Welcome to Scribd. Sign in or start your free trial to enjoy unlimited e-books, audiobooks & documents.Find out more
Download
Standard view
Full view
of .
Look up keyword
Like this
1Activity
0 of .
Results for:
No results containing your search query
P. 1
shell

shell

Ratings:
(0)
|Views: 88|Likes:
Published by MarketsWiki

More info:

Published by: MarketsWiki on Apr 06, 2011
Copyright:Attribution Non-commercial

Availability:

Read on Scribd mobile: iPhone, iPad and Android.
download as PDF, TXT or read online from Scribd
See more
See less

04/06/2011

pdf

text

original

 
ViaOnlineSubmission
ShellTrading
March
28,
2011
ShellTrading(US)Company
909Fannin,PlazaLevel1Houston,TX77010713.767.5400
Mr.David
A.
StawickSecretaryCommodityFuturesTradingCommissionThreeLafayetteCentre115521stStreet,NWWashington,DC20581Re:ShellTrading(US)CompanyandShellEnergyNorthAmerica(US),L.P.-
PositionLimitsforDerivatives,
RlN
Nos.3038-ADI5,3038-AD16DearMr.Stawick:OnJanuary26,2011,theU.S.CommodityFuturesTradingCommission("Commission"or"CFTC")issuedaproposedrule,entitled"PositionLimitsforDerivatives"("PositionLimitsNOPR"or"NOPR,,)lpursuanttoSection737ofTitleVIIoftheDodd-FrankWallStreetReformandConsumerProtectionAct("Dodd-FrankAct"or"Act")?ShellTrading(US)Company("STUSCQ")andShellEnergyNorthAmerica(US),L.P.("ShellEnergy")(collectively,"ShellTrading")respectfullysubmitthesecommentstoaddresstheproposedpositionlimitsrule.STUSCOandShellEnergyareindirectsubsidiariesofRoyalDutchShell,plc("Shell").STUSCOtradesvariousgradesofcrudeoil,refineryfeedstocks,bio-components,andfinishedoil-relatedproducts,includingsuchcommoditiesthatareproduced,manufactured,orimportedbyitsaffiliates.ShellEnergymarketsandtradesnaturalgas,electricity,andenvironmentalproducts,includingthenaturalgasproducedbyitsaffiliates.BothcompaniesactivelyparticipateintheU.S.energyderivativesmarkets.Together,theymanageriskandoptimizevalueacrossphysicalandfinancial,exchange-traded,andover-the-counter("OTe")markets.
1
PositionsLimitsforDerivatives,76Fed.Reg.4752(Jan.26,2011).
2
PublicLaw
No.
111-203,124Stat.1376(2010).
 
Mr.
David
A
StawickMarch28,2011Page2AsShellTradinganditsaffiliateshavesignificantphysicalpositionsrequiringhedging,thePositionLimitsNOPRwill,ifpromulgatedasafinalrule,haveamaterialimpactonShellTrading'soperations,andduetothecomplexityandambiguityoftherule,itwillexposeShellTradingtosignificantcompliancerisk.Forthosereasons,ShellTradingappreciatesthisopportunitytoprovideitscommentsontheproposedruleandtorequesttheCommissiontoprovideclarificationofcertainprovisionssothatShellTradingcancontinuetodobusinessintheUSderivativesmarketswithconfidencethatitisincompliancewiththeapplicableregulationsandtheCommission'sexpectations.
I.ExecutiveSummarv
ShellTradinghasseveralseriousconcernsabouttheproposedrule,mostfundamentally,thattheproposalmaypreventlargehedgersfromeffectivelymanagingtheircommercialrisks.Thisresultsfromareductioninthesizeofspotpositionlimits,theinclusionofalarge(butlargelyundefined)numberofinstrumentsunderthoselimits,arestrictivehedgeexemptionprocess,anduncertaintyaboutthetreatmentofinter-affiliateswaps.Justasimportant,ShellTradingbelievesthattheruleisoverlycomplexandcontainsmanyambiguousprovisions,andaccordingly,exposesmarketparticipantstograveunnecessarycostsandcompliancerisks.Examplesofthecomplexityandambiguityincludethenumberofpositionlimitsapplicabletoeachderivativecontract,thelackofclarityaboutwhichcontractswillbecountedtowardseachlimit,andthefactthattheselimitswillbeenforcedinreal-time.Manyofitsconcernsareamplyaddressedinthecommentsofotherparties,sobeyondabriefdiscussionofafewkeyissues,ShellTrading'scommentstaketheformofanAppendixwithonehundredquestionsthatitbelievesshouldbeaddressedinafinalregulation.Absentclarityabouthowtheruleworksandtheobligationsofmarketparticipants,largecommercialhedgerswillfacesignificantuncertaintiesregardinghowtheywillparticipateintheUSderivativesmarketgoingforward.
II.ThePositionLimitsUltimatelyInstitutedByThisRulemakingMustBeAdeguateToAllowEntitiesWithLargePhysicalPositionstoAdeguatelyManageTheirRisks
ThespotlimitsproposedintheNOPRappeartobesignificantlybelowthecurrentlimits,despitethefactthatadditionaltransactions(unclearedOTCswaps)willnowbeincludedunderthoselimits.ShellTradingbelievesthatthisresultmaythreatentheeffectivemanagementoflarge
bonafide
hedgingpositions.AsShellTradingunderstandsit,eachexchangecurrentlyhasaspotlimitoftwenty-fivepercentofdeliverablesupplyassociatedwitheachcontract.Ifthefederalspotaggregatelimitistwenty-fivepercentofdeliverablesupply,thentheNOPRproposestosignificantlyreducethespotlimitinplacetodayforeconomicallyequivalentderivativestradedonseparateexchanges.TheCommissionshouldnotimplementlimitslowerthancurrentlevels.Ataminimum,aggregatespotlimitsshouldequalcurrentlevels.Accordingly,foreachfederalspotaggregatelimit,the
 
