Aggregation of Positions Proposal

Vol. 78

Friday,

No. 221

November 15, 2013

Part III

Commodity Futures Trading Commission

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17 CFR Part 150
Aggregation of Positions; Proposed Rule

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Federal Register / Vol. 78, No. 221 / Friday, November 15, 2013 / Proposed Rules

17 CFR Part 150
RIN 3038–AD82

Aggregation of Positions
Commodity Futures Trading
Commission.
ACTION: Notice of proposed rulemaking.
AGENCY:

On May 30, 2012, the
Commodity Futures Trading
Commission (‘‘Commission’’ or
‘‘CFTC’’) published in the Federal
Register a notice of proposed
modifications to part 151 of the
Commission’s regulations. The
modifications addressed the policy for
aggregation under the Commission’s
position limits regime for 28 exempt
and agricultural commodity futures and
options contracts and the physical
commodity swaps that are economically
equivalent to such contracts. In an
Order dated September 28, 2012, the
District Court for the District of
Columbia vacated part 151 of the
Commission’s regulations. The
Commission is now proposing
modifications to the aggregation
provisions of part 150 of the
Commission’s regulations that are
substantially similar to the aggregation
modifications proposed to part 151,
except that the modifications address
the policy for aggregation under the
Commission’s position limits regime for
futures and option contracts on nine
agricultural commodities set forth in
part 150. Separately, the Commission is
also proposing today to establish
speculative position limits for the 28
exempt and agricultural commodity
futures and options contracts and the
physical commodity swaps that are
economically equivalent to such
contracts that previously had been
covered by part 151 of its regulations. If
both proposals are finalized, the
modifications proposed here to the
aggregation provisions of part 150
would apply to the position limits
regimes for both the futures and option
contracts on nine agricultural
commodities and the 28 exempt and
agricultural commodity futures and
options contracts and the physical
commodity swaps that are economically
equivalent to such contracts. However,
the Commission may determine to adopt
the modifications proposed here
separately from any other amendment to
the position limits regime.
DATES: Comments must be received on
or before January 14, 2014.

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SUMMARY:

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You may submit comments,
identified by RIN number 3038–AD82,
by any of the following methods:
• Agency Web site: http://
comments.cftc.gov;
• Mail: Melissa D. Jurgens, Secretary
of the Commission, Commodity Futures
Trading Commission, Three Lafayette
Centre, 1155 21st Street NW.,
Washington, DC 20581;
• Hand delivery/courier: Same as
mail, above.
• Federal eRulemaking Portal: http://
www.regulations.gov. Follow
instructions for submitting comments.
All comments must be submitted in
English, or if not, accompanied by an
English translation. Comments will be
posted as received to http://
www.cftc.gov. You should submit only
information that you wish to make
available publicly. If you wish the
Commission to consider information
that may be exempt from disclosure
under the Freedom of Information Act,
a petition for confidential treatment of
the exempt information may be
submitted according to the procedures
established in CFTC regulations at 17
CFR part 145.
The Commission reserves the right,
but shall have no obligation, to review,
pre-screen, filter, redact, refuse or
remove any or all of your submission
from http://www.cftc.gov that it may
deem to be inappropriate for
publication, such as obscene language.
All submissions that have been redacted
or removed that contain comments on
the merits of the rulemaking will be
retained in the public comment file and
will be considered as required under the
Administrative Procedure Act and other
applicable laws, and may be accessible
under the Freedom of Information Act.
FOR FURTHER INFORMATION CONTACT:
Stephen Sherrod, Senior Economist,
Division of Market Oversight, (202) 418–
5452, ssherrod@cftc.gov; Riva Spear
Adriance, Senior Special Counsel,
Division of Market Oversight, (202) 418–
5494, radriance@cftc.gov; or Mark
Fajfar, Assistant General Counsel, Office
of General Counsel, (202) 418–6636,
mfajfar@cftc.gov; Commodity Futures
Trading Commission, Three Lafayette
Centre, 1155 21st Street NW.,
Washington, DC 20581.
SUPPLEMENTARY INFORMATION:
ADDRESSES:

