channel. The position is 

economically appropriate to the reduction of 

price risk because the short position in a 

referenced contract does not exceed the 

quantity equivalent risk exposure (on a net 

basis) in the cash commodity in the current 

crop year. Last, the hedge arises from a 

potential change in the value of corn owned 

by Participant A. 

2. Lending a Commodity and Hedge of Price 

Risk Under Paragraph (3)(i) of the Bona Fide 

Hedging Position Definition 

Fact Pattern: Bank B owns 1,000 ounces of 

gold that it lends to Jewelry Fabricator J at 

LIBOR plus a differential. Under the terms of 

the loan, Jewelry Fabricator J may later 

purchase the gold from Bank B at a 

differential to the prevailing price of the 

Commodity Exchange, Inc. (COMEX) Gold 

futures contract (i.e., an open-price purchase 

agreement is embedded in the terms of the 

loan). Jewelry Fabricator J intends to use the 

gold to make jewelry and reimburse Bank B 

for the loan using the proceeds from jewelry 

sales and either purchase gold from Bank B 

by paying the market price for gold or return 

the equivalent amount of gold to Bank B by 

purchasing gold at the market price. Because 

Bank B has retained the price risk on gold, 

the bank is concerned about its potential loss 

if the price of gold drops. The bank reduces 

the risk of a potential loss in the value of the 

gold by establishing a ten contract short 

position in the COMEX Gold futures contract, 

which has a unit of trading of 100 ounces of 

gold. The ten contract short position is 

equivalent to 1,000 ounces of gold. 

Analysis: This position meets the general 

requirements for bona fide hedging positions 

under paragraphs (2)(i)(A)–(C) and the 

requirements associated with owning a cash 

commodity under paragraph (3)(i). The 

physical commodity that is being hedged is 

the underlying cash commodity for the 

COMEX Gold futures contract. Bank B’s short 

hedge of the gold represents a substitute for 

a transaction to be made in the physical 

marketing channel (e.g., completion of the 

open-price sale to Jewelry Fabricator J). 

Because the notional quantity of the short 

position in the gold futures contract is equal 

to the amount of gold that Bank B owns, the 

hedge is economically appropriate to the 

reduction of risk. Finally, the short position 

in the commodity derivative contract offsets 

the potential change in the value of the gold 

owned by Bank B. 

3. Repurchase Agreements and Hedge of 

Inventory Under Paragraph (3)(i) of the Bona 

Fide Hedging Position Definition 

Fact Pattern: Elevator A purchased 500,000 

bushels of wheat in April and reduced its 

price risk by establishing a short position of 

100 contracts in the CBOT Wheat futures 

contract, equivalent to 500,000 bushels of 

wheat. Because the price of wheat rose 

steadily since April, Elevator A had to make 

substantial maintenance margin payments. 

To alleviate its cash flow concern about 

meeting further margin calls, Elevator A 

decides to enter into a repurchase agreement 

with Bank B and offset its short position in 

the wheat futures contract. The repurchase 

agreement involves two separate contracts: a 

fixed-price sale from Elevator A to Bank B at 

today’s spot price; and an open-price 

purchase agreement that will allow Elevator 

A to repurchase the wheat from Bank B at the 

prevailing spot price three months from now. 

Because Bank B obtains title to the wheat 

under the fixed-price purchase agreement, it 

is exposed to price risk should the price of 

wheat drop. Bank B establishes a short 

position of 100 contracts in the CBOT Wheat 

futures contract, equivalent to 500,000 

bushels of wheat. 

Analysis: Bank B’s position meets the 

general requirements for a bona fide hedging 

position under paragraphs (2)(i)(A)–(C) and 

the provisions for owning the cash 

commodity under paragraph (3)(i). The short 

position in referenced contracts by Bank B is 

a substitute for a fixed-price sales transaction 

to be taken at a later time in the physical 

marketing channel either to Elevator A or to 

another commercial party. The position is 

economically appropriate to the reduction of 

risk in the conduct and management of the 

commercial enterprise (Bank B) because the 

notional quantity of the short position in 

referenced contracts held by Bank B is not 

larger than the quantity of cash wheat 

purchased by Bank B. Finally, the short 

position in the CBOT Wheat futures contract 

reduces the price risk associated with owning 

cash wheat. 

4. Utility Hedge of Anticipated Customer 

Requirements Under Paragraph (3)(iii)(B) of 

the Bona Fide Hedging Position Definition 

Fact Pattern: A Natural Gas Utility A, 

regulated by State Public Utility Commission, 

decides to hedge its purchases of natural gas 

in order to reduce natural gas price risk on 

behalf of its residential customers. State 

Public Utility Commission considers the 

hedging practice to be prudent and allows 

gains and losses from hedging to be passed 

on to Natural Gas Utility A’s residential 

natural gas customers. Natural Gas Utility A 

has about one million residential customers 

who have average historical usage of about 

71.5 mmBTUs of natural gas per year per 

residence. The utility decides to hedge about 

70 percent of its residential customers’ 

anticipated requirements for the following 

year, equivalent to a 5,000 contract long 

position in the NYMEX Henry Hub Natural 

Gas futures contract. To reduce the risk of 

higher prices to residential customers, 

Natural Gas Utility A establishes a 5,000 

contract long position in the NYMEX Henry 

Hub Natural Gas futures contract. Since the 

utility is only hedging 70 percent of 

historical usage, Natural Gas Utility A is 

highly certain that realized demand will 

exceed its hedged anticipated residential 

customer requirements. 

Analysis: Natural Gas Utility A’s position 

meets the general requirements for a bona 

fide hedging position under paragraphs 

(2)(i)(A)–(C) and the provisions for hedges of 

unfilled anticipated requirements by a utility 

under paragraph (3)(iii)(B). The physical 

commodity that is being hedged involves a 

commodity underlying the NYMEX Henry 

Hub Natural Gas futures contract. The long 

position in the commodity derivative 

contract represents a substitute for 

transactions to be taken at a later time in the 

physical marketing channel. The position is 

economically appropriate to the reduction of 

price risk because the price of natural gas 

may increase. The commodity derivative 

contract position offsets the price risk of 

natural gas that the utility anticipates 

purchasing on behalf of its residential 

customers. As provided under paragraph 

(3)(iii), the risk-reducing position qualifies as 

a bona fide hedging position in the natural 

gas physical-delivery referenced contract 

during the spot month, provided that the 

position does not exceed the unfilled 

anticipated requirements for that month and 

for the next succeeding month. 


