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Title 17 → Chapter I → Part 151
§151.2 Core Referenced Futures Contracts.
§151.3 Spot months for Referenced Contracts.
§151.4 Position limits for Referenced Contracts.
§151.5 Bona fide hedging and other exemptions for Referenced Contracts.
§151.6 Position visibility.
§151.7 Aggregation of positions.
§151.8 Foreign boards of trade.
§151.9 Pre-existing positions.
§151.10 Form and manner of reporting and submitting information or filings.
§151.11 Designated contract market and swap execution facility position limits and accountability rules.
§151.12 Delegation of authority to the Director of the Division of Market Oversight.
§151.13 Severability.
Appendix A to Part 151—Spot-Month Position Limits
Source: 76 FR 71684, Nov. 18, 2011, unless otherwise noted.
Basis contract means an agreement, contract or transaction that is cash-settled based on the difference in price of the same commodity (or substantially the same commodity) at different delivery locations;
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; provided that, a commodity index contract used to circumvent speculative position limits shall be considered to be a Referenced Contract for the purpose of applying the position limits of §151.4.
Core Referenced Futures Contract means a futures contract that is listed in §151.2.
Eligible Entity means a commodity pool operator; the operator of a trading vehicle which is excluded, or which itself has qualified for exclusion from the definition of the term “pool” or “commodity pool operator,” respectively, under §4.5 of this chapter the limited partner 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:
(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.
(5) Who is registered as a futures commission merchant, an introducing broker, a commodity trading advisor, or an associated person of 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.
Referenced Contract means, 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 commodity index contract, that is:
Spot month means, for Referenced Contracts, the spot month defined in §151.3.
Spot-month, single-month, and all-months-combined position limits mean, for Referenced Contracts based on a commodity identified in §151.2, the maximum number of contracts a trader may hold as set forth in §151.4.
(a) Agricultural commodities. Core Referenced Futures Contracts in agricultural commodities include the following futures contracts and options thereon:
(1) Core Referenced Futures Contracts in legacy agricultural commodities:
(i) Chicago Board of Trade Corn (C);
(ii) Chicago Board of Trade Oats (O);
(iii) Chicago Board of Trade Soybeans (S);
(iv) Chicago Board of Trade Soybean Meal (SM);
(v) Chicago Board of Trade Soybean Oil (BO);
(vi) Chicago Board of Trade Wheat (W);
(vii) ICE Futures U.S. Cotton No. 2 (CT);
(viii) Kansas City Board of Trade Hard Winter Wheat (KW); and
(ix) Minneapolis Grain Exchange Hard Red Spring Wheat (MWE).
(2) Core Referenced Futures Contracts in non-legacy agricultural commodities:
(i) Chicago Mercantile Exchange Class III Milk (DA);
(ii) Chicago Mercantile Exchange Feeder Cattle (FC);
(iii) Chicago Mercantile Exchange Lean Hog (LH);
(iv) Chicago Mercantile Exchange Live Cattle (LC);
(v) Chicago Board of Trade Rough Rice (RR);
(vi) ICE Futures U.S. Cocoa (CC);
(vii) ICE Futures U.S. Coffee C (KC);
(viii) ICE Futures U.S. FCOJ-A(OJ);
(ix) ICE Futures U.S. Sugar No. 11 (SB); and
(x) ICE Futures U.S. Sugar No. 16 (SF).
(b) Metal commodities. Core Referenced Futures Contracts in metal commodities include the following futures contracts and options thereon:
(1) Commodity Exchange, Inc. Copper (HG);
(2) Commodity Exchange, Inc. Gold (GC);
(3) Commodity Exchange, Inc. Silver (SI);
(4) New York Mercantile Exchange Palladium (PA); and
(5) New York Mercantile Exchange Platinum (PL).
(c) Energy commodities. The Core Referenced Futures Contracts in energy commodities include the following futures contracts and options thereon:
(1) New York Mercantile Exchange Henry Hub Natural Gas (NG);
(2) New York Mercantile Exchange Light Sweet Crude Oil (CL);
(3) New York Mercantile Exchange New York Harbor Gasoline Blendstock (RB); and
(4) New York Mercantile Exchange New York Harbor Heating Oil (HO).
(a) Agricultural commodities. For Referenced Contracts based on agricultural commodities, the spot month shall be the period of time commencing:
(i) ICE Futures U.S. Cocoa (CC) contract;
(ii) ICE Futures U.S. Coffee C (KC) contract;
(iii) ICE Futures U.S. Cotton No. 2 (CT) contract;
(iv) ICE Futures U.S. FCOJ-A (OJ) contract;
(v) Chicago Board of Trade Corn (C) contract;
(vi) Chicago Board of Trade Oats (O) contract;
(vii) Chicago Board of Trade Rough Rice (RR) contract;
(viii) Chicago Board of Trade Soybeans (S) contract;
(ix) Chicago Board of Trade Soybean Meal (SM) contract;
(x) Chicago Board of Trade Soybean Oil (BO) contract;
(xi) Chicago Board of Trade Wheat (W) contract;
(xii) Minneapolis Grain Exchange Hard Red Spring Wheat (MW) contract; and
(xiii) Kansas City Board of Trade Hard Winter Wheat (KW) contract;
(b) Metal commodities. The spot month shall be the period of time commencing at the close of business on the business day prior to the first notice day for any delivery month and terminating at the end of the delivery period in the underlying Core Referenced Futures Contract for the following Referenced Contracts:
(1) Commodity Exchange, Inc. Gold (GC) contract;
(2) Commodity Exchange, Inc. Silver (SI) contract;
(3) Commodity Exchange, Inc. Copper (HG) contract;
(4) New York Mercantile Exchange Palladium (PA) contract; and
(5) New York Mercantile Exchange Platinum (PL) contract.
(c) Energy commodities. The spot month shall be the period of time commencing at the close of business of the third business day prior to the last day of trading in the underlying Core Referenced Futures Contract and terminating at the end of the delivery period for the following Referenced Contracts:
(1) New York Mercantile Exchange Light Sweet Crude Oil (CL) contract;
(2) New York Mercantile Exchange New York Harbor No. 2 Heating Oil (HO) contract;
(3) New York Mercantile Exchange New York Harbor Gasoline Blendstock (RB) contract; and
(4) New York Mercantile Exchange Henry Hub Natural Gas (NG) contract.
