The US Commodity Futures Trading Commission (CFTC) proposed
wider exemptions to the affiliate aggregation requirements of
position limits rule on May 18, following a
petition by the Working Group of Commercial Energy
Commodities traders holding a 50 percent or less stake in an
affiliate will now not have to aggregate the positions of that
affiliate toward the position limits outlined in the rule,
originally finalised last October.
Companies wanting to rely on the exemption will be required
to make a notice filing with the CFTC under the yet-to-be
It makes you question what was going on during the
public comment period, a lawyer who used to work at the
CFTC said. I dont think the petition revealed new
issues. I think the commission therefore had to recognize there
were flaws in what they adopted.
Davis Polk & Wardwell partner Susan Ervin said the
notice filing was pretty extensive. "Unlike most notice filing
requirements, this one calls for a whole set of data from a
filer including description of risk management and information
sharing systems, she said.
The exemption is dependent on the trader and its affiliate
not having knowledge of each others trading decisions and
trading on separately developed and independent trading
systems. Written procedures establishing an information barrier
between the parties is also required. Employees and risk
management systems must remain independent.
An out of aggregation requirements comes as a relief for
those commodity traders that qualify, but lawyers do not think
it significantly alters the costs and benefits of the position
limits rule the source of litigation brought against the
commission by the International Swaps and Derivatives
Association and Securities Industry and Financial Markets
Association late last year.
I dont know whether the law suits, the
litigation, the threat of judicial review or taking an action
arbitrarily or capriciously has made it more or less likely
[that the CFTC will finalise wider exemptions], the
former CFTC lawyer said.
I think they are proposing these rules because they
think they are improving this rule. They are supporting the
idea the first rule wasnt hot, the lawyer
Ervin said the wider exemption did not moot litigation to
have the rule vacated because there were a lot of other