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2Put-call parity describes the mathematical 

relationship between price of a put and call with 

identical strike prices and expiry. 

5. Processor Margins Hedge Using Unfilled 

Anticipated Requirements Under Paragraph 

(3)(iii)(A) of the Bona Fide Hedging Position 

Definition and Anticipated Production Under 

Paragraph (4)(i) of the Definition 

Fact Pattern: Soybean Processor A has a 

total throughput capacity of 200 million 

bushels of soybeans per year (equivalent to 

40,000 CBOT soybean futures contracts). 

Soybean Processor A crushes soybeans into 

products (soybean oil and soybean meal). It 

currently has 40 million bushels of soybeans 

in storage and has offset that risk through 

fixed-price forward sales of the amount of 

products expected to be produced from 

crushing 40 million bushels of soybeans, thus 

locking in its processor margin on one 

million metric tons of soybeans. Because it 

has consistently operated its plants at full 

capacity over the last three years, it 

anticipates purchasing another 160 million 

bushels of soybeans to be delivered to its 

storage facility over the next year. It has not 

sold the 160 million bushels of anticipated 

production of crushed products forward. 

Processor A faces the risk that the difference 

in price relationships between soybeans and 

the crushed products (i.e., the crush spread) 

could change adversely, resulting in reduced 

anticipated processing margins. To hedge its 

processing margins and lock in the crush 

spread, Processor A establishes a long 

position of 32,000 contracts in the CBOT 

Soybean futures contract (equivalent to 160 

million bushels of soybeans) and 

corresponding short positions in CBOT 

Soybean Meal and Soybean Oil futures 

contracts, such that the total notional 

quantity of soybean meal and soybean meal 

futures contracts are equivalent to the 

expected production from crushing 160 

million bushels of soybeans into soybean 

meal and soybean oil. 

Analysis: These positions meet the general 

requirements for bona fide hedging positions 

under paragraphs (2)(i)(A)–(C) and the 

provisions for hedges of unfilled anticipated 

requirements under paragraph (3)(iii)(A) and 

unsold anticipated production under 

paragraph (4)(i). The physical commodities 

being hedged are commodities underlying 

the CBOT Soybean, Soybean Meal, and 

Soybean Oil futures contracts. Such positions 

are a substitute for purchases and sales to be 

made at a later time in the physical 

marketing channel and are economically 

appropriate to the reduction of risk. The 

positions in referenced contracts offset the 

potential change in the value of soybeans that 

the processor anticipates purchasing and the 

potential change in the value of products and 

by-products the processor anticipates 

producing and selling. The size of the 

permissible long hedge position in the 

soybean futures contract must be reduced by 

any inventories and fixed-price purchases 

because they would reduce the processor’s 

unfilled requirements. Similarly, the size of 

the permissible short hedge positions in 

soybean meal and soybean oil futures 

contracts must be reduced by any fixed-price 

sales because they would reduce the 

processor’s unsold anticipated production. 

As provided under paragraph (3)(iii)(A), the 

risk reducing long position in the soybean 

futures contract that is not in excess of the 

anticipated requirements for soybeans for 

that month and the next succeeding month 

qualifies as a bona fide hedging position 

during the last five days of trading in the 

physical-delivery referenced contract. As 

provided under paragraph (4)(i), the risk 

reducing short position in the soybean meal 

and oil futures contract do not qualify as a 

bona fide hedging position in a physicaldelivery referenced contract during the last 

five days of trading in the event the Soybean 

Processor A does not have unsold products 

in inventory. 

The combination of the long and short 

positions in soybean, soybean meal, and 

soybean oil futures contracts are 

economically appropriate to the reduction of 

risk. However, unlike in this example, an 

unpaired position (e.g., only a long position 

in a commodity derivative contract) that is 

not offset by either a cash market position 

(e.g., a fixed-price sales contract) or 

derivative position (e.g., a short position in 

a commodity derivative contract) would not 

represent an economically appropriate 

reduction of risk. This is because the 

commercial enterprise’s crush spread risk is 

relatively low in comparison to the price risk 

from taking an outright long position in the 

futures contract in the underlying commodity 

or an outright short position in the futures 

contracts in the products and by-products of 

processing. The price fluctuations of the 

crush spread, that is, the risk faced by the 

commercial enterprise, would not be 

expected to be substantially related to the 

price fluctuations of either an outright long 

or outright short futures position. 

6. Agent Hedge Under Paragraph (3)(iv) of the 

Bona Fide Hedging Position Definition 

Fact Pattern: Cotton Merchant A is in the 

business of merchandising (selling) cash 

cotton. Cotton Merchant A does not own any 

cash commodity, but has purchased the right 

to redeem a producer’s cotton held as 

collateral by USDA (that is, ‘‘cotton 

equities’’) and, thereby, Cotton Merchant A 

has incurred price risk. A producer of cotton 

may borrow from the USDA’s Commodity 

Credit Corporation, posting their cotton as 

collateral on the loan. USDA permits the 

producer to assign the right to redeem cotton 

held as collateral. Once Cotton Merchant A 

purchases from a producer the right to 

redeem cotton from USDA, Cotton Merchant 

A, in effect, is responsible for merchandising 

of the cash cotton held as collateral by 

USDA. For the volumes of cotton it is 

authorized to redeem from USDA, Cotton 

Merchant A enters into economically 

appropriate short positions in cotton 

commodity derivative contracts that offset 

the price risks of the cash commodities. 