(a) Spot-month position limits. In accordance with the procedure in paragraph (d) of this section, and except as provided or as otherwise authorized by §151.5, no trader may hold or control a position, separately or in combination, net long or net short, in Referenced Contracts in the same commodity when such position is in excess of:
(b) Non-spot-month position limits. In accordance with the procedure in paragraph (d) of this section, and except as otherwise authorized in §151.5, no person may hold or control positions, separately or in combination, net long or net short, in the same commodity when such positions, in all months combined (including the spot month) or in a single month, are in excess of:
(1) Non-legacy Referenced Contract position limits. All-months-combined aggregate and single-month position limits, fixed by the Commission based on 10 percent of the first 25,000 contracts of average all-months-combined aggregated open interest with a marginal increase of 2.5 percent thereafter as established by the Commission pursuant to paragraph (d)(3) of this section;
(2) Aggregate open interest calculations for non-spot-month position limits for non-legacy Referenced Contracts. (i) For the purpose of fixing the speculative position limits for non-legacy Referenced Contracts in paragraph (b)(1) of this section, the Commission shall determine:
(C) The all-months-combined swaps open interest is equal to the sum of all of a Referenced Contract's month-end open swaps positions, considering open positions attributed to both cleared and uncleared swaps, where the uncleared all-months-combined swaps open positions shall be the absolute sum of swap dealers' net uncleared open swaps positions by counterparty and by single Referenced Contract month as reported to the Commission pursuant to part 20 of this chapter, provided that, other than for the purpose of determining initial non-spot-month position limits, open swaps positions attributed to swaps with two swap dealer counterparties shall be counted once for the purpose of determining uncleared all-months-combined swaps open positions, provided further that, upon entry of an order under §20.9 of this chapter determining that operating swap data repositories are processing positional data that will enable the Commission effectively to conduct surveillance in swaps, the Commission shall rely on data from such swap data repositories to compute the all-months-combined swaps open interest;
(3) Legacy agricultural Referenced Contract position limits. All-months-combined aggregate and single-month position limits, fixed by the Commission at the levels provided below as established by the Commission pursuant to paragraph (d)(4) of this section:
(i) Chicago Board of Trade Corn (C) contract 33,000
(ii) Chicago Board of Trade Oats (O) contract 2,000
(iii) Chicago Board of Trade Soybeans (S) contract 15,000
(iv) Chicago Board of Trade Wheat (W) contract 12,000
(v) Chicago Board of Trade Soybean Oil (BO) contract 8,000
(vi) Chicago Board of Trade Soybean Meal (SM) contract 6,500
(vii) Minneapolis Grain Exchange Hard Red Spring Wheat (MW) contract 12,000
(viii) ICE Futures U.S. Cotton No. 2 (CT) contract 5,000
(ix) Kansas City Board of Trade Hard Winter Wheat (KW) contract 12,000
(c) Netting of positions—(1) For Referenced Contracts in the spot month. (i) For the spot-month position limit in paragraph (a) of this section, a trader's positions in the physical-delivery Referenced Contract and cash-settled Referenced Contract are calculated separately. A trader cannot net any physical-delivery Referenced Contract with cash-settled Referenced Contracts towards determining the trader's positions in each of the physical-delivery Referenced Contract and cash-settled Referenced Contracts in paragraph (a) of this section. However, a trader can net positions in cash-settled Referenced Contracts in the same commodity.
(d) Establishing and effective dates of position limits—(1) Initial spot-month position limits for Referenced Contracts. (i) Sixty days after the term “swap” is further defined under the Wall Street Transparency and Accountability Act of 2010, the spot-month position limits for Referenced Contracts referred to in appendix A shall apply to all the provisions of this part.
(2) Subsequent spot-month position limits for Referenced Contracts. (i) Commencing January 1st of the second calendar year after the term “swap” is further defined under the Wall Street Transparency and Accountability Act of 2010, the Commission shall fix position limits by Commission order that shall supersede the initial limits established under paragraph (d)(1) of this section.
(A) For metal Core Referenced Futures Contracts listed in §151.2(b), by the 31st of December and biennially thereafter;
(B) For energy Core Referenced Futures Contracts listed in §151.2(c), by the 31st of March and biennially thereafter;
(vi) The Commission shall fix and publish pursuant to paragraph (e) of this section, the spot-month limits by Commission order, no later than:
(A) For metal Referenced Contracts listed in §151.2(b), by the 28th of February following the submission of estimates of deliverable supply provided to the Commission under paragraph (d)(2)(iii)(A) of this section and biennially thereafter;
(B) For energy Referenced Contracts listed in §151.2(c), by the 31st of May following the submission of estimates of deliverable supply provided to the Commission under paragraph (d)(2)(iii)(B) of this section and biennially thereafter;
(3) Non-spot-month position limits for non-legacy Referenced Contract. (i) Initial non-spot-month limits for non-legacy Referenced Contracts shall be fixed and published within one month after the Commission has obtained or estimated 12 months of values pursuant to paragraphs (b)(2)(i)(B), (b)(2)(i)(C), and (b)(2)(ii) of this section, and shall be fixed and made effective as provided in paragraph (b)(2) and (e) of this section.
(iii) Initial non-spot-month limits for non-legacy Referenced Contracts shall be made effective by Commission order.
(4) Non-spot-month legacy limits for legacy agricultural Referenced Contracts. The non-spot-month position limits for legacy agricultural Referenced Contracts shall be effective sixty days after the term “swap” is further defined under the Wall Street Transparency and Accountability Act of 2010, and shall apply to all the provisions of this part.
(e) Publication. The Commission shall publish position limits on the Commission's Web site at http://www.cftc.gov prior to making such limits effective, other than those limits specified under paragraph (b)(3) of this section and appendix A to this part.
(i) For metal Referenced Contracts listed in §151.2(b), on the 1st of May after the Commission has fixed and published such limits under paragraph (d)(2)(vi)(A) of this section;
(ii) For energy Referenced Contracts listed in §151.2(c), on the 1st of August after the Commission has fixed and published such limits under paragraph (d)(2)(vi)(B) of this section;
(f) Rounding. In determining or calculating all levels and limits under this section, a resulting number shall be rounded up to the nearest hundred contracts.
