CFTC Proposes Supplement to Position Limit Rules
Commentary by Bob Zwirb
The CFTC proposed a supplement to its position limits proposal that would modify the CFTC policy for aggregation under the proposed Part 150 proposed regulations.
The supplement would revise how the CFTC would address situations when aggregation is required on the basis of 50 percent or more common ownership. Under the initial aggregation proposal, owners of a greater than 50 percent interest would have to provide specified information and certifications in an application to the CFTC and wait for its approval before disaggregating an affiliate's positions. Under the proposed supplement, firms would still be required to file with the CFTC but could self-certify that the required conditions for disaggregation have been met.
All other aspects of the CFTC's original proposal, including the proposed criteria for disaggregation relief and comments submitted during earlier comment periods, would remain the same and continue to be under consideration by the CFTC.
Commentary
Chair Massad's statement accompanying this proposal aptly distills the change being proposed by the CFTC, i.e., the substitution of a notice filing for obtaining disaggregation in place of prior approval from the Commission. This is a praiseworthy development. The prior proposal would have required a market participant to apply for permission from the CFTC before it could disaggregate a position if the participant owned more than 50 percent of an entity, even if it had zero control or influence over that entity. Further, this proposal helps to make the CFTC's proposed position limits regime somewhat "less harmful to the risk management activities [of regulated entities]," as Commissioner Giancarlo observes.
From a broader policy perspective, questions regarding the CFTC proposed position limits regime remain. It is still not clear that having the CFTC prescribing federal limits and aggregation levels will avoid "displacing the everyday commercial judgment of farmers and businesses with a small set of allowable hedging options pre-selected by a Washington Commission with limited experience in commercial risk management," as the Commissioner hopes it will.