Analysis: The positions meet the 

requirements of paragraphs (2)(1)(A)–(C) for 

hedges of a physical commodity and 

paragraph (3)(iv) for hedges by an agent. The 

positions represent a substitute for 

transactions to be made in the physical 

marketing channel, are economically 

appropriate to the reduction of risks arising 

from cotton owned by the agent’s contractual 

counterparties, and arise from the potential 

change in the value of such cotton. The agent 

does not own and has not contracted to 

purchase such cotton at a fixed price, but is 

responsible for merchandising the cash 

positions that are being offset in commodity 

derivative contracts. The agent has a 

contractual arrangement with the persons 

who own the cotton being offset. 

7. Sovereign Hedge of a Pass-Through Swap 

Under Paragraph (2)(ii) of the Bona Fide 

Hedging Position Definition Opposite a 

Deemed Bona Fide Hedge of Unsold 

Anticipated Production Under Paragraph 4(i) 

Fact Pattern: A Sovereign induces a farmer 

to sell his anticipated production of 100,000 

bushels of corn forward to User A at a fixed 

price for delivery during the expected 

harvest, by, in effect, granting that farmer a 

cash-settled call option at no cost. In return 

for the farmer entering into the fixed-price 

forward sale at the prevailing market price, 

the Sovereign agrees to pay the farmer the 

difference between the market price at the 

time of harvest and the price of the fixedprice forward, in the event that the market 

price at the time of harvest is above the price 

of the forward. The fixed-price forward sale 

of 100,000 bushels of corn offsets the farmer’s 

price risk associated with his anticipated 

agricultural production. The call option 

provides the farmer with upside price 

participation. The Sovereign faces 

commodity price risk from the option it 

granted at no cost to the farmer. To reduce 

that risk, the Sovereign establishes a long 

position of 20 call options on the Chicago 

Board of Trade (CBOT) Corn futures contract, 

equivalent to 100,000 bushels of corn. 

Analysis: The farmer was induced by a 

long call option granted at no cost, in return 

for the farmer entering into a fixed-price 

forward sale at the prevailing market 

price.The risk profile of the combination of 

the forward sale and the long call is 

approximately equivalent to the risk profile 

of a synthetic long put.2 A synthetic long put 

offsets the downside price risk of anticipated 

production. Under these circumstances of a 

Sovereign granting a call option to a farmer 

at no cost, the Commission deems the 

synthetic position of the farmer as satisfying 

the general requirements for a bona fide 

hedging position under paragraphs (2)(i)(A)– 

(C) and meeting the requirements for 

anticipated agricultural production under 

paragraph (4)(i), for purposes of the 

Sovereign’s pass-through swap offset under 

paragraph (2)(ii). The agreement between the 

Sovereign and the farmer involves the 

production of a commodity underlying the 

CBOT Corn futures contract. Also under 

these circumstances, the Commission deems 

the synthetic long put as a substitute for 

transactions that the farmer has made in the 

physical marketing channel, because a long 

put would reduce the price risk associated 

with the farmer’s anticipated agricultural 

production. 

The Sovereign is the counterparty to the 

farmer, who under these circumstances the 

Commission deems to be a bona fide hedger 

for purposes of the Sovereign’s pass-through 

swap offset. That is, the Commission 

considers the Sovereign’s long call position 

to be a pass-through swap meeting the 


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96986 Federal Register / Vol. 81, No. 251 / Friday, December 30, 2016 / Proposed Rules 

requirements of paragraph (2)(ii)(B). As 

provided under paragraph (2)(ii)(A), the 

Sovereign’s risk-reducing position in the 

CBOT Corn option would qualify as a passthrough swap offset as a bona fide hedging 

position, or, alternatively, if the pass-through 

swap is not a referenced contract, then the 

pass-through swap offset may qualify as a 

cross-commodity hedge under paragraph (5), 

provided the fluctuations in value of the 

pass-through swap offset are substantially 

related to the fluctuations in value of the 

pass-through swap. Such a pass-through 

swap offset will not qualify as a bona fide 

hedging position in a physical-delivery 

futures contract during the last five days of 

trading under paragraphs (2)(iii)(B) or (5); 

however, since the CBOT Corn option will 

exercise into a physical-delivery CBOT Corn 

futures contract prior to the last five days of 

trading in that physical-delivery futures 

contract, the Sovereign may continue to hold 

its option position as a bona fide hedging 

position through option expiry. 

8. Hedge of Offsetting Unfixed Price Sales 

and Purchases Under Paragraph (4)(ii) of the 

Bona Fide Hedging Position Definition 

Fact Pattern: Currently it is October and 

Oil Merchandiser A has entered into cash 

forward contracts to purchase 600,000 of 

crude oil at a floating price that references 

the January contract month (in the next 

calendar year) for the ICE Futures Brent 

Crude futures contract and to sell 600,000 

barrels of crude oil at a price that references 

the February contract month (in the next 

calendar year) for the NYMEX Light Sweet 

Crude Oil futures contract. Oil Merchandiser 

A is concerned about an adverse change in 

the price spread between the January ICE 

Futures Brent Crude futures contract and the 

February NYMEX Light Sweet Crude Oil 

futures contract. To reduce that risk, Oil 

Merchandiser A establishes a long position of 

600 contracts in the January ICE Futures 

Brent Crude futures contract, price risk 

equivalent to buying 600,000 barrels of oil, 

and a short position of 600 contracts in the 

February NYMEX Light Sweet Crude Oil 

futures contract, price risk equivalent to 

selling 600,000 barrels of oil. 