(a) Bona fide hedging transactions or positions. (1) Any person that complies with the requirements of this section may exceed the position limits set forth in §151.4 to the extent that a transaction or position in a Referenced Contract:
(iii) Arises from the potential change in the value of one or several—
(A) Assets that a person owns, produces, manufactures, processes, or merchandises or anticipates owning, producing, manufacturing, processing, or merchandising;
(iv) Reduces risks attendant to a position resulting from a swap that—
(A) Was executed opposite a counterparty for which the transaction would qualify as a bona fide hedging transaction pursuant to paragraph (a)(1)(i) through (iii) of this section; or
(v) Notwithstanding the foregoing, no transactions or positions shall be classified as bona fide hedging for purposes of §151.4 unless such transactions or positions are established and liquidated in an orderly manner in accordance with sound commercial practices and the provisions of paragraph (a)(2) of this section regarding enumerated hedging transactions and positions or paragraphs (a)(3) or (4) of this section regarding pass-through swaps of this section have been satisfied.
(2) Enumerated hedging transactions and positions. Bona fide hedging transactions and positions for the purposes of this paragraph mean any of the following specific transactions and positions:
(v) Anticipated merchandising hedges. Offsetting sales and purchases in Referenced Contracts that do not exceed in quantity the amount of the same cash commodity that is anticipated to be merchandised, provided that:
(vi) Anticipated royalty hedges. Sales or purchases in Referenced Contracts offset by the anticipated change in value of royalty rights that are owned by the same person provided that:
(vii) Service hedges. Sales or purchases in Referenced 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:
(viii) Cross-commodity hedges. Sales or purchases in Referenced Contracts described in paragraphs (a)(2)(i) through (vii) of this section may also be offset other than by the same quantity of the same cash commodity, provided that:
(3) Pass-through swaps. Bona fide hedging transactions and positions for the purposes of this paragraph include the purchase or sales of Referenced Contracts that reduce the risks attendant to a position resulting from a swap that was executed opposite a counterparty for whom the swap transaction would qualify as a bona fide hedging transaction pursuant to paragraph (a)(2) of this section (“pass-through swaps”), provided that no such position is maintained in any physical-delivery Referenced Contract during the last five days of trading of the Core Referenced Futures Contract in an agricultural or metal commodity or during the spot month for other physical-delivery contracts unless such pass-through swap position continues to offset the cash market commodity price risk of the bona fide hedging counterparty.
(4) Pass-through swap offsets. For swaps executed opposite a counterparty for whom the swap transaction would qualify as a bona fide hedging transaction pursuant to paragraph (a)(2) of this section (pass-through swaps), such pass-through swaps shall also be classified as a bona fide hedging transaction for the counterparty for whom the swap would not otherwise qualify as a bona fide hedging transaction pursuant to paragraph (a)(2) of this section (“non-hedging counterparty”), provided that the non-hedging counterparty purchases or sells Referenced Contracts that reduce the risks attendant to such pass-through swaps. Provided further, that the pass-through swap shall constitute a bona fide hedging transaction only to the extent the non-hedging counterparty purchases or sells Referenced Contracts that reduce the risks attendant to the pass-through swap.
(5) Any person engaging in other risk-reducing practices commonly used in the market which they believe may not be specifically enumerated in §151.5(a)(2) may request relief from Commission staff under §140.99 of this chapter or the Commission under section 4a(a)(7) of the Act concerning the applicability of the bona fide hedging transaction exemption.
(b) Aggregation of accounts. Entities required to aggregate accounts or positions under §151.7 shall be considered the same person for the purpose of determining whether a person or persons are eligible for a bona fide hedge exemption under §151.5(a).
(c) Information on cash market commodity activities. Any person with a position that exceeds the position limits set forth in §151.4 pursuant to paragraphs (a)(2)(i)(A), (a)(2)(ii)(A), (a)(2)(ii)(B), (a)(2)(iii), or (a)(2)(iv) of this section shall submit to the Commission a 404 filing, in the form and manner provided for in §151.10.
(1) The 404 filing shall contain the following information with respect to such position for each business day the same person exceeds the limits set forth in §151.4, up to and through the day the person's position first falls below the position limits:
(2) Notice filing. Persons seeking an exemption under this paragraph shall file a notice with the Commission, which shall be effective upon the date of the submission of the notice.
(d) Information on anticipated cash market commodity activities—(1) Initial statement. Any person who intends to exceed the position limits set forth in §151.4 pursuant to paragraph (a)(2)(i)(B), (a)(2)(ii)(C), (a)(2)(v), (a)(2)(vi), or (a)(2)(vii) of this section in order to hedge anticipated production, requirements, merchandising, royalties, or services connected to a commodity underlying a Referenced Contract, shall submit to the Commission a 404A filing in the form and manner provided in §151.10. The 404A filing shall contain the following information with respect to such activities, by Referenced Contract:
(2) Notice filing. Persons seeking an exemption under this paragraph shall file a notice with the Commission. Such a notice shall be filed at least ten days in advance of a date the person expects to exceed the position limits established under this part, and shall be effective after that ten day period unless otherwise notified by the Commission.
(3) Supplemental reports for 404A filings. Whenever a person intends to exceed the amounts determined by the Commission to constitute a bona fide hedge for anticipated activity in the most recent statement or filing, such person shall file with the Commission a statement that updates the information provided in the person's most recent filing at least ten days in advance of the date that person wishes to exceed those amounts.
(e) Review of notice filings. (1) The Commission may require persons submitting notice filings provided for under paragraphs (c)(2) and (d)(2) of this section to submit such other information, before or after the effective date of a notice, which is necessary to enable the Commission to make a determination whether the transactions or positions under the notice filing fall within the scope of bona fide hedging transactions or positions described under paragraph (a) of this section.
(f) Additional information from swap counterparties to bona fide hedging transactions. All persons that maintain positions in excess of the limits set forth in §151.4 in reliance upon the exemptions set forth in paragraphs (a)(3) and (4) of this section shall submit to the Commission a 404S filing, in the form and manner provided for in §151.10. Such 404S filing shall contain the following information with respect to such position for each business day that the same person exceeds the limits set forth in §151.4, up to and through the day the person's position first falls below the position limit that was exceeded:
(g) Conversion methodology for cross-commodity hedges. In addition to the information required under this section, persons who avail themselves of cross-commodity hedges pursuant to (a)(2)(viii) of this section shall submit to the Commission a form 404, 404A, or 404S filing, as appropriate. The first time such a form is filed where a cross-commodity hedge is claimed, it should contain a description of the conversion methodology. That description should explain the conversion from the actual commodity used in the person's normal course of business to the Referenced Contract that is being used for hedging, including an explanation of the methodology used for determining the ratio of conversion between the actual or anticipated cash positions and the person's positions in the Referenced Contract.
