"CFTC Issues Proposed Regulations Regarding Position Limits for Derivatives and Aggregation of Positions"

The Commodity Futures Trading Commission (the "CFTC") has issued proposed rules that establish:

(i) position limits and limit formulas for 28 exempt and agricultural commodity futures and option contracts and physical commodity swaps that are economically equivalent to such contracts (the "Proposed Position Limits"), and

(ii) standards for aggregation of accounts under common control or ownership (the "Proposed Aggregation Rule") for the purpose of determining the applicability of such provisions (and, together with the Proposed Position Limits, the "Proposed Rules"). 

Comments on the Proposed Rules are due by February 10, 2014.

This Stroock Special Bulletin highlights the major provisions of the Proposed Rules, including the following:

- Position limits would be implemented for spot-month and non-spot-month positions.

- The spot-month position limits would apply separately to physical-delivery and to cash-settled contracts. 

- The initial spot-month position limit would be the level currently set by the relevant Designated Contract Market ("DCM").  Subsequent spot-month limits would generally be set at no more than 25% of the DCM's estimated spot month deliverable supply for each relevant core referenced futures contract.  Non-spot-month position limits would be equal to 10% of the first 25,000 contracts of open interest, and 2.5% of open interest in excess of 25,000 contracts (also known as the "10, 2.5% formula").  This limit would apply on both a single-month basis and on an all-months-combined basis.

- A bona fide hedging transaction exemption would be available, but limited to a list of enumerated hedging positions.

- The Proposed Aggregation Rule would require aggregation of accounts under common control or ownership, with certain exceptions available.