Analysis: Oil Merchandiser A’s positions 

meet the general requirements for bona fide 

hedging positions under paragraphs (2)(i)(A)– 

(C) and the provisions for offsetting sales and 

purchases in referenced contracts under 

paragraph (4)(ii). The physical commodity 

that is being hedged involves a commodity 

underlying the NYMEX Light Sweet Crude 

Oil futures contract. The long and short 

positions in commodity derivative contracts 

represent substitutes for transactions to be 

taken at a later time in the physical 

marketing channel. The positions are 

economically appropriate to the reduction of 

risk because the price spread between the ICE 

Futures Brent Crude futures contract and the 

NYMEX Light Sweet Crude Oil futures 

contract could move adversely to Oil 

Merchandiser A’s interests in the two cash 

forward contracts, that is, the price of the ICE 

Futures Brent Crude futures contract could 

increase relative to the price of the NYMEX 

Light Sweet Crude Oil futures contract. The 

positions in commodity derivative contracts 

offset the price risk in the cash forward 

contracts. As provided under paragraph (4), 

the risk-reducing position does not qualify as 

a bona fide hedging position in the crude oil 

physical-delivery referenced contract during 

the spot month. 

9. Anticipated Royalties Hedge Under 

Paragraph (4)(iii) of the Bona Fide Hedging 

Position Definition and Pass-Through Swaps 

Hedge Under Paragraph (2)(ii) of the 

Definition 

a. Fact Pattern: In order to develop an oil 

field, Company A approaches Bank B for 

financing. To facilitate the loan, Bank B first 

establishes an independent legal entity 

commonly known as a special purpose 

vehicle (SPV). Bank B then provides a loan 

to the SPV. The SPV is obligated to repay 

principal and interest to the Bank based on 

a fixed price for crude oil. The SPV in turn 

makes a production loan to Company A. The 

terms of the production loan require 

Company A to provide the SPV with 

volumetric production payments (VPPs) 

based on a specified share of the production 

to be sold at the prevailing price of crude oil 

(i.e., the index price) as oil is produced. 

Because the price of crude oil may fall, the 

SPV reduces that risk by entering into a 

crude oil swap with Swap Dealer C. The 

swap requires the SPV to pay Swap Dealer 

C the floating price of crude oil (i.e., the 

index price) and for Swap Dealer C to pay a 

fixed price to the SPV. The notional quantity 

for the swap is equal to the expected 

production underlying the VPPs to the SPV. 

The SPV will receive a floating price at index 

on the VPP and will pay a floating price at 

index on the swap, which will offset. The 

SPV will receive a fixed price payment on 

the swap and repay the loan’s principal and 

interest to Bank B. The SPV is highly certain 

that the VPP production volume will occur, 

since the SPV’s engineer has reviewed the 

forecasted production from Company A and 

required the VPP volume to be set with a 

cushion (i.e., a hair-cut) below the forecasted 

production. 

Analysis: For the SPV, the swap between 

Swap Dealer C and the SPV meets the general 

requirements for a bona fide hedging position 

under paragraphs (2)(i)(A)–(C) and the 

requirements for anticipated royalties under 

paragraph (4)(iii). The SPV will receive 

payments under the VPP royalty contract 

based on the unfixed price sale of anticipated 

production of the physical commodity 

underlying the royalty contract, i.e., crude 

oil. The swap represents a substitute for the 

price of sales transactions to be made in the 

physical marketing channel. The SPV’s swap 

position qualifies as a hedge because it is 

economically appropriate to the reduction of 

price risk. The swap reduces the price risk 

associated with a change in value of a royalty 

asset. The fluctuations in value of the SPV’s 

anticipated royalties are substantially related 

to the fluctuations in value of the crude oil 

swap with Swap Dealer C. 

b. Continuation of Fact Pattern: Swap 

Dealer C offsets the price risk associated with 

the swap to the SPV by establishing a short 

position in cash-settled crude oil futures 

contracts. The notional quantity of the short 

position in futures contracts held by Swap 

Dealer C exactly matches the notional 

quantity of the swap with the SPV. 

Analysis: For the swap dealer, because the 

SPV enters the cash-settled swap as a bona 

fide hedger under paragraph (4)(iii) (i.e., a 

pass-through swap counterparty), the offset 

of the risk of the swap in a futures contract 

by Swap Dealer C qualifies as a bona fide 

hedging position (i.e., a pass-through swap 

offset) under paragraph (2)(ii)(A). Since the 

swap was executed opposite a pass-through 

swap counterparty and was offset, the swap 

itself also qualifies as a bona fide hedging 

position (i.e., a pass-through swap) under 

paragraph (2)(ii)(B). If the cash-settled swap 

is not a referenced contract, then the passthrough swap offset may qualify as a crosscommodity hedge under paragraph (5), 

provided the fluctuations in value of the 

pass-through swap offset are substantially 

related to the fluctuations in value of the 

pass-through swap. 

10. Anticipated Royalties Hedge Under 

Paragraph (4)(iii) of the Bona Fide Hedging 

Position Definition and Cross-Commodity 

Hedge Under Paragraph (5) of the Definition 

Fact Pattern: An eligible contract 

participant (ECP) owns royalty interests in a 

portfolio of oil wells. Royalties are paid at the 

prevailing (floating) market price for the 

commodities produced and sold at major 

trading hubs, less transportation and 

gathering charges. The large portfolio and 

well-established production history for most 

of the oil wells provide a highly certain 

production stream for the next 24 months. 

The ECP also determined that changes in the 

cash market prices of 50 percent of the oil 

production underlying the portfolio of 

royalty interests historically have been 

closely correlated with changes in the 

calendar month average of daily settlement 

prices of the nearby NYMEX Light Sweet 

Crude Oil futures contract. The ECP decided 

to hedge some of the royalty price risk by 

entering into a cash-settled swap with a term 

of 24 months. Under terms of the swap, the 

ECP will receive a fixed payment and make 

monthly payments based on the calendar 

month average of daily settlement prices of 

the nearby NYMEX Light Sweet Crude Oil 

futures contract and notional amounts equal 

to 50 percent of the expected production 

volume of oil underlying the royalties. 

Analysis: This position meets the 

requirements of paragraphs (2)(i)(A)–(C) for 

hedges of a physical commodity, paragraph 

(4)(iii) for hedges of anticipated royalties, and 

paragraph (5) for cross-commodity hedges. 