COMMODITY FUTURES TRADING
COMMISSION

I. Background
A. Introduction
The Commission has long established
and enforced speculative position limits
for futures and options contracts on
various agricultural commodities as
authorized by the Commodity Exchange

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Act (‘‘CEA’’).1 The part 150 position
limits regime,2 generally includes three
components: (1) The level of the limits,
which set a threshold that restricts the
number of speculative positions that a
person may hold in the spot-month,
individual month, and all months
combined,3 (2) exemptions for positions
that constitute bona fide hedging
transactions and certain other types of
transactions,4 and (3) rules to determine
which accounts and positions a person
must aggregate for the purpose of
determining compliance with the
position limit levels.5
The Commission’s existing
aggregation policy under regulation
150.4 generally requires that unless a
particular exemption applies, a person
must aggregate all positions for which
that person controls the trading
decisions with all positions for which
that person has a 10 percent or greater
ownership interest in an account or
position, as well as the positions of two
or more persons acting pursuant to an
express or implied agreement or
understanding.6 The scope of
exemptions from aggregation include
the ownership interests of limited
partners in pooled accounts,7
discretionary accounts and customer
trading programs of futures commission
merchants (‘‘FCM’’),8 and eligible
entities with independent account
controllers that manage customer
positions (‘‘IAC’’ or ‘‘IAC exemption’’).9
Market participants claiming one of the
exemptions from aggregation are subject
to a call by the Commission for
information demonstrating compliance
with the conditions applicable to the
claimed exemption.10
B. Proposed Modifications to the Policy
for Aggregation Under Part 151 of the
Commission’s Regulations
The Commission adopted part 151 of
its regulations in November 2011 under
the authority of the Dodd-Frank Wall
Street Reform and Consumer Protection
Act (‘‘Dodd-Frank Act’’), which
President Obama signed on July 21,
2010.11 Title VII of the Dodd-Frank
17

U.S.C. 1 et seq.
17 CFR part 150. Part 150 of the
Commission’s regulations establishes federal
position limits on certain enumerated agricultural
contracts; the listed commodities are referred to as
enumerated agricultural commodities.
3 See 17 CFR 150.2.
4 See 17 CFR 150.3.
5 See 17 CFR 150.4.
6 See 17 CFR 150.4(a) and (b).
7 See 17 CFR 150.4(c).
8 See 17 CFR 150.4(d).
9 See 17 CFR 150.3(a)(4).
10 See 17 CFR 150.3(b) and 150.4(e).
11 See Dodd-Frank Wall Street Reform and
Consumer Protection Act, Public Law 111–203, 124
2 See

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Act 12 amended the CEA to establish a
comprehensive new regulatory
framework for swaps and security-based
swaps. The legislation was enacted to
reduce risk, increase transparency, and
promote market integrity within the
financial system by, among other things:
(1) Providing for the registration and
comprehensive regulation of swap
dealers and major swap participants; (2)
imposing clearing and trade execution
requirements on standardized derivative
products; (3) creating robust
recordkeeping and real-time reporting
regimes; and (4) enhancing the
Commission’s rulemaking and
enforcement authorities with respect to,
among others, all registered entities and
intermediaries subject to the
Commission’s oversight.
As amended by the Dodd-Frank Act,
sections 4a(a)(2) and 4a(a)(5) of the CEA
authorize the Commission to establish
limits for futures and option contracts
traded on a designated contract market
(‘‘DCM’’), as well as swaps that are
economically equivalent to such futures
or options contracts traded on a DCM.
In response to this new authority, the
position limits regime adopted in part
151 would have applied to 28 physical
commodity futures and option contracts
and physical commodity swaps that are
economically equivalent to such
contracts.13 The regulations in the part
Stat. 1376 (2010). The text of the Dodd-Frank Act
may be accessed at http://www.cftc.gov/
LawRegulation/DoddFrankAct/index.htm.
12 Pursuant to section 701 of the Dodd-Frank Act,
Title VII may be cited as the ‘‘Wall Street
Transparency and Accountability Act of 2010.’’
13 See Position Limits for Futures and Swaps, 76
FR 71626 (Nov. 18, 2011). In an Order dated
September 28, 2012, the District Court for the
District of Columbia vacated part 151 of the
Commission’s regulations, with the exception of the
revised position limit levels in amended section
150.2. See International Swaps and Derivatives
Association v. United States Commodity Futures
Trading Commission, 887 F. Supp. 2d 259 (D.D.C.
2012).
In a separate proposal approved on the same date
as this proposal, the Commission is proposing to
establish speculative position limits for 28 exempt
and agricultural commodity futures and option
contracts, and physical commodity swaps that are
‘‘economically equivalent’’ to such contracts (as
such term is used in section 4a(a)(5) of the CEA).
In connection with establishing these limits, the
Commission is also proposing to update some
relevant definitions; revise the exemptions from
speculative position limits, including for bona fide
hedging; and extend and update reporting
requirements for persons claiming exemption from
these limits. See Position Limits for Derivatives
(November 5, 2013).
The Commission is proposing these amendments
to regulation 150.4 and certain related regulations
separately from its proposed amendments to
position limits because it believes that these
proposed amendments regarding aggregation of
provisions could be appropriate regardless of
whether the position limit amendments are
adopted. The Commission anticipates that it could
adopt these amendments related to aggregation