(h) Recordkeeping. Persons who avail themselves of bona fide hedge exemptions shall keep and maintain complete books and records concerning all of their related cash, futures, and swap positions and transactions and make such books and records, along with a list of pass-through swap counterparties for pass-through swap exemptions under (a)(3) of this section, available to the Commission upon request.
(i) Additional requirements for pass-through swap counterparties. A party seeking to rely upon §151.5(a)(3) to exceed the position limits of §151.4 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 transaction under paragraph (a)(3) of this section at the time the swap was executed. 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. Any person that represents to another person that the swap qualifies as a pass-through swap under paragraph (a)(3) of this section 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.
(j) Financial distress exemption. 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 are situations involving the potential default or bankruptcy of a customer of the requesting person or persons, affiliate of the requesting person or persons, or potential acquisition target of the requesting person or persons. Such exemptions shall be granted by Commission order.
(a) Visibility levels. A person holding or controlling positions, separately or in combination, net long or net short, in Referenced Contracts that equal or exceed the following levels in all months or in any single month (including the spot month), shall comply with the reporting requirements of paragraphs (b) and (c) of this section:
(1) Visibility Levels for Metal Referenced Contracts
(i) Commodity Exchange, Inc. Copper (HG) 8,500
(ii) Commodity Exchange, Inc. Gold (GC) 30,000
(iv) Commodity Exchange, Inc. Silver (SI) 8,500
(v) New York Mercantile Exchange Palladium (PA) 1,500
(vi) New York Mercantile Exchange Platinum (PL) 2,000
(2) Visibility Levels for Energy Referenced Contracts
(i) New York Mercantile Exchange Light Sweet Crude Oil (CL) 50,000
(ii) New York Mercantile Exchange Henry Hub Natural Gas (NG) 50,000
(iii) New York Mercantile Exchange New York Harbor Gasoline Blendstock (RB) 10,000
(iv) New York Mercantile Exchange New York Harbor No. 2 Heating Oil (HO) 16,000
(b) Statement of person exceeding visibility level. Persons meeting the provisions of paragraph (a) of this section, shall submit to the Commission a 401 filing in the form and manner provided for in §151.10. The 401 filing shall contain the following information, by Referenced Contract:
(1) A list of dates, within the applicable calendar quarter, on which the person held or controlled a position that equaled or exceeded such visibility levels; and
(2) As of the first business Tuesday following the applicable calendar quarter and as of the day, within the applicable calendar quarter, in which the person held the largest net position (on an all months combined basis) in excess of the level in paragraph (a) of this section:
(i) Separately by futures, options and swaps, gross long and gross short futures equivalent positions in all months in the applicable Referenced Contract(s) (using economically reasonable and analytically supported deltas) on a futures-equivalent basis; and
(ii) If applicable, by commodity referenced price, gross long and gross short uncleared swap positions in all months basis in the applicable Referenced Contract(s) futures-equivalent basis (using economically reasonable and analytically supported deltas).
(c) 404 filing. A person that holds a position in a Referenced Contract that equals or exceeds a visibility level in a calendar quarter shall submit to the Commission a 404 filing in the form and manner provided for in §151.10, and it shall contain the information regarding such positions as described in §151.5(c) as of the first business Tuesday following the applicable calendar quarter and as of the day, within the applicable calendar quarter, in which the person held the largest net position in excess of the level in all months.
(d) Alternative filing. With the express written permission of the Commission or its designees, the submission of a swaps or physical commodity portfolio summary statement spreadsheet in digital format, only insofar as the spreadsheet provides at least the same data as that required by paragraphs (b) or (c) of this section respectively may be substituted for the 401 or 404 filing respectively.
(e) Precedence of other reporting obligations. Reporting obligations imposed by regulations other than those contained in this section shall supersede the reporting requirements of paragraphs (b) and (c) of this section but only insofar as other reporting obligations provide at least the same data and are submitted to the Commission or its designees at least as often as the reporting requirements of paragraphs (b) and (c) of this section.
(f) Compliance date. The compliance date of this section shall be sixty days after the term “swap” is further defined under the Wall Street Transparency and Accountability Act of 2010. A document will be published in the Federal Register establishing the compliance date.
(a) Positions to be aggregated. The position limits set forth in §151.4 shall apply to all positions in accounts for which any person by power of attorney or otherwise directly or indirectly holds positions or controls trading and to positions held 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 of the position were done by, a single individual.
(b) Ownership of accounts generally. For the purpose of applying the position limits set forth in §151.4, except for the ownership interest of limited partners, shareholders, members of a limited liability company, beneficiaries of a trust or similar type of pool participant in a commodity pool subject to the provisos set forth in paragraph (c) of this section or in accounts or positions in multiple pools as set forth in paragraph (d) of this section, any person holding positions in more than one account, or holding accounts or positions in which the person by power of attorney or otherwise directly or indirectly has a 10 percent or greater ownership or equity interest, must aggregate all such accounts or positions.
(c) Ownership by limited partners, shareholders or other pool participants. (1) Except as provided in paragraphs (c)(2) and (3) of this section, a person that is a limited partner, shareholder or other similar type of pool participant with an ownership or equity interest of 10 percent or greater in a pooled account or positions who is also a principal or affiliate of the operator of the pooled account must aggregate the pooled account or positions with all other accounts or positions owned or controlled by that person, unless:
(i) The pool operator has, and enforces, written procedures to preclude the person from having knowledge of, gaining access to, or receiving data about the trading or positions of the pool;
(ii) The person does not have direct, day-to-day supervisory authority or control over the pool's trading decisions; and
(iii) The pool operator has complied with the requirements of paragraph (h) of this section on behalf of the person or class of persons.
(2) A commodity pool operator having ownership or equity interest of 10 percent or greater in an account or positions as a limited partner, shareholder or other similar type of pool participant must aggregate those accounts or positions with all other accounts or positions owned or controlled by the commodity pool operator.
(3) Each limited partner, shareholder, or other similar type of pool participant having an ownership or equity interest of 25 percent or greater in a commodity pool the operator of which is exempt from registration under §4.13 of this chapter must aggregate the pooled account or positions with all other accounts or positions owned or controlled by that person.
(d) Identical trading. Notwithstanding any other provision of this section, for the purpose of applying the position limits set forth in §151.4, any person that holds or controls the trading of positions, by power of attorney or otherwise, in more than one account, or that holds or controls trading of accounts or positions in multiple pools with identical trading strategies must aggregate all such accounts or positions that a person holds or controls.