The long position in the commodity 

derivative contract represents a substitute for 

transactions to be taken at a later time in the 

physical marketing channel. The position is 

economically appropriate to the reduction of 

price risk because the price of oil may 

decrease. The commodity derivative contract 

position offsets the price risk of royalty 

payments, based on oil production, that the 

ECP anticipates receiving. The ECP is 

exposed to price risk arising from the 

anticipated production volume of oil 

attributable to her royalty interests. The 

physical commodity underlying the royalty 

portfolio that is being hedged involves a 

commodity with fluctuations in value that 

are substantially related to the fluctuations in 

value of the swap. 


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11. Hedges of Services Under Paragraph 

(4)(iv) of the Bona Fide Hedging Position 

Definition 

a. Fact Pattern: Company A enters into a 

risk service agreement to drill an oil well 

with Company B. The risk service agreement 

provides that a portion of the revenue 

receipts to Company A depends on the value 

of the light sweet crude oil produced. 

Company A is exposed to the risk that the 

price of oil may fall, resulting in lower 

anticipated revenues from the risk service 

agreement. To reduce that risk, Company A 

establishes a short position in the New York 

Mercantile Exchange (NYMEX) Light Sweet 

Crude Oil futures contract, in a notional 

amount equivalent to the firm’s anticipated 

share of the expected quantity of oil to be 

produced. Company A is highly certain of its 

anticipated share of the expected quantity of 

oil to be produced. 

Analysis: Company A’s hedge of a portion 

of its revenue stream from the risk service 

agreement meets the general requirements for 

bona fide hedging positions under 

paragraphs (2)(i)(A)–(C) and the provisions 

for services under paragraph (4)(iv). The 

contract for services involves the production 

of a commodity underlying the NYMEX Light 

Sweet Crude Oil futures contract. A short 

position in the NYMEX Light Sweet Crude 

Oil futures contract is a substitute for 

transactions to be taken at a later time in the 

physical marketing channel, with the value 

of the revenue receipts to Company A 

dependent on the price of the oil sales in the 

physical marketing channel. The short 

position in the futures contract held by 

Company A is economically appropriate to 

the reduction of risk, because the total 

notional quantity underlying the short 

position in the futures contract held by 

Company A is equivalent to its share of the 

expected quantity of future production under 

the risk service agreement. Because the price 

of oil may fall, the short position in the 

futures contract reduces price risk from a 

potential reduction in the payments to 

Company A under the service contract with 

Company B. Under paragraph (4)(iv), the 

risk-reducing position will not qualify as a 

bona fide hedging position during the spot 

month of the physical-delivery oil futures 

contract. 

b. Fact Pattern: A City contracts with Firm 

A to provide waste management services. 

The contract requires that the trucks used to 

transport the solid waste use natural gas as 

a power source. According to the contract, 

the City will pay for the cost of the natural 

gas used to transport the solid waste by Firm 

A. In the event that natural gas prices rise, 

the City’s waste transport expenses will 

increase. To mitigate this risk, the City 

establishes a long position in the NYMEX 

Henry Hub Natural Gas futures contract in an 

amount equivalent to the expected volume of 

natural gas to be used over the life of the 

service contract. 

Analysis: This position meets the general 

requirements for bona fide hedging positions 

under paragraphs (2)(i)(A)–(C) and the 

provisions for services under paragraph 

(4)(iv). The contract for services involves the 

use of a commodity underlying the NYMEX 

Henry Hub Natural Gas futures contract. 

Because the City is responsible for paying the 

cash price for the natural gas used under the 

services contract, the long hedge is a 

substitute for transactions to be taken at a 

later time in the physical marketing channel. 

The position is economically appropriate to 

the reduction of price risk because the total 

notional quantity of the long position in a 

commodity derivative contract equals the 

expected volume of natural gas to be used 

over the life of the contract. The position in 

the commodity derivative contract reduces 

the price risk associated with an increase in 

anticipated costs that the City may incur 

under the services contract in the event that 

the price of natural gas increases. As 

provided under paragraph (4), the risk 

reducing position will not qualify as a bona 

fide hedge during the spot month of the 

physical-delivery futures contract. 

12. Cross-Commodity Hedge Under 

Paragraph (5) of the Bona Fide Hedging 

Position Definition and Inventory Hedge 

Under Paragraph (3)(i) of the Definition 

Fact Pattern: Copper Wire Fabricator A is 

concerned about possible reductions in the 

price of copper. Currently it is November and 

it owns inventory of 100 million pounds of 

copper and 50 million pounds of finished 

copper wire. Copper Wire Fabricator A 

expects to sell 150 million pounds of 

finished copper wire in February of the 

following year. To reduce its price risk, 

Copper Wire Fabricator A establishes a short 

position of 6,000 contracts in the February 

COMEX Copper futures contract, equivalent 

to selling 150 million pounds of copper. The 

fluctuations in value of copper wire are 

expected to be substantially related to 

fluctuations in value of copper. 

Analysis: The Copper Wire Fabricator A’s 

position meets the general requirements for 

a bona fide hedging position under 

paragraphs (2)(i)(A)–(C) and the provisions 

for owning a commodity under paragraph 

(3)(i) and for a cross-hedge of the finished 

copper wire under paragraph (5). The short 

position in a referenced contract represents a 

substitute for transactions to be taken at a 

later time in the physical marketing channel. 

The short position is economically 

appropriate to the reduction of price risk in 

the conduct and management of the 

commercial enterprise because the price of 

copper could drop. The short position in the 

referenced contract offsets the risk of a 

possible reduction in the value of the 

inventory that it owns. Since the finished 

copper wire is a product of copper that is not 

deliverable on the commodity derivative 

contract, 2,000 contracts of the short position 

are a cross-commodity hedge of the finished 

copper wire and 4,000 contracts of the short 

position are a hedge of the copper inventory. 

