[Federal Register: November 21, 2007 (Volume 72, Number 224)]
[Proposed Rules]
[Page 65483-65487]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21no07-22]
=======================================================================
-----------------------------------------------------------------------
COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 150
RIN 3038-AC140
Revision of Federal Speculative Position Limits
AGENCY: Commodity Futures Trading Commission.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: The Commodity Futures Trading Commission (``Commission'')
periodically reviews the speculative position limits for certain
agricultural commodities set out in Commission regulation 150.2
(``Federal speculative position limits''). In this regard, the
Commission has reviewed the existing levels for Federal speculative
position limits and is now proposing to increase these limits for all
single-month and all-months-combined positions in all commodities
except oats, based on the formula set out in Commission Regulation
150.5(c). In addition, the Commission is also proposing to aggregate
traders' positions for purposes of ascertaining compliance with Federal
speculative position limits when a designated contract market (``DCM'')
lists for trading a futures contract that shares substantially
identical terms with a Regulation 150.2-enumerated contract listed on
another DCM, including a futures contract that is cash-settled based on
the settlement prices for a futures contract that is already
enumerated. The Commission is requesting comment on these rule
amendments.
DATES: Comments must be received on or before December 21, 2007.
ADDRESSES: Comments should be submitted to David Stawick, Secretary,
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st
Street, NW., Washington, DC 20581. Comments also may be sent by
facsimile to (202) 418-5521, or by electronic mail to
secretary@cftc.gov. Reference should be made to ``Proposed Revision of
Federal Speculative Position Limits.'' Comments may also be
[[Page 65484]]
submitted by connecting to the Federal eRulemaking Portal at http://www.regulations.gov
and following comment submission instructions.
FOR FURTHER INFORMATION CONTACT: Don Heitman, Attorney, Division of
Market Oversight, Commodity Futures Trading Commission, Three Lafayette
Centre, 1155 21st Street, NW., Washington, DC 20581, telephone (202)
418-5041, facsimile number (202) 418-5507, electronic mail
dheitman@cftc.gov; or Martin Murray, Economist, Division of Market
Oversight, telephone (202) 418-5276, facsimile number (202) 418-5507,
electronic mail mmurray@cftc.gov.
SUPPLEMENTARY INFORMATION:
I. Background
A. Introduction
The Commission has long established and enforced speculative
position limits for futures contracts on various agricultural
commodities. The Commission periodically reviews these Federal
speculative position limits, which are set out in Commission regulation
150.2.\1\ In this regard, the Commission has reviewed the existing
levels for Federal speculative position limits and is now proposing to
increase these limits for all single-month and all-months-combined
positions in all commodity markets enumerated in Commission regulation
150.2, except Chicago Board of Trade (``CBT'') Oats, based on the
formula set out in Commission Regulation 150.5(c). In particular, the
Commission is proposing to increase levels for single-month and all-
months-combined positions for CBT Corn, Soybeans, Wheat, Soybean Oil,
and Soybean Meal; Minneapolis Grain Exchange (MGE) Hard Red Spring
Wheat; Kansas City Board of Trade (KCBT) Hard Winter Wheat, and New
York Board of Trade (NYBOT) Cotton No. 2. The spot month limits for all
of these commodities would remain unchanged. In addition, the
Commission is also proposing to aggregate traders' positions for
purposes of ascertaining compliance with Federal speculative position
limits when a DCM lists for trading a futures contract that shares
substantially identical terms with a Regulation 150.2-enumerated
contract listed on another DCM, including a futures contract that is
cash-settled based on the settlement prices for a futures contract that
is already enumerated.
---------------------------------------------------------------------------
\1\ Regulation 150.2 imposes three types of position limits for
each specified contract: A spot month limit, a single-month limit,
and an all-months-combined limit. The Commission most recently
adopted amendments to levels for Federal speculative position limits
in 2005 (see 70 FR 24705 May 11, 2005).
---------------------------------------------------------------------------
B. Regulatory Framework
Speculative position limits have been a tool for the regulation of
the U.S. futures markets since the adoption of the Commodity Exchange
Act of 1936. Section 4a(a) of the Commodity Exchange Act (Act), 7
U.S.C. 6a(a), states that:
Excessive 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 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.