(e) Trading control by futures commission merchants. The position limits set forth in §151.4 shall be construed to apply to all positions held by a futures commission merchant or its separately organized affiliates in a discretionary account, or in an account which is part of, or participates in, or receives trading advice from a customer trading program of a futures commission merchant or any of the officers, partners, or employees of such futures commission merchant or its separately organized affiliates, unless:
(1) A trader other than the futures commission merchant or the affiliate directs trading in such an account;
(2) The futures commission merchant or the affiliate maintains only such minimum control over the trading in such an account as is necessary to fulfill its duty to supervise diligently trading in the account; and
(3) Each trading decision of the discretionary account or the customer trading program is determined independently of all trading decisions in other accounts which the futures commission merchant or the affiliate holds, has a financial interest of 10 percent or more in, or controls.
(f) Independent Account Controller. An eligible entity need not aggregate its positions with the eligible entity's client positions or accounts carried by an authorized independent account controller, as defined in §151.1, except for the spot month provided in physical-delivery Referenced Contracts, provided, however, that the eligible entity has complied with the requirements of paragraph (h) of this section, and that the overall positions held or controlled by such independent account controller may not exceed the limits specified in §151.4.
(1) Additional requirements for exemption of Affiliated Entities. If the independent account controller is affiliated with the eligible entity or another independent account controller, each of the affiliated entities must:
(i) Have, and enforce, written procedures to preclude the affiliated entities from having knowledge of, gaining access to, or receiving data about, trades of the other. Such procedures must include document routing and other procedures or security arrangements, including separate physical locations, which would maintain the independence of their activities; provided, however, that such procedures may provide for the disclosure of information which is reasonably necessary for an eligible entity to maintain the level of control consistent with its fiduciary responsibilities and necessary to fulfill its duty to supervise diligently the trading done on its behalf;
(ii) Trade such accounts pursuant to separately developed and independent trading systems;
(iii) Market such trading systems separately; and
(iv) Solicit funds for such trading by separate disclosure documents that meet the standards of §4.24 or §4.34 of this chapter, as applicable where such disclosure documents are required under part 4 of this chapter.
(h) Notice filing for exemption. (1) Persons seeking an aggregation exemption under paragraph (c), (e), (f), or (i) of this section shall file a notice with the Commission, which shall be effective upon submission of the notice, and shall include:
(ii) A statement certifying that the conditions set forth in the applicable aggregation exemption provision has been met.
(2) Upon call by the Commission, any person claiming an aggregation exemption under this section shall provide to the Commission such information concerning the person's claim for exemption. Upon notice and opportunity for the affected person to respond, the Commission may amend, suspend, terminate, or otherwise modify a person's aggregation exemption for failure to comply with the provisions of this section.
(4) A notice shall be submitted in the form and manner provided for in §151.10.
(i) Exemption for federal law information sharing restriction. Notwithstanding any provision of this section, a person is not subject to the aggregation requirements of this section if the sharing of information associated with such aggregation would cause either person to violate Federal law or regulations adopted thereunder and provided that such a person does not have actual knowledge of information associated with such aggregation. Provided, however, that such person file a prior notice with the Commission detailing the circumstances of the exemption and an opinion of counsel that the sharing of information would cause a violation of Federal law or regulations adopted thereunder.
The aggregate position limits in §151.4 shall apply to a trader with positions in Referenced Contracts executed on, or pursuant to the rules of a foreign board of trade, provided that:
(a) Such Referenced Contracts settle against 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
(b) The foreign board of trade makes available such Referenced Contracts to its members or other participants located in the United States through direct access to its electronic trading and order matching system.
(a) Non-spot-month position limits. The position limits set forth in §151.4(b) of this chapter may be exceeded to the extent that positions in Referenced Contracts remain open and were entered into in good faith prior to the effective date of any rule, regulation, or order that specifies a position limit under this part.
(b) Spot-month position limits. Notwithstanding the pre-existing exemption in non-spot months, a person must comply with spot month limits.
(c) Pre-Dodd-Frank and transition period swaps. The initial position limits established under §151.4 shall not apply to any swap positions entered into in good faith prior to the effective date of such initial limits. Swap positions in Referenced Contracts entered into in good faith prior to the effective date of such initial limits may be netted with post-effective date swap and swaptions for the purpose of applying any position limit.
(d) Exemptions. Exemptions granted by the Commission under §1.47 for swap risk management shall not apply to swap positions entered into after the effective date of initial position limits established under §151.4.
(1) A 404A filing is submitted pursuant §151.5(d), in which case the filing must be submitted at least ten business days in advance of the date that transactions and positions would be established that would exceed a position limit set forth in §151.4;
(2) A 404 filing is submitted pursuant to §151.5(c) or a 404S is submitted pursuant to §151.5(f), the filing must be submitted not later than 9 a.m. on the third business day after a position has exceeded the level in a Referenced Contract for the first time and not later than the third business day following each calendar month in which the person exceeded such levels;
(3) The filing is submitted pursuant to §151.6, then the 401 or 404, or their respective alternatives as provided for under §151.6(d), shall be submitted within ten business days following the quarter in which the person holds a position in excess in the visibility levels provided in §151.6(a); or
(4) A notice of disaggregation is filed pursuant to §151.7(h), in which case the notice shall be submitted within five business days of when the person claims a disaggregation exemption.
(a) Spot-month limits. (1) For all Referenced Contracts executed pursuant to their rules, swap execution facilities that are trading facilities and designated contract markets shall adopt, enforce, and, establish rules and procedures for monitoring and enforcing spot-month position limits set at levels no greater than those established by the Commission under §151.4.
(b) Non-spot-month limits—(1) Referenced Contracts. For Referenced Contracts executed pursuant to their rules, swap execution facilities that are trading facilities and designated contract markets shall adopt enforce, and establish rules and procedures for monitoring and enforcing single month and all-months limits at levels no greater than the position limits established by the Commission under §151.4(d)(3) or (4).
(2) Non-referenced contracts. For all other agreements, contracts, or transactions executed pursuant to their rules that are not subject to the limits set forth in §151.4, except as provided in §151.11(b)(3) and (c), it shall be an acceptable practice for swap execution facilities that are trading facilities and designated contract markets to adopt, enforce, and establish rules and procedures for monitoring and enforcing single-month and all-months-combined position limits at levels no greater than ten percent of the average delta-adjusted futures, swaps, and options month-end all months open interest in the same contract or economically equivalent contracts executed pursuant to the rules of the designated contract market or swap execution facility that is a trading facility for the greater of the most recent one or two calendar years up to 25,000 contracts with a marginal increase of 2.5 percent thereafter.