13. Cross-Commodity Hedge Under 

Paragraph (5) of the Bona Fide Hedging 

Position Definition and Anticipated 

Requirements Hedge Under Paragraph 

(3)(iii)(A) of the Definition 

Fact Pattern: Airline A anticipates using a 

predictable volume of jet fuel every month 

based on scheduled flights and decides to 

hedge 80 percent of that volume for each of 

the next 12 months. After a review of various 

commodity derivative contract hedging 

strategies, Airline A decides to cross hedge 

its anticipated jet fuel requirements in ultralow sulfur diesel (ULSD) commodity 

derivative contracts. Airline A determined 

that price fluctuations in its average cost for 

jet fuel were substantially related to the price 

fluctuations of the calendar month average of 

the first nearby physical-delivery NYMEX 

New York Harbor ULSD Heating Oil (HO) 

futures contract and determined an 

appropriate hedge ratio, based on a 

regression analysis, of the HO futures 

contract to the quantity equivalent amount of 

its anticipated requirements. Airline A 

decided that it would use the HO futures 

contract to cross hedge part of its jet fuel 

price risk. In addition, Airline A decided to 

protect against jet fuel price increases by 

cross hedging another part of its anticipated 

jet fuel requirements with a long position in 

cash-settled calls in the NYMEX Heating Oil 

Average Price Option (AT) contract. The AT 

call option is settled based on the price of the 

HO futures contract. The sum of the notional 

amounts of the long position in AT call 

options and the long position in the HO 

futures contract will not exceed the quantity 

equivalent of 80 percent of Airline A’s 

anticipated requirements for jet fuel. 

Analysis: The positions meet the 

requirements of paragraphs (2)(i)(A)–(C) for 

hedges of a physical commodity, paragraph 

(3)(iii)(A) for unfilled anticipated 

requirements and paragraph (5) for crosscommodity hedges. The positions represent a 

substitute for transactions to be made in the 

physical marketing channel, are 

economically appropriate to the reduction of 

risks arising from anticipated requirements 

for jet fuel, and arise from the potential 

change in the value of such jet fuel. The 

aggregation notional amount of the airline’s 

positions in the call option and the futures 

contract does not exceed the quantity 

equivalent of anticipated requirements for jet 

fuel. The value fluctuations in jet fuel are 

substantially related to the value fluctuations 

in the HO futures contract. 

Airline A may hold its long position in the 

cash-settled AT call option contract as a cross 

hedge against jet fuel price risk without 

having to exit the contract during the spot 

month. 

14. Position Aggregation Under § 150.4 and 

Inventory Hedge Under Paragraph (3)(i) of 

the Bona Fide Hedging Position Definition 

Fact Pattern: Company A owns 100 percent 

of Company B. Company B buys and sells a 

variety of agricultural products, including 

wheat. Company B currently owns five 

million bushels of wheat. To reduce some of 

its price risk, Company B establishes a short 

position of 600 contracts in the CBOT Wheat 

futures contract, equivalent to three million 

bushels of wheat. After communicating with 

Company B, Company A establishes an 

additional short position of 400 CBOT Wheat 

futures contracts, equivalent to two million 

bushels of wheat. 

Analysis: The aggregate short position in 

the wheat referenced contract held by 

Company A and Company B meets the 

general requirements for a bona fide hedging 

position under paragraphs (2)(i)(A)–(C) and 

the provisions for owning a cash commodity 

under paragraph (3)(i). Because Company A 


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owns more than 10 percent of Company B, 

Company A and B are aggregated together as 

one person under § 150.4. Entities required to 

aggregate accounts or positions under § 150.4 

are the same person for the purpose of 

determining whether a person is eligible for 

a bona fide hedging position exemption 

under § 150.3. The aggregate short position in 

the futures contract held by Company A and 

Company B represents a substitute for 

transactions to be taken at a later time in the 

physical marketing channel. The aggregate 

short position in the futures contract held by 

Company A and Company B is economically 

appropriate to the reduction of price risk 

because the aggregate short position in the 

CBOT Wheat futures contract held by 

Company A and Company B, equivalent to 

five million bushels of wheat, does not 

exceed the five million bushels of wheat that 

is owned by Company B. The price risk 

exposure for Company A and Company B 

results from a potential change in the value 

of that wheat. 

Appendix D to Part 150—Initial 

Position Limit Levels 

Contract Spot-month Single month 

and all months 

Legacy Agricultural: 

Chicago Board of Trade Corn (C) .................................................................................................................... 600 62,400 

Chicago Board of Trade Oats (O) .................................................................................................................... 600 5,000 

Chicago Board of Trade Soybeans (S) ............................................................................................................ 600 31,900 

Chicago Board of Trade Soybean Meal (SM) .................................................................................................. 720 16,900 

Chicago Board of Trade Soybean Oil (SO) ..................................................................................................... 540 16,700 

Chicago Board of Trade Wheat (W) ................................................................................................................ 600 32,800 

ICE Futures U.S. Cotton No. 2 (CT) ................................................................................................................ 1,600 9,400 

Chicago Board of Trade KC HRW Wheat (KW) .............................................................................................. 600 12,000 

Minneapolis Grain Exchange Hard Red Spring Wheat (MWE) ....................................................................... 1,000 12,000 

Other Agricultural: 

Chicago Board of Trade Rough Rice (RR) ...................................................................................................... 600 5,000 

Chicago Mercantile Exchange Live Cattle (LC) ............................................................................................... 450 12,200 

ICE Futures U.S. Cocoa (CC) .......................................................................................................................... 5,500 10,200 

ICE Futures U.S. Coffee C (KC) ...................................................................................................................... 2,400 8,800 

ICE Futures U.S. FCOJ–A (OJ) ....................................................................................................................... 2,800 5,000 

ICE Futures U.S. Sugar No. 11 (SB) ............................................................................................................... 23,300 38,400 

ICE Futures U.S. Sugar No. 16 (SF) ............................................................................................................... 7,000 7,000 

Energy: 

New York Mercantile Exchange Henry Hub Natural Gas (NG) ....................................................................... 2,000 200,900 

New York Mercantile Exchange Light Sweet Crude Oil (CL) .......................................................................... 10,400 148,800 

New York Mercantile Exchange NY Harbor ULSD (HO) ................................................................................. 2,900 21,300 

New York Mercantile Exchange RBOB Gasoline (RB) .................................................................................... 6,800 15,300 

