CFTC Issues Final Aggregation Rules for Position Limits: CFTC Unanimously Votes to Adopt Amendments and Updates to Its Aggregation Rules for Position Limits

Sullivan & Cromwell LLP - December 16, 2016

On December 5, 2016, the Commodity Futures Trading Commission (the “CFTC” or “Commission”) unanimously adopted final rules to amend and update Part 150 of the CFTC’s rules that govern the aggregation of certain positions under common ownership or control for purposes of the CFTC’s position limits regime for futures and option contracts on nine agricultural commodities (the “Final Rule”).  The Final Rule will also govern aggregation for the purpose of any final position limits rules that the Commission may eventually adopt with respect to futures, options and economically equivalent swaps.  This memorandum to clients represents our initial review and assessment of the release, which is 155 pages (in the pre-Federal Register version) and includes 349 footnotes.  The Final Rule will become effective sixty days after it is published in the Federal Register; there is no extended transition period or compliance date.
The Final Rule largely follows the proposed amendments to the existing aggregation rules issued by the Commission on November 15, 2013 (the “Proposed Rule”), as updated by a supplemental notice issued on September 29, 2015 (the “Supplemental Notice”), subject to certain changes highlighted below. Consistent with the Proposed Rule and Supplemental Notice, the Final Rule broadens the scope of exemptions from the aggregation requirement as compared to the current aggregation rules and the Proposed Rule.  Most importantly, the Final Rule establishes a new exemption – the “owned entity exemption” – which permits an owner entity to disaggregate its trading positions from the positions of any owned entity upon the filing of a notice with the Commission, so long as certain conditions continue to be met relating to the separation of trading information and control as between the entities.