CFTC Re-Proposes Rules on Position Limits on Physical Commodity Derivatives: CFTC Publishes New Proposed Rules That Would Impose Position Limits on Futures and Economically Equivalent Swaps on 25 Energy, Metals and Agricultural Commodities

Sullivan & Cromwell LLP - December 12, 2016

On December 6, 2016, the Commodity Futures Trading Commission (the “CFTC” or “Commission”) voted unanimously to re-propose for public comment rules on position limits applicable to positions in futures, options on futures and economically equivalent swaps (collectively, “derivatives”) on 25 energy, metals and agricultural commodities (the “Position Limit Proposal” or “Proposal”). This memorandum to clients represents our initial review and assessment of the release, which is 910 pages long and includes 1,733 footnotes.  Once the Proposal is published in the Federal Register, it will be open for a 60-day public comment period.  The Proposal largely follows the spot-month and non spot-month structure of the position limit rules that the Commission had previously proposed on December 12, 2013 (the “2013 Proposal”) and supplemented on June 13, 2016 (the “2016 Supplemental Proposal”, together with the 2013 Proposal, the “Prior Proposal”), subject to several important changes  which we highlight below (in particular the changes to the scope of positions that will be eligible for the proposed exemption from the limits for “bona fide hedging positions”). Contemporaneously, the Commission also unanimously adopted final rules addressing the aggregation standards applicable for purposes of position limits and large trader reporting (the “Aggregation Final Rule”), which will be addressed in a separate memorandum.