Metal: 

Commodity Exchange, Inc. Copper (HG) ........................................................................................................ 1,000 7,800 

Commodity Exchange, Inc. Gold (GC) ............................................................................................................. 6,000 19,500 

Commodity Exchange, Inc. Silver (SI) ............................................................................................................. 3,000 7,600 

New York Mercantile Exchange Palladium (PA) .............................................................................................. 100 5,000 

New York Mercantile Exchange Platinum (PL) ................................................................................................ 500 5,000 

Appendix E To Part 150—Guidance 

Regarding Exchange-Set Speculative 

Position Limits 

Guidance for Designated Contract Markets 

(1) Until such time that a boards of trade 

has access to sufficient swap position 

information, a board of trade need not 

demonstrate compliance with Core Principle 

5 with respect to swaps. A board of trade 

should have access to sufficient swap 

position information if, for example: (1) It 

had access to daily information about its 

market participants’ open swap positions; or 

(2) it knows that its market participants 

regularly engage in large volumes of 

speculative trading activity, including 

through knowledge gained in surveillance of 

heavy trading activity, that would cause 

reasonable surveillance personnel at an 

exchange to inquire further about a market 

participant’s intentions or total open swap 

positions. 

(2) When a board of trade has access to 

sufficient swap position information, this 

guidance would no longer be applicable. At 

such time, a board of trade is required to file 

rules with the Commission to implement the 

relevant position limits and demonstrate 

compliance with Core Principle 5(A) and (B). 

Guidance for Swap Execution Facilities 

(1) Until such time that a swap execution 

facility that is a trading facility has access to 

sufficient swap position information, the 

swap execution facility need not demonstrate 

compliance with Core Principle 6(A) or (B). 

A swap execution facility should have access 

to sufficient swap position information if, for 

example: (1) It had access to daily 

information about its market participants’ 

open swap positions; or (2) if it knows that 

its market participants regularly engage in 

large volumes of speculative trading activity, 

including through knowledge gained in 

surveillance of heavy trading activity, that 

would cause reasonable surveillance 

personnel at an exchange to inquire further 

about a market participant’s intentions or 

total open swap positions. 

(2) When a swap execution facility has 

access to sufficient swap position 

information, this guidance would no longer 

be applicable. At such time, a swap 

execution facility is required to file rules 

with the Commission to implement the 

relevant position limits and demonstrate 

compliance with Core Principle 6(A) and (B). 

PART 151—[REMOVED AND 

RESERVED] 

■ 29. Under the authority of section 

8a(5) of the Commodity Exchange Act, 

7 U.S.C. 12a(5), remove and reserve part 

151. 

Issued in Washington, DC, on December 5, 

2016, by the Commission. 

Christopher J. Kirkpatrick, 

Secretary of the Commission. 

Note: The following appendices will not 

appear in the Code of Federal Regulations. 

Appendices to Position Limits for 

Derivatives—Commission Voting 

Summary, Chairman’s Statement, and 

Commissioners’ Statements 

Appendix 1—Commission Voting 

Summary 

On this matter, Chairman Massad and 

Commissioners Bowen and Giancarlo voted 

in the affirmative. No Commissioner voted in 

the negative. 


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1U.S. Grain Storage Data, National Grain and 

Feed Association Web site (last visited Dec. 5, 

2016), https://www.ngfa.org/news-policy-center/ 

resources/grain-industry-data/. 

2News Release, Family Farms are the Focus of 

New Agriculture Census Data, U.S. Department of 

Agriculture, Mar. 17, 2015, http://www.usda.gov/ 

wps/portal/usda/usdamediafb?contentid=2015/03/ 

0066.xml&printable=true. 

3 2015–2016 Annual Directory & Statistical 

Report, American Public Power Association, at 26 

(2016), http://www.publicpower.org/files/PDFs/ 

USElectricUtilityIndustryStatistics.pdf. 

Appendix 2—Statement of Chairman 

Timothy G. Massad 

Today, the Commission is issuing a revised 

position limits proposal. We are also 

finalizing a separate but related rule on the 

aggregation of positions. I am pleased that 

today’s actions are unanimous. 

Congress directed us to implement a 

position limits rule to limit excessive 

speculation. While speculators play a 

necessary and important role in our markets, 

position limits can prevent the type of 

excessive speculation by a few large 

participants that leads to corners, squeezes 

and other activity that can distort markets 

and be unfair to other participants. Position 

limits can also promote convergence without 

compromising market liquidity. There are 

many issues to consider in this rule, but 

position limits are not a new or untested 

concept. They have been in place in our 

markets for decades, either through federal 

limits or exchange-set limits, and they have 

worked well. 

There are two reasons why I am supporting 

issuing a reproposal. First, we have made 

many changes to the 2013 proposal we 

inherited that are reflected in today’s 

reproposal. Certain aspects have been 

previously proposed in separate pieces, and 

I believe the public would benefit from 

seeing the proposal in its entirety, to better 

understand how the various changes work 

together. 

Second, the Commission is now in a time 

of transition. I do not want to adopt a final 

rule today that the Commission would 

choose not to implement or defend next year. 

Our markets and the many end-users and 

consumers who rely on them are served best 

by having reasonable and predictable 

regulation. Uncertainty and inconsistency 

from one year to the next are not helpful. 

Our staff has done a tremendous amount of 

work to devise a position limits rule that 

meets the requirements of the law and 

balances the various concerns at stake. This 

work has spanned several years, involved 

review of literally thousands of pages of 

comments from participants, and included 

many meetings and public roundtables. 

Commissioners Bowen, Giancarlo, and I 

have also spent substantial time on this issue. 

We took office together in June 2014 and 

inherited a proposal that the Commission 

had issued six months before. As I promised 

then, we have been working hard to get the 

rule right. In addition to discussing the issues 

extensively with staff, we have each had 

many meetings with market participants and 

other members of the public. We have each 

traveled around the country and heard from 

users of these markets. In particular, I have 

heard from many smaller, traditional users 

about the importance of position limits. I 

have also had the benefit of sponsoring the 

Agricultural Advisory Committee, whose 

members have provided important input on 

these issues. 

