The CFTC’s position limit rules, which currently apply to limited types of futures contracts and options on futures, include aggregation requirements that specify the circumstances under which positions controlled or held by a person must be counted together for purposes of the position limits.  These aggregation rules were significantly amended in 2016.  While the amended rules included new exemptions from the aggregation requirements, they also imposed new filing requirements and, in some cases, raised interpretive questions for market participants, including asset managers and investment funds that trade futures and options.

The CFTC staff issued a no-action letter (CFTC Letter 17-37) on August 10 that extends and expands the staff’s February 2017 no-action relief from some position limit aggregation requirements.   Letter 17-37 continues the recent trend of the CFTC staff addressing concerns raised by industry associations and market participants.

Aggregation Requirement

CFTC Rule 150.4(a) generally requires any person to aggregate for position limit purposes any positions for which the person:

  • exercises direct or indirect trading control;
  • has 10% or greater ownership or equity interest, including where the positions are held by an entity in which the person has a 10% or greater ownership or equity interest (Owner Aggregation); or
  • holds or controls trading of positions in more than one account or pool with “substantially identical trading strategies.”

The rules contain several exemptions from this general aggregation requirement.  Key exemptions include those from Owner Aggregation, subject to conditions designed to restrict knowledge of trading or positions between the owner and owned entity, and for client positions controlled by an “independent account controller” for an “eligible entity.”

Relief Granted

The relief granted by Letter 17-37  relates to five specific provisions of the aggregation requirements or exemptions from those requirements, as described in the chart below.  The relief expires on August 12, 2019, but the Letter explains that the two-year relief period is intended to provide the CFTC staff with time to assess and determine whether permanent modifications to the aggregation rules may be appropriate.  The CFTC, with its newly confirmed commissioners, also may be considering action on its re-proposed position limit rules, that—in their current form—would expand CFTC position limits to additional types of physical commodity futures contracts and swaps on the same underlying commodities

Trainee Solicitor Courtney Grafton contributed to this post.

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