/Vol. 78, No. 239/Thursday, December 12, 2013/Proposed Rules
7 U.S.C. 1
H.R. Rep. No. 421, 74th Cong., 1st Sess. 1 (1935); H.R. Rep. No. 624, 99th Cong., 2d Sess. 44 (1986).
Commodity Futures Modernization Act of 2000, Public Law 106–554, 114 Stat. 2763 (Dec. 21, 2000).
Food, Conservation and Energy Act of 2008, Public Law 110–246, 122 Stat. 1624 (June 18, 2008).
discussion of economically equivalent.
CEA section 4a(a)(1) (as amended 2010) ; 7 U.S.C. 6a(a)(1).
CEA section 4a(a)(2); 7 U.S.C. 6a(a)(2).
CEA section 4a(a)(5); 7 U.S.C. 6a(a)(5).
CEA section 4a(a)(3); 7 U.S.C. 6a(a)(3).
CEA section 4a(a)(5); 7 U.S.C. 6a(a)(5).
CEA section 4a(a)(6); 7 U.S.C. 6a(a)(6).
CEA section 4a(a)(7); 7 U.S.C. 6a(a)(7).
3. Section 150.2—Limits i. Rule Summary ii. Benefits iii. Costs iv. Consideration of Alternatives 4. Section 150.3—Exemptions i. Rule Summary ii. Benefits iii. Costs iv. Consideration of Alternatives 5. Section 150.5—Exchange-Set Speculative Position Limits i. Rule Summary ii. Benefits iii. Costs iv. Consideration of Alternatives 6. Section 150.7—Reporting Requirements for Anticipatory Hedging Positions i. Benefits and Costs 7. Part 19—Reports i. Rule Summary ii. Benefits iii. Costs iv. Consideration of Alternatives 8. CEA Section 15(a) i. Protection of Market Participants and the Public ii. Efficiency, Competitiveness, and Financial Integrity of Markets iii. Price Discovery iv. Sound Risk Management v. Other Public Interest Considerations B. Paperwork Reduction Act 1. Overview 2. Methodology and Assumptions 3. Information Provided by Reporting Entities/Persons and Recordkeeping Duties 4. Comments on Information Collection C. Regulatory Flexibility Act IV. Appendices A. Appendix A—Studies Relating to Position Limits Reviewed and Evaluated by the Commission
I. Position Limits for Physical Commodity Futures and Swaps
1. CEA Section 4a Speculative position limits have been used as a tool to regulate futures markets for over seventy years. Since the Commodity Exchange Act of 1936,
Congress has repeatedly expressed confidence in the use of speculative position limits as an effective means of preventing unreasonable and unwarranted price fluctuations.
CEA section 4a, as amended by the Dodd-Frank Act, provides the Commission with broad authority to set position limits. When Congress created the Commission in 1974, it reiterated that the purpose of the CEA was to prevent fraud and manipulation and to control speculation. Later, the Commodity Futures Modernization Act of 2000 (‘‘CFMA’’) provided a statutory basis for exchanges to use pre-existing position accountability levels as an alternative means to limit the burdens of excessive speculative positions. Nevertheless, the CFMA did not weaken the Commission’s authority in CEA section 4a to establish position limits to prevent such undue burdens on interstate commerce.
More recently, in the CFTC Reauthorization Act of 2008, Congress gave the Commission expanded authority to set position limits for significant price discovery contracts on exempt commercial markets.
In 2010, the Dodd-Frank Act expanded the Commission’s authority to set position limits by amending CEA section 4a(a)(1) to authorize the Commission to establish position limits not just for futures and option contracts, but also for swaps that are economically equivalent to covered futures and options contracts,
swaps traded on a DCM or SEF, swaps that are traded on or subject to the rules of a DCM or SEF, and swaps not traded on a DCM or SEF that perform or affect a significant price discovery function with respect to regulated entities (‘‘SPDF Swaps’’).
CEA section 4a(a)(1) further declares the Congressional determination that: ‘‘[e]xcessive speculation in any commodity under contracts of sale of such commodity for future delivery made on or subject to the rules of contract markets or derivatives transaction execution facilities, or swaps that perform or affect a significant price discovery function with respect to registered entities causing sudden or unreasonable fluctuations or unwarranted changes in the price of such commodity, is an undue and unnecessary burden on interstate commerce in such commodity.’’
As described below, amended CEA section 4a(a)(2), Congress directed,
mandated, that the Commission ‘‘shall’’ establish limits on the amount of positions, as appropriate, that may be held by any person in agricultural and exempt commodity futures and options contracts traded on a DCM.
Similarly, as described below, in amended CEA section 4a(a)(5),
Congress mandated that the Commission impose position limits on swaps that are economically equivalent to the agricultural and exempt commodity derivatives for which it mandated position limits in CEA section 4a(a)(2). With respect to the position limits that the Commission is required to set, CEA section 4a(a)(3) guides the Commission in setting the level of those limits by providing several criteria for the Commission to address, namely: (i) To diminish, eliminate, or prevent excessive speculation as described under this section; (ii) to deter and prevent market manipulation, squeezes, and corners; (iii) to ensure sufficient market liquidity for bona fide hedgers; and (iv) to ensure that the price discovery function of the underlying market is not disrupted.
CEA section 4a(a)(5) requires the Commission to establish, at an appropriate level, position limits for swaps that are economically equivalent to those futures and options that are subject to mandatory position limits pursuant to CEA section 4a(a)(2).
CEA section 4a(a)(5) also requires that the position limits on economically equivalent swaps be imposed at the same time as mandatory limits are imposed on futures and options.
CEA section 4a(a)(6) requires the Commission to apply position limits on an aggregate basis to contracts based on the same underlying commodity across: (1) Contracts listed by DCMs; (2) with respect to foreign boards of trade (‘‘FBOTs’’), contracts that are price- linked to a contract listed for trading on a registered entity and made available from within the United States via direct access; and (3) SPDF Swaps.
Furthermore, under new CEA section 4a(a)(7), Congress gave the Commission authority to exempt persons or transactions from any position limits it establishes.
2. The Commission Construes CEA Section 4a(a) To Mandate That the Commission Impose Position Limits The Commission concludes that, based on its experience and expertise, when section 4a(a) of the Act is considered as an integrated whole, it is reasonable to construe that section to mandate that the Commission impose position limits. This mandate requires the Commission to impose limits on futures contracts, options, and certain swaps for agricultural and exempt commodities. The Commission also
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