Key Takeaways
- • On December 5, 2016, the CFTC issued a final rule amending its position limit aggregation rules and exemptions for futures and options on nine agricultural commodities, effective 60 days after Federal Register publication (expected roughly two weeks after the announcement).
- • The rule requires aggregation of positions in any account where a person controls trading or holds a 10% or greater ownership or equity interest, unless an exemption applies, and treats persons acting in concert as a single person.
- • A new owned-entity exemption lets persons with a 10% or greater interest in an owned entity (other than a commodity pool) avoid aggregating that entity's positions, regardless of stake size, if independence conditions are met.
- • Most exemptions now require a notice filing with the CFTC, with a 60-day window to file after acquiring an interest and a five-business-day grace period for late filers; pool participants, independent account controllers and FCM-related exemptions previously relied on without filing must now file before the rule takes effect.
- • Underwriter and broker-dealer exemptions require no notice filing, and a new exemption covers cases where information sharing would create a reasonable risk of violating federal, state, or foreign law.
Summary
On December 5, 2016, the Commodity Futures Trading Commission (CFTC) adopted a final rule amending its position limit aggregation rules and the associated exemptions for certain futures contracts and options on nine agricultural commodities, according to an Akin Gump client alert. The Final Rule takes effect 60 days after publication in the Federal Register, which was expected about two weeks after the announcement. The rule adopts many of the amendments the CFTC had previously proposed.
Under the Final Rule, unless an exemption applies, all positions in accounts where any person, directly or indirectly, controls trading or holds a 10% or greater ownership or equity interest must be aggregated with other positions held and trading done by that person. Positions held by two or more persons acting in concert, whether express or implied, are treated as if held by a single person. Persons holding or controlling multiple accounts or pools with substantially identical trading strategies must also aggregate those positions. Most exemptions require a notice filing with the CFTC. Filers receive a 60-day window after acquiring an ownership interest, and a grace period applies if a filing is late, provided it is made within five business days of becoming aware of the lapse.
The rule creates a new owned-entity exemption for persons with a 10% or greater interest in an entity other than a commodity pool, regardless of stake size, provided the parties maintain independence. Conditions include no knowledge of each other's trading decisions, separately developed trading systems, written information barriers, no shared trading employees, and no risk management systems that permit sharing of trades or strategy. The pool participant exemption, the independent account controller (IAC) exemption, and the FCM exemption for discretionary and customer trading program accounts each now carry notice filing requirements. Entities already relying on these exemptions must file before the rule takes effect. Underwriter and broker-dealer exemptions, by contrast, carry no filing requirement, and a new exemption covers situations where sharing information would create a reasonable risk of violating federal, state, or foreign law, requiring a written legal memorandum.
According to the alert, market participants should review the rule and begin preparations, particularly those relying on pool participant, IAC, or FCM exemptions who will now need to file notices.
Under the Final Rule, unless an exemption applies, all positions in accounts where any person, directly or indirectly, controls trading or holds a 10% or greater ownership or equity interest must be aggregated with other positions held and trading done by that person. Positions held by two or more persons acting in concert, whether express or implied, are treated as if held by a single person. Persons holding or controlling multiple accounts or pools with substantially identical trading strategies must also aggregate those positions. Most exemptions require a notice filing with the CFTC. Filers receive a 60-day window after acquiring an ownership interest, and a grace period applies if a filing is late, provided it is made within five business days of becoming aware of the lapse.
The rule creates a new owned-entity exemption for persons with a 10% or greater interest in an entity other than a commodity pool, regardless of stake size, provided the parties maintain independence. Conditions include no knowledge of each other's trading decisions, separately developed trading systems, written information barriers, no shared trading employees, and no risk management systems that permit sharing of trades or strategy. The pool participant exemption, the independent account controller (IAC) exemption, and the FCM exemption for discretionary and customer trading program accounts each now carry notice filing requirements. Entities already relying on these exemptions must file before the rule takes effect. Underwriter and broker-dealer exemptions, by contrast, carry no filing requirement, and a new exemption covers situations where sharing information would create a reasonable risk of violating federal, state, or foreign law, requiring a written legal memorandum.
According to the alert, market participants should review the rule and begin preparations, particularly those relying on pool participant, IAC, or FCM exemptions who will now need to file notices.
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