We have revised the proposed limits 

themselves in light of substantial work our 

staff has done to make sure they are based 

on the latest and best information as to 

estimated deliverable supply. We have 

considered a wide range of information, 

including the recommendations of the 

exchanges and other data to which the 

exchanges do not have access. For some 

contracts, the proposed limits for the spot 

month are higher than the exchange-set 

limits today. There have been, for example, 

substantial increases in estimates of 

deliverable supply in the energy sector. In 

other cases, we have accepted 

recommendations of the exchanges to set 

federal limits that are actually lower than 25 

percent of deliverable supply, because we 

determined that the requested lower limit 

was consistent with the overall policy goals 

and would not compromise market liquidity. 

We have proposed further adjustments to 

the bona fide hedging position definition, to 

eliminate certain requirements that we have 

decided are unnecessary, and to address 

other concerns raised by market participants. 

Another substantial difference from the 

2013 text is our proposal first made this 

summer to allow the exchanges to grant nonenumerated hedge exemptions. This process 

must be subject to our oversight as a matter 

of law and as a matter of policy, given the 

inherent tension in the roles of the exchanges 

as market overseers and beneficiaries of 

higher trading volumes. 

The proposal we are issuing today provides 

extensive analysis of the impact of the 

proposed spot and all months limits, which 

I believe supports the view that the limits 

should not compromise liquidity while 

addressing excessive speculation. The 

analysis shows few existing positions would 

exceed the limits, and that is without 

considering possible exemptions. 

I recognize there will still be those that are 

critical of the proposal. Some will complain 

simply because of the length of the 

proposal—even though most of that is not 

rule text, but rather the summaries of the 

extensive comments and analysis required by 

law. Others may suggest broadening the bona 

fide hedge exemption so that it encompasses 

practically any activity with a business 

purpose, which is not what Congress said in 

the law. Still others will argue position limits 

are not necessary. But while the Commission 

should consider all comments, it is important 

to remember that the Commission has a 

responsibility to implement a balanced rule 

that achieves the objectives Congress has 

established. 

Finally, while the Commission works to 

finalize this rule, we still have federal limits 

for nine agricultural commodities and 

exchange-set spot month limits for all the 

physical delivery contracts covered by this 

rule, which the Commission will continue to 

enforce. 

I want to thank the staff again for their 

extensive work on this rule, particularly our 

staff in the Division of Market Oversight, the 

Office of the Chief Economist and the Office 

of the General Counsel. Their expertise and 

dedication on this matter is truly exemplary. 

I also want to thank Commissioners Bowen 

and Giancarlo for their very constructive 

engagement on this issue. 

Appendix 3—Statement of 

Commissioner Sharon Y. Bowen 

With today’s repreposal, the Commission 

moves one step closer to the implementation 

of position limits as directed by Congress in 

2010. CFTC staff has worked laboriously with 

market users and the exchanges we regulate 

to craft a rule that will protect investors from 

disruptive practices and manipulation, while 

simultaneously allowing our markets to serve 

their critical price-discovery function. I 

commend staff on their hard work and thank 

the hundreds of commenters for their 

insightful feedback. I would also like to 

thank Chairman Massad and Commissioner 

Giancarlo on their commitment to this 

important rule and look forward to its 

finalization in the near future. 

Appendix 4—Statement of 

Commissioner J. Christopher Giancarlo 

Since taking my seat on the Commission, 

I have traveled to well over a dozen states 

where I met with many family farmers and 

toured numerous energy utilities and 

manufacturing facilities. I have heard the 

concerns of agriculture and energy producers 

and consumers about market speculation and 

the role of position limits. 

I have always been open to supporting a 

well-conceived and practical position limits 

rule that restricts excessive speculation. That 

is so long as it protects the ability of 

America’s farmers, ranchers and processors 

to hedge risks of agricultural commodities 

and the ability of America’s energy producers 

and distributors to control risks of energy 

production, storage and distribution. 

That is why I believe it is so important to 

carefully consider the impact of this very 

complex rule on America’s almost nine 

thousand grain elevators,1 two million family 

farms 2 and 147 million electric utility 

customers.3 That is why I support putting out 

this rule as a proposal. 

My concern regarding previous earlier 

proposals has been that they would restrict 

bona fide hedging activity or harm America’s 

agriculture and energy industries that have 

been sorely impacted by plummeting 

commodity prices and service provider 

consolidation. I am simply not willing to 

support a poorly designed and unworkable 

rule that ever after needs to be adjusted 

through a series of no-action letters and ad 

hoc staff interpretations and advisories that 

had become too common at the CFTC in prior 

years. 

While some may view position limits as 

the ‘‘eternal rule,’’ I disagree. The current 

proposal is very detailed and highly 

complex. It is over 700 pages in length and 

has over one thousand footnotes. In some 

areas, concerns expressed by market 

participants regarding the 2011 rule that was 

struck down by the court and the 2013 

proposal have been well addressed. In other 


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areas, they do not appear to have been as 

well addressed. 

Notably, the proposal introduces a series of 

new estimates of deliverable supply that have 

not been previously presented to the public. 

It also incorporates concepts introduced in 

the 2016 supplemental proposal. Given these 

new additions and the complexity of the 

proposal, one more round of public comment 

is appropriate. 

I feel comfortable that the proposal before 

us provides the basis for the implementation 

of a final position limits rule that I could 

support. I commend the staff responsible for 

this proposal for all their hard work in 

making the significant improvements that are 

before us. I also extend my gratitude to 

Chairman Massad and Commissioner Bowen 

for agreeing to put this proposal before the 

public for comment. 

I welcome commenters’ views on the 

proposal. I expect that with their added 

insight we can finalize a position limits rule 

in 2017 that is workable and does not undo 

years of standard practice in these markets. 

[FR Doc. 2016–29483 Filed 12–29–16; 8:45 am] 

BILLING CODE 6351–01–P 


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