Mr.DavidA.StawickMarch28,2011Page3Commissionshoulddeterminethetotalexistingspotlimitscurrentlyinplaceforeconomicallyequivalentcontractsandensurethatthenewfederallimitequalsorexceedsthoseinplacetoday.Forexample,positionstradedontheInterContinentalExchange("ICE")intheHenryHubLD1NaturalGascontractarecurrentlylimitedto1,000NYMEXcontractequivalentsinthespotmonth.PositionsintheHenryHubNaturalGasFinancialFuturesswapcontract(NG)ontheNewYorkMercantileExchange("NYMEX")aresubjecttoanexpirationmonthlimitof1,000positions.TheHenryHubNaturalGasLastDayFinancialFuturesSwap(HH)isalsosubjecttoaspotlimitof1,000contracts.Thus,underthecurrentregulatoryregime,amarketparticipantcouldholdspotpositionsuptobothlimitsoneachexchange,foratotalof3,000contracts,beforeconsiderationofhedgeexemptions;however,undertheCommission'spositionlimitsproposal,anaggregatefederalpositionlimitwouldapplyandwouldeffectivelycapthenumberofpositionsthatamarketparticipantcouldholdinthesecontractsatwellbelowthecurrentlevelallowedbytheexchanges.TheNOPRissomewhatunclearonthispoint,butitappearsthatthespotlimitwillbeatmost2,000contractsandperhapsasfewas1,000contracts?Therefore,therulewouldhavetheeffectofdramaticallyreducingthepositionsthatamarketparticipantcanholdundercurrentlyapplicableexchange-basedlimits,thusseriouslylimitingtheabilityofnaturalgasmarketparticipantstomanagetheirrisks.ThereisnoindicationinDodd-FrankthatCongressintendedthatcurrentpositionlimitlevelsbereduced.Indeed,thecurrentspeculativelimitsandhedgeexemptionprocessforenergyderivativeshasworkedwellandproventoberobustinthefaceofchallenges.Moreover,theaggregationofunclearedOTCcontractsthatarethe"economicequivalents"ofthecorereferencedcontractswillsignificantlyexacerbatetheproblemsposedbythelowerspotlimits.Inshort,theCommission'sproposalwillbothlowerthelimitsandincreasethepopulationofcontractsthatmustfitunderthoselimits,withadecidedreductioninthenumberofderivativecontractsapartycanhold.
III.TheCommissionShouldProvideaClearandStraightforwardMechanismforCommercialMarketParticipantstoObtain
BonaFide
HedgeExemptions.
Onemightarguethatcommercialhedgersneednotbeconcernedaboutlowerspotpositionlimitsbecauseoftheavailabilityofhedgeexemptions.Unfortunately,itisfarfromcertainthatadequatehedgeexemptionswillbeavailable.
3
NOPRat4776(AppendixAtoPart151).(Itisunclearifthe1,000contractlimitfornaturalgasislimitedtoonlythereferencedcorefuturescontract,orifitisapplicabletothetotalofthephysically-deliveredcontractclassandcash-settledcontractclassorifitisthelimitforthetwoclassesseparately.)

You're Reading a Free Preview

Download
scribd
/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->