Accordingly, section 4a(a) provides the Commission with the
authority to:
Fix such limits on the amounts of trading which may be done or
positions which may be held by any person under contracts of sale of
such commodity for future delivery on or subject to the rules of any
contract market or derivatives transaction execution facility as the
Commission finds are necessary to diminish, eliminate, or prevent
such burden.
This longstanding statutory framework providing for Federal
speculative position limits was supplemented with the passage of the
Futures Trading Act of 1982, which acknowledged the role of exchanges
in setting their own speculative position limits. The 1982 legislation
also provided, under section 4a(e) of the Act, that limits set by
exchanges and approved by the Commission were subject to Commission
enforcement.
Finally, the Commodity Futures Modernization Act of 2000 (``CFMA'')
established designation criteria and core principles with which a DCM
must comply to receive and maintain designation. Among these, Core
Principle 5 in section 5(d) of the Act states:
Position Limitations or Accountability--To reduce the potential
threat of market manipulation or congestion, especially during
trading in the delivery month, the board of trade shall adopt
position limitations or position accountability for speculators,
where necessary and appropriate.
As outlined above, the regulatory structure is administered under a
two-pronged framework. Under the first prong, the Commission
establishes and enforces speculative position limits for futures
contracts on a limited group of agricultural commodities. These Federal
speculative position limits are enumerated in Commission regulation
150.2, and apply to the following futures and option markets: CBT Corn,
Oats, Soybeans, Wheat, Soybean Oil, and Soybean Meal; MGE Hard Red
Spring Wheat; NYBOT Cotton No. 2; and KCBT Hard Winter Wheat. Under the
second prong, individual DCMs establish and enforce their own
speculative position limits or position accountability provisions,
subject to Commission oversight and separate authority to enforce
exchange-set speculative position limits approved by the Commission.
Thus, responsibility for enforcement of speculative position limits is
shared by the Commission and the DCMs.\2\
---------------------------------------------------------------------------
\2\ Provisions regarding the establishment of exchange-set
speculative position limits were originally set forth in CFTC
regulation 1.61. In 1999, the Commission simplified and reorganized
its rules by relocating the substance of regulation 1.61's
requirements to part 150 of the Commission's rules, thereby
incorporating within part 150 provisions for both Federal
speculative position limits and exchange-set speculative position
limits (see 64 FR 24038, May 5, 1999). Section 4a(e) of the Act
provides that a violation of a speculative position limit set by a
Commission-approved exchange rule is also a violation of the Act.
Thus, the Commission can enforce directly violations of exchange-set
speculative position limits as well as those provided under
Commission rules.
---------------------------------------------------------------------------
II. Commission Speculative Position Limit Levels
The Commission is proposing several revisions to the Federal
speculative position limit levels found in regulation 150.2 based upon
its experience in administering these limits and the open interest
formula found in Commission Regulation 150.5. Under the proposed
revisions, spot month limits would remain unchanged from the current
levels, but every single-month and all-months-combined position limit,
except for CBT Oats, would be increased based upon open interest data
for the most recent calendar year (2006). For all-months-combined
levels, the Commission proposes to amend the limits set forth in
Regulation 150.2 to the maximum levels permitted under the open
interest formula, and to adjust the single month limits to reflect the
existing ratio of single month to all-months-combined levels. With
respect to the single month limits, a strict application of the open
interest formula contained in regulation 150.5 would have resulted in
somewhat lower single month limits for some commodities and higher
limits for others than those proposed below. However, the Commission
believes that maintaining the existing ratios between single-month and
all-months-combined speculative position limit levels is of benefit to
the marketplace, and thus the Commission is proposing to establish
single-month limits that are consistent with that
[[Page 65485]]
approach.\3\ The open interest formula does not justify an increase in
the CBT Oats single month or all-months-combined limits, and the
Commission does not propose any change in their levels at this time.
---------------------------------------------------------------------------
\3\ The Commission used this more flexible approach when it last
revised the Federal speculative position limits in 2005 (See 70 FR
24705, May 11, 2005).