(3) Levels at designation or initial listing. Other than in Referenced Contracts, at the time of its initial designation or upon offering a new contract, agreement, or transaction to be executed pursuant to its rules, it shall be an acceptable practice for a designated contract market or swap execution facility that is a trading facility to provide for speculative limits for an individual single-month or in all-months-combined at no greater than 1,000 contracts for physical commodities other than energy commodities and 5,000 contracts for other commodities, provided that the notional quantity for such contracts, agreements, or transactions, corresponds to a notional quantity per contract that is no larger than a typical cash market transaction in the underlying commodity.
(c) Alternatives. In lieu of the limits provided for under §151.11(a)(2) or (b)(2), it shall be an acceptable practice for swap execution facilities that are trading facilities and designated contract markets to adopt, enforce, and establish rules and procedures for monitoring and enforcing position accountability rules with respect to any agreement, contract, or transaction executed pursuant to their rules requiring traders to provide information about their position upon request by the exchange and to consent to halt increasing further a trader's position upon request by the exchange as follows:
(1) On an agricultural or exempt commodity that is not subject to the limits set forth in §151.4, having an average month-end open interest of 50,000 contracts and an average daily volume of 5,000 contracts and a liquid cash market, provided, however, such swap execution facilities that are trading facilities and designated contract markets are not exempt from the requirement set forth in paragraph (a)(2) that they adopt a spot-month position limit with a level no greater than 25 percent of estimated deliverable supply; or
(d) Securities futures products. Position limits for securities futures products are specified in 17 CFR part 41.
(e) Aggregation. Position limits or accountability rules established under this section shall be subject to the aggregation standards of §151.7.
(f) Exemptions—(1) Hedge exemptions. (i) For purposes of exempt and agricultural commodities, no designated contract market or swap execution facility that is a trading facility bylaw, rule, regulation, or resolution adopted pursuant to this section shall apply to any position that would otherwise be exempt from the applicable Federal speculative position limits as determined by §151.5; provided, however, that the designated contract market or swap execution facility that is a trading facility may limit bona fide hedging positions or any other positions which have been exempted pursuant to §151.5 which it determines are not in accord with sound commercial practices or exceed an amount which may be established and liquidated in an orderly fashion.
(ii) For purposes of excluded commodities, no designated contract market or swap execution facility that is a trading facility by law, rule, regulation, or resolution adopted pursuant to this section shall apply to any transaction or position within the definition of bona fide hedging transactions and positions for excluded commodities in §1.3 of this chapter; provided, however, that the designated contract market or swap execution facility that is a trading facility may limit bona fide hedging positions that it determines are not in accord with sound commercial practices or exceed an amount which may be established and liquidated in an orderly fashion.
(2) Procedure. Persons seeking to establish eligibility for an exemption must comply with the procedures of the designated contract market or swap execution facility that is a trading facility for granting exemptions from its speculative position limit rules. In considering whether to permit or grant an exemption, a designated contract market or swap execution facility that is a trading facility must take into account sound commercial practices and paragraph (d)(1) of this section and apply principles consistent with §151.5.
(g) Other exemptions. Speculative position limits adopted pursuant to this section shall not apply to:
(h) Ongoing responsibilities. Nothing in this part shall be construed to affect any provisions of the Act relating to manipulation or corners or to relieve any designated contract market, swap execution facility that is a trading facility, or governing board of a designated contract market or swap execution facility that is a trading facility from its responsibility under other provisions of the Act and regulations.
(i) Compliance date. The compliance date of this section shall be 60 days after the term “swap” is further defined under the Wall Street Transparency and Accountability Act of 2010. A document will be published in the Federal Register establishing the compliance date.
(j) Notwithstanding paragraph (i) of this section, the compliance date of provisions of paragraph (b)(1) of this section as it applies to non-legacy Referenced Contracts shall be upon the establishment of any non-spot-month position limits pursuant to §151.4(d)(3). In the period prior to the establishment of any non-spot-month position limits pursuant to §151.4(d)(3) it shall be an acceptable practice for a designated contract market or swap execution facility to either:
(2) Establish non-spot-month position limits or accountability levels pursuant to the acceptable practice described in §151.11(b)(2) and (c)(1) based on open interest in the same contract or economically equivalent contracts executed pursuant to the rules of the designated contract market or swap execution facility that is a trading facility.
[76 FR 71684, Nov. 18, 2011, as amended at 83 FR 7997, Feb. 23, 2018]
(1) In §151.4(b) for determining levels of open interest, in §151.4(d)(2)(ii) to estimate deliverable supply, in §151.4(d)(3)(ii) to fix non-spot-month limits, and in §151.4(e) to publish position limit levels.
(2) In §151.5 requesting additional information or determining whether a filing should not be considered as bona fide hedging;
(3) In §151.6 for accepting alternative position visibility filings under paragraphs (c)(2) and (d) therein;
(4) In §151.7(h)(2) to call for additional information from a trader claiming an aggregation exemption;
(5) In §151.10 for providing instructions or determining the format, coding structure, and electronic data transmission procedures for submitting data records and any other information required under this part.
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.
ICE Futures U.S. Cocoa 1,000
ICE Futures U.S. Coffee C 500
Chicago Board of Trade Corn 600
ICE Futures U.S. Cotton No. 2 300
ICE Futures U.S. FCOJ-A 300
Chicago Mercantile Exchange Class III Milk 1,500
Chicago Mercantile Exchange Feeder Cattle 300
Chicago Mercantile Exchange Lean Hog 950
Chicago Mercantile Exchange Live Cattle 450
Chicago Board of Trade Oats 600
Chicago Board of Trade Rough Rice 600
Chicago Board of Trade Soybeans 600
Chicago Board of Trade Soybean Meal 720
Chicago Board of Trade Soybean Oil 540
ICE Futures U.S. Sugar No. 11 5,000
ICE Futures U.S. Sugar No. 16 1,000
Chicago Board of Trade Wheat 600
Minneapolis Grain Exchange Hard Red Spring Wheat 600
Kansas City Board of Trade Hard Winter Wheat 600
Commodity Exchange, Inc. Copper 1,200
New York Mercantile Exchange Palladium 650
New York Mercantile Exchange Platinum 500
Commodity Exchange, Inc. Gold 3,000
Commodity Exchange, Inc. Silver 1,500
New York Mercantile Exchange Light Sweet Crude Oil 3,000
New York Mercantile Exchange New York Harbor Gasoline Blendstock 1,000
New York Mercantile Exchange Henry Hub Natural Gas 1,000
New York Mercantile Exchange New York Harbor Heating Oil 1,000
A non-exhaustive list of examples of bona fide hedging transactions or positions under §151.5 is presented below. A transaction or position qualifies as a bona fide hedging transaction or position when it meets the requirements under §151.5(a)(1) and one of the enumerated provisions under §151.5(a)(2). With respect to a transaction or position that does not fall within an example in this appendix , a person seeking to rely on a bona fide hedging exemption under §151.5 may seek guidance from the Division of Market Oversight.
