CFTC Supplements Proposal Regarding Aggregation Rules for Position Limits: CFTC Supplements Proposed Rules Regarding Aggregation Standards Applicable to Position Limits for Derivatives

Sullivan & Cromwell LLP - September 22, 2015

On September 22, 2015, the Commodity Futures Trading Commission (the “CFTC” or “Commission”) unanimously voted to promulgate for public comment a supplemental proposal (the “Supplemental Aggregation Proposal”) relating to the aggregation rules applicable to position limits for derivatives on physical commodities.  The Supplemental Aggregation Proposal re-proposes in their entirety, subject to certain modifications, the proposed aggregation rules that were previously published by the Commission in November 2013 (the “2013 Aggregation Proposal”).  Under the Supplemental Aggregation Proposal, the key change is that a market participant that owns 50 percent or more of another entity would be permitted to obtain an exemption from aggregation with respect to that owned entity by certifying to the Commission that it has no control over the owned entity’s trading and no access to its trading-related information.  Under the 2013 Aggregation Proposal, this exemption for majority owned entities would have been subject to a requirement that the owner first apply for and obtain prior approval from the Commission.  Under the Supplemental Aggregation Proposal, this aggregation exemption would become effective upon the submission of a notice filing – the same notice filing process that would apply under the 2013 Aggregation Proposal for a market participant that owns more than 10 percent but less than 50 percent of another entity.  According to a statement from CFTC Chairman Timothy Massad, the Supplemental Aggregation Proposal aims to make a significant, streamlined change to the process for claiming the exemption from aggregation when an owner entity owns a greater than 50 percent ownership interest in an owned entity, but does not control its trading activity.   

Other than this change related to the aggregation exemption that will be available for certain market participants that own more than 50 percent of another entity, the Supplemental Aggregation Proposal is substantially similar to the 2013 Aggregation Proposal.  This memorandum supplements our previous summary memorandum on the 2013 Aggregation Proposal and the related memorandum on the CFTC’s proposed position limits rules.