SIFMA AMG Submits Supplemental Comments to CFTC Regarding Aggregation Proposal Relating to Position Limits
Commentary by Bob Zwirb
SIFMA Asset Management Group ("AMG") submitted additional comments to the CFTC regarding its proposed rulemaking concerning the aggregation of positions. SIFMA AMG stated that it is submitting the comments to provide further detail on some of the questions that were raised during the Aggregation Panel Roundtable, and to recap the main concerns expressed in the initial comment letter from February 10, 2014.
The SIFMA AMG letter reiterates that aggregation based on ownership rather than control is neither required nor authorized by the CEA, and recommends that the CFTC make the following changes in any final rulemaking:
- amend the proposed owned entity aggregation to address the impact on passive investors that have no control over, or even knowledge of, the specific commodity derivatives trading activities of owned entities in which they have invested;
- amend CFTC Rule 150.4 to require passive investors to aggregate positions of a CFTC Rule 4.13-exempt pool based on a 25% or more ownership interest only when "the operator . . . is exempt from registration";
- omit the requirement to aggregate investments in funds that follow "substantially identical trading strategies" from any final rulemaking;
- expand the scope of entities eligible to become independent account controllers ("IACs") so that no distinction is made based upon CPO or CTA registration, exemption, or exclusion status; and
- eliminate the IAC notice filing requirements.
See: Comment Letter.
Related news: SIFMA and ISDA Submit Comments to the CFTC Regarding Position Limits for Derivatives and the Aggregation of Positions (July 10, 2014) SIFMA, SIFMA AMG and ISDA Submit Comments to CFTC on Proposed Position Limits Rules (with Lofchie Comment) (February 20, 2014); SIFMA AMG and ISDA Request Extension of Comment Period for Proposed Rule on Aggregation of Positions(December 23, 2013).
Commentary
In general, SIFMA's comment letter offers a number of suggestions to make the CFTC's proposed rule less arbitrary and more workable for investment managers. It is worthy of consideration. Allowing greater use of independent controllers, for example, would resolve most concerns that either Congress or the CFTC have regarding concentration of positions. Similarly, SIFMA's suggestion that the CFTC focus on actual control and not ownership makes sense, since the latter is really a proxy for the former, and according to SIFMA a poor one at that. This policy argument, however, is overshadowed by SIFMA's contention that the CFTC's proposed owned entity aggregation requirement exceeds the Commission's authority. In other words, SIFMA AMG asserts the CFTC is misreading CEA Section 4a(a)(1), an assertion that would provide grounds for a judicial challenge to vacate down the line any final rule.