Analysis: The swap between Swap Dealer C and the SPV meets the general requirements for bona fide hedging transactions (§151.5(a)(1)(i)-(iii)) and the specific requirements for royalty payments (§151.5(a)(2)(vi)). The VPPs that the SPV receives represent anticipated royalty payments from the oil field's production. The swap represents a substitute for 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 risk. The SPV is reasonably certain that the notional quantity of the swap is equal to the expected production underlying the VPPs. The swap reduces the 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 NYMEX Light Sweet Crude Oil Referenced Contract swap with Swap Dealer C. The risk-reducing position will not qualify as a bona fide hedge in a physical-delivery Referenced Contract during the spot month.
Analysis: Because the SPV enters the swap as a bona fide hedger under §151.5(a)(2)(vi), the offset of the risk of the swap in a Referenced Contract by Swap Dealer C qualifies as a bona fide hedging transaction under §151.5(a)(3). As provided in §151.5(a)(3), the risk reducing position of Swap Dealer C does not qualify as a bona fide hedge in a physical-delivery Referenced Contract during the spot month.
Analysis: Because the Sovereign and the farmer are acting together pursuant to an express agreement, the aggregation provisions of §151.7 and §151.5(b) apply and they are treated as a single person. Taking the positions of the Sovereign and farmer jointly, 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.521 A synthetic long put may be a bona fide hedge for anticipated production. Thus, that single person satisfies the general requirements for bona fide hedging transactions (§151.5(a)(1)(i)-(iii)) and specific requirements for anticipated agricultural production (§151.5(a)(2)(i)(B)). The synthetic long put is a substitute for transactions that the farmer will make at a later time in the physical marketing channel after the crop is harvested. The synthetic long put reduces the price risk associated with anticipated agricultural production. The size of the hedge is equivalent to the size of the Sovereign's risk exposure. As provided under §151.5(a)(2)(i)(B), the Sovereign's risk-reducing position will not qualify as a bona fide hedge in a physical-delivery Referenced Contract during the last five trading days.
521Put-call parity describes the mathematical relationship between price of a put and call with identical strike prices and expiry.
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 (§151.5(a)(1)(i)-(iii)) and the specific provisions for services (§151.5(a)(2)(vii)). Selling NYMEX Light Sweet Crude Oil Referenced Contracts is a substitute for transactions to be taken at a later time in the physical marketing channel once the oil is produced. The Referenced Contracts sold by Company A are economically appropriate to the reduction of risk because the total notional quantity of the Referenced Contracts sold by Company A equals its share of the expected quantity of future production under the risk service agreement. Because the price of oil may fall, the transactions in Referenced Contracts arise from a potential reduction in the value of the service that Company A is providing to Company B. The contract for services involves the production of a commodity underlying the NYMEX Exchange Light Sweet Crude Oil Referenced Contract. As provided under §151.5(a)(2)(vii), the risk reducing position will not qualify as a bona fide hedge during the spot month of the physical-delivery Referenced Contract.
Analysis: This transaction meets the general requirements for bona fide hedging transaction (§151.5(a)(1)(i)-(iii)) and the specific provisions for services (§151.5(a)(2)(vii)). Because the City is responsible for paying the cash price for the natural gas used to power the trucks that transport the solid waste under the services agreement, the long hedge is a substitute for transactions to be taken at a later time in the physical marketing channel. The transaction is economically appropriate to the reduction of risk because the total notional quantity of the positions Referenced Contracts purchased equals the expected use of natural gas over the life of the contract. The positions in Referenced Contracts reduce the risk associated with an increase in anticipated liabilities that the City may incur in the event that the price of natural gas increases. The service contract involves the use of a commodity underlying a Referenced Contract. As provided under §151.5(a)(2)(vii), the risk reducing position will not qualify as a bona fide hedge during the spot month of the physical-delivery Referenced Contract.
Analysis: This transaction satisfies the general requirements for a bona fide hedge exemption (§§151.5(a)(1)(i)-(iii)) and specific provisions for services (§151.5(a)(2)(vii)).522 The hedge represents a substitute for transactions to be taken in the future (e.g., selling natural gas at Henry Hub). The hedge is economically appropriate to the reduction of risk that the location differential will decline, provided the hedge is not larger than the quantity equivalent of the cash market commodity to be produced and transported. As provided under §151.5(a)(2)(vii), the risk reducing position will not qualify as a bona fide hedge during the spot month of the physical-delivery Referenced Contract.
522Note that in addition to the use of Referenced Contracts, Producer A could have hedged this risk by using a basis contract, which is excluded from the definition of Referenced Contracts.
Analysis: This transaction meets the general bona fide hedge exemption requirements (§§151.5(a)(1)(i)-(iii)) and the specific requirements associated with owing a cash commodity (§151.5(a)(2)(i)). Bank B's short hedge of the gold represents a substitute for a transaction to be made in the physical marketing channel. Because the total notional quantity of the amount of gold contracts sold is equal to the amount of gold that Bank B owns, the hedge is economically appropriate to the reduction of risk. Finally, the transactions in Referenced Contracts arise from a potential change in the value of the gold owned by Bank B.
Analysis: This transaction meets the general requirements for a bona fide hedging transaction (§§151.5(a)(1)(i)-(iii)) and specific provisions for owning a commodity (§151.5(a)(2)(i)). Bank B's hedge of the silver that it owns represents a substitute for a transaction in the physical marketing channel. The hedge is economically appropriate to the reduction of risk because the bank owns 5,000 ounces of silver. The hedge reduces the risk of a potential change in the value of the silver that it owns.