---------------------------------------------------------------------------
In addition, with respect to the MGE and KCBT Wheat contracts, the
Commission proposes to maintain parity with the levels proposed for CBT
Wheat rather than establish different limits based on the open interest
formula for each contract. The Commission first adopted this parity
approach in an action to revise position limits in 1993.\4\ At that
time the Commission concluded that the breadth and liquidity of the
cash markets underlying the KCBT and MGE Wheat contracts justified
setting these limits at parity with little risk of regulatory harm from
such action.\5\ The Commission continues to believe that the breadth
and liquidity of underlying cash markets, as well as continued growth
in open interest, for the KCBT and MGE Wheat contracts support
maintenance of these speculative position limit levels at parity with
one another.\6\
---------------------------------------------------------------------------
\4\ See 58 FR 17973 (April 7, 1993).
\5\ Id. at 17979.
\6\ The Commission maintained parity between the CBT, MGE, and
KCBT wheat contracts when it last revised the Federal speculative
position limits in May, 2005.
---------------------------------------------------------------------------
Finally, the Commission is also proposing to aggregate traders'
positions for purposes of ascertaining compliance with Federal
speculative position limits when a DCM lists for trading a futures
contract that shares substantially identical terms with a Regulation
150.2-enumerated contract listed on another DCM, including a futures
contract that is cash-settled based on the settlement prices for a
futures contract that is already enumerated. In this regard, when the
Commission last amended regulation 150.2, it clarified its practice of
aggregating traders' positions when a single DCM lists for trading two
or more contracts with substantially identical terms based on the same
underlying commodity characteristics, such as the CBT Corn and Mini-
Corn futures contracts.\7\ At the time it adopted those clarifying
amendments, the Commission noted, ``that should a DCM list a contract
that shared substantially identical terms with a Regulation 150.2-
enumerated contract listed on another DCM, the Commission could
consider at that time whether to amend regulation 150.2 to likewise
apply Federal limits to the newly-listed contract.'' Since then, the
New York Mercantile Exchange (NYMEX) has listed for trading a Cotton
futures contract that is cash-settled based on the settlement price for
the NYBOT Cotton No. 2 futures contract. The Commission believes that
aggregation of traders' positions in such circumstances is necessary to
protect the integrity of the existing limits by removing the ability of
a trader to flout the limits by taking a position in the non-encumbered
market.
Based on the criteria noted above, the Commission is proposing the
following changes to the Federal speculative position limits (additions
are underlined, and deletions are struck through).
---------------------------------------------------------------------------
\7\ 70 FR 24705, (May 11, 2005).
[GRAPHIC] [TIFF OMITTED] TP21NO07.021
[[Page 65486]]
III. Related Matters
A. Cost Benefit Analysis
Section 15(a) of the Act requires the Commission to consider the
costs and benefits of its action before issuing a new regulation under
the Act. By its terms, section 15(a) does not require the Commission to
quantify the costs and benefits of a new regulation or to determine
whether the benefits of the proposed regulation outweigh its costs.
Rather, section 15(a) requires the Commission to ``consider the costs
and benefits'' of the subject rule.
Section 15(a) further specifies that the costs and benefits of the
proposed rule shall be evaluated in light of five broad areas of market
and public concern: (1) Protection of market participants and the
public; (2) efficiency, competitiveness, and financial integrity of
futures markets; (3) price discovery; (4) sound risk management
practices; and (5) other public interest considerations. The Commission
may, in its discretion, give greater weight to any one of the five
enumerated areas of concern and may, in its discretion, determine that,
notwithstanding its costs, a particular rule is necessary or
appropriate to protect the public interest or to effectuate any of the
provisions or to accomplish any of the purposes of the Act.
The proposed rule amendments impose limited additional costs in
terms of reporting requirements, particularly since entities trading in
or holding large positions, which either approach or meet the
speculative limits of the rules herein, already file large trader
reports with the Commission. Moreover, the amendments proposed herein
would increase Federal speculative position limits for some commodities
and, to that extent, reduce the compliance costs associated with these
speculative position limits. The countervailing benefits to any
additional costs are that the continued inclusion of appropriate
speculative limits will help to ensure the maintenance of competitive
and efficient markets, protect the price discovery and risk shifting
functions of those markets, and protect market participants and the
public interest.
B. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq.,
requires federal agencies, in proposing rules, to consider the impact
of those rules on small businesses. The Commission believes that the
proposed rule amendments to raise Commission speculative position
limits would only impact large traders. The Commission has previously
determined that large traders are not small entities for purposes of
the RFA.\8\ Therefore, the Acting Chairman, on behalf of the
Commission, hereby certifies, pursuant to 5 U.S.C. 605(b), that the
action taken herein will not have a significant economic impact on a
substantial number of small entities. The Commission also notes in this
regard that the proposed rules will raise speculative limit levels and
thereby reduce the regulatory burden on all affected entities.