Analysis: These hedging transactions meet the general requirements for bona fide hedging transactions (§§151.5(a)(1)(i)-(iii)) and the specific provisions for unfilled anticipated requirements and unsold anticipated agricultural production (§§151.5(a)(2)(i)-(ii)). Purchases of soybean Referenced Contracts qualify as bona fide hedging transaction provided they do not exceed the unfilled anticipated requirements of the cash commodity for one year (in this case 80 million tons). Such transactions are a substitute for purchases to be made at a later time in the physical marketing channel and are economically appropriate to the reduction of risk. The transactions in Referenced Contracts arise from a potential change in the value of soybeans that the processor anticipates owning. The size of the permissible hedge position in soybeans must be reduced by any inventories and fixed-price purchases because they are no longer unfilled requirements. As provided under §151.5(a)(2)(ii)(C), the risk reduction position that is not in excess of the anticipated requirements for soybeans for that month and the next succeeding month qualifies as a bona fide hedge during the last five trading days provided it is not in a physical-delivery Referenced Contract.
Given that Soybean Processor A has purchased 80 million tons worth of CBOT Soybean Referenced Contracts, it can reduce its processing risk by selling soybean meal and oil Referenced Contracts equivalent to the expected production. The sale of CBOT Soybean, Soybean Meal, and Soybean Oil contracts represents a substitute for transactions to be taken at a later time in the physical marketing channel by the soybean processor. Because the amount of soybean meal and oil Referenced Contracts sold forward by the soybean processor corresponds to expected production from 80 million tons of soybeans, the hedging transactions are economically appropriate to the reduction of risk in the conduct and management of the commercial enterprise. These transactions arise from a potential change in the value of soybean meal and oil that is expected to be produced. The size of the permissible hedge position in the products must be reduced by any fixed-price sales because they are no longer unsold production. As provided under §151.5(a)(2)(i)(B), the risk reducing position does not qualify as a bona fide hedge in a physical-delivery Referenced Contract during the last five trading days in the event the anticipated crushed products have not been produced.
Analysis: The cash position and the fixed-price forward sale and purchases are all in the same crop year. Participant A currently owns five million bushels of corn and has effectively sold that amount forward. The firm is concerned that the remaining amount—two million bushels worth of fixed-price purchase contracts—will fall in value. Because the firm's net cash position is equal to long two million bushels of corn, the firm is exposed to price risk. Selling the quantity equivalent of two million bushels of CBOT Corn Referenced Contracts satisfies the general requirements for bona fide hedging transactions (§§151.5(a)(1)(i)-(iii)) and the specific provisions associated with owning a commodity (§151.5(a)(2)(i)).523 Participant A's hedge of the two million bushels represents a substitute to a fixed-price forward sale at a later time in the physical marketing channel. The transaction is economically appropriate to the reduction of risk because the amount of Referenced Contracts sold does not exceed the quantity equivalent risk exposure (on a net basis) in the cash commodity in the current crop year. Lastly, the hedge arises from a potential change in the value of corn owned by Participant A.
523Participant A could also choose to hedge on a gross basis. In that event, Participant A would sell the quantity equivalent of seven million bushels of March Chicago Board of Trade Corn Referenced Contracts, and separately purchase the quantity equivalent of five million bushels of May Chicago Board of Trade Corn Referenced Contracts.
Analysis: This hedging transaction meets the general requirements for bona fide hedging transactions (§§151.5(a)(1)(i)-(iii)) and specific provisions associated with anticipated merchandising (§151.5(a)(2)(v)). The hedging transaction is a substitute for transactions to be taken at a later time in the physical marketing channel. The hedge is economically appropriate to the reduction of risk associated with the firm's unfilled storage capacity because: (1) The December CBOT Corn futures price is substantially above the September CBOT Corn futures price; and (2) Elevator A reasonably expects to engage in the anticipated merchandising activity based on a review of its historical purchasing and selling patterns at that time of the year. The risk arises from a change in the value of an asset that the firm owns. As provided by §151.5(a)(2)(v), the size of the hedge is equal to the firm's unfilled storage capacity relating to its anticipated merchandising activity. The purchase and sale of offsetting Referenced Contracts are in different months, which settle in not more than twelve months. As provided under §151.5(a)(2)(v), the risk reducing position will not qualify as a bona fide hedge in a physical-delivery Referenced Contract during the last 5 trading days of the September contract.
Analysis: Because Company A owns more than 10 percent of Company B, Company A and B are aggregated together as one person under §151.7. Under §151.5(b), entities required to aggregate accounts or positions under §151.7 shall be considered the same person for the purpose of determining whether a person or persons are eligible for a bona fide hedge exemption under paragraph §151.5(a). The sale of wheat Referenced Contracts by Company A and B meets the general requirements for bona fide hedging transactions (§§151.5(a)(1)(i)-(iii)) and the specific provisions for owning a cash commodity (§151.5(a)(2)(i)). The transactions in Referenced Contracts by Company A and B represent a substitute for transactions to be taken at a later time in the physical marketing channel. The transactions in Referenced Contracts by Company A and B are economically appropriate to the reduction of risk because the combined total of 1,000,000 bushels of CBOT Wheat Referenced Contracts sold by Company A and Company B does not exceed the 1,000,000 bushels of wheat that is owned by Company A. The risk exposure for Company A and B results from a potential change in the value of wheat.
Analysis: Bank B's hedging transaction meets the general requirements for bona fide hedging transactions (§§151.5(a)(1)(i)-(iii)) and the specific provisions for owning the cash commodity (§151.5(a)(2)(i)). The sale of Referenced Contracts by Bank B is a substitute for a transaction to be taken at a later time in the physical marketing channel either to Elevator A or to another commercial party. The transaction is economically appropriate to the reduction of risk in the conduct and management of the commercial enterprise of Bank B because the notional quantity of Referenced Contracts sold by Bank B is not larger than the quantity of cash wheat purchased by Bank B. Finally, the purchase of CBOT Wheat Referenced Contracts reduces the risk associated with owning cash wheat.
Analysis: The Copper Wire Fabricator A's hedging transaction meets the general requirements for bona fide hedging transactions (§§151.5(a)(1)(i)-(iii)) and the provisions for owning a commodity (§151.5(a)(2)(i)(A)). The sale of Referenced Contracts represents a substitute for transactions to be taken at a later time. The transactions are economically appropriate to the reduction of risk in the conduct and management of the commercial enterprise because the price of copper could drop further. The transactions in Referenced Contracts arise from a possible reduction in the value of the inventory that it owns.