---------------------------------------------------------------------------
\8\ 47 FR 18618 (April 30, 1982).
---------------------------------------------------------------------------
C. Paperwork Reduction Act
When publishing proposed rules, the Paperwork Reduction Act of 1995
(44 U.S.C. 3507(d)) imposes certain requirements on federal agencies
(including the Commission) in connection with their conducting or
sponsoring any collection of information as defined by the Paperwork
Reduction Act. In compliance with the Paperwork Reduction Act, the
Commission, through this rule proposal, solicits public comment to: (1)
Evaluate whether the proposed collection of information is necessary
for the proper performance of the functions of the agency, including
the validity of the methodology and assumptions used; (2) evaluate the
accuracy of the agency's estimate of the burden of the proposed
collection of information including the validity of the methodology and
assumptions used; (3) enhance the quality, utility and clarity of the
information to be collected; and (4) minimize the burden of the
collection of information on those who are to respond through the use
of appropriate automated, electronic, mechanical, or other
technological collection techniques or other forms of information
technology, e.g., permitting electronic submission of responses.
The Commission has submitted the proposed rule and its associated
information collection requirements to the Office of Management and
Budget. The proposed rule is part of two approved information
collections. The burdens associated with these rules are as follows:
Collection Number
[3038-0009]
Average burden hours per response: 3.
Number of respondents: 2946.
Frequency of response: On occasion.
Collection Number
[3038-0013]
Average burden hours per response: 3.
Number of respondents: 9.
Frequency of response: On occasion.
List of Subjects in 17 CFR Part 150
Agricultural commodities, Bona fide hedge positions, Position
limits, Spread exemptions.
In consideration of the foregoing, pursuant to the authority
contained in the Commodity Exchange Act, the Commission hereby proposes
to amend part 150 of chapter I of title 17 of the Code of Federal
Regulations as follows:
PART 150--LIMITS ON POSITIONS
1. The authority citation for part 150 is revised to read as
follows:
Authority: 7 U.S.C. 6a, 6c, and 12a(5), as amended by the
Commodity Futures Modernization Act of 2000, Appendix E of Pub. L.
106-554, 114 Stat. 2763 (2000).
2. Section 150.2 is revised to read as follows:
Sec. 150.2 Position limits.
No person may hold or control positions, separately or in
combination, net long or net short, for the purchase or sale of a
commodity for future delivery or, on a futures-equivalent basis,
options thereon, in excess of the following:
Speculative Position Limits \1\
[In contract units]
------------------------------------------------------------------------
Single
Contract Spot month month All months
------------------------------------------------------------------------
Chicago Board of Trade
------------------------------------------------------------------------
Corn and Mini-Corn \2\........... 600 26,000 42,400
Oats............................. 600 1,400 2,000
[[Page 65487]]
Soybeans and Mini-Soybeans \2\... 600 8,600 13,300
Wheat and Mini-Wheat \2\......... 600 11,100 14,500
Soybean Oil...................... 540 6,600 8,600
Soybean Meal..................... 720 5,500 7,100
------------------------------------------------------------------------
Minneapolis Grain Exchange
------------------------------------------------------------------------
Hard Red Spring Wheat............ 600 11,100 14,500
------------------------------------------------------------------------
New York Board of Trade
------------------------------------------------------------------------
Cotton No. 2..................... 300 5,300 7,300
------------------------------------------------------------------------
Kansas City Board of Trade
------------------------------------------------------------------------
Hard Winter Wheat................ 600 11,100 14,500
------------------------------------------------------------------------
\1\ For purposes of compliance with these limits, positions in a futures
contract that shares substantially identical terms with a contract
market enumerated herein, including a futures contract that is cash-
settled based on the settlement price of an enumerated contract
market, shall be aggregated with positions in the enumerated contract
market.
\2\ For purposes of compliance with these limits, positions in the
regular-sized and mini-sized contracts shall be aggregated.
Issued by the Commission this November 15, 2007, in Washington,
DC.
David Stawick,
Secretary of the Commission.
[FR Doc. E7-22681 Filed 11-20-07; 8:45 am]
BILLING CODE 6351-01-P