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151 position limits regime are in three
components that are generally similar to
the three components of part 150.14
With regard to determining which
accounts and positions a person must
aggregate, regulation 151.7 largely
adopted the Commission’s existing
aggregation policy under regulation
150.4.15 Regulation 151.7, however, also
provided additional exemptions for
underwriters of securities, and for
where the sharing of information
between persons would cause either
person to violate federal law or
regulations adopted thereunder.16 With
the exception of the exemption for
underwriters, regulation 151.7 required
market participants to file a notice with
the Commission demonstrating
compliance with the conditions
applicable to each exemption.17
On May 30, 2012, the Commission
proposed, partially in response to a
petition for interim relief from part
151’s provision for aggregation of
positions across accounts,18 certain
modifications to its policy for
aggregation under the part 151 position
limits regime (the ‘‘Part 151 Aggregation
Proposal’’).19 In brief, the Part 151
Aggregation Proposal included the
following five elements.
First, the Commission proposed to
amend regulation 151.7(i) to make clear
that the exemption from aggregation for
situations where the sharing of
information was restricted under law
would include circumstances in which
the sharing of information would create
a ‘‘reasonable risk’’ of a violation—in
addition to an actual violation—of
federal law or regulations adopted
thereunder. The Commission also
proposed extending the exemption to
separately from the amendments to the position
limits.
If both proposals are finalized, the modifications
proposed here to the aggregation provisions of part
150 would apply to the position limits regimes for
both the futures and option contracts on nine
agricultural commodities and the 28 exempt and
agricultural commodity futures and options
contracts and the physical commodity swaps that
are economically equivalent to such contracts.
14 See notes 2 through 5, above, and
accompanying text.
15 See notes 6 through 9, above, and
accompanying text.
16 See regulations 151.7(g) and (i), respectively.
17 See regulation 151.7(i).
18 A copy of the petition (the ‘‘aggregation
petition’’) can be found on the Commission’s Web
site at www.cftc.gov/stellent/groups/public/@
rulesandproducts/documents/ifdocs/
wgap011912.pdf. The aggregation petition was
originally filed by the Working Group of
Commercial Energy Firms; certain members of the
group later reconstituted as the Commercial Energy
Working Group. Both groups (hereinafter,
collectively, the ‘‘Working Groups’’) presented one
voice with respect to the aggregation petition.
19 See Aggregation, Position Limits for Futures
and Swaps, 77 FR 31767 (May 30, 2012).

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situations where the sharing of
information would create a ‘‘reasonable
risk’’ of a violation of state law or the
law of a foreign jurisdiction. But the
Commission did not propose to modify
the requirement that market participants
file an opinion of counsel to rely on the
exemption in regulation 151.7(i).
Second, the Commission proposed
regulation 151.7(b)(1), which would
establish a notice filing procedure to
permit a person in specified
circumstances to disaggregate the
positions of a separately organized
entity (‘‘owned entity’’), even if such
person has a 10 percent or greater
interest in the owned entity. The notice
filing would need to demonstrate
compliance with certain conditions set
forth in proposed regulation
151.7(b)(1)(i), and such relief would not
be available to persons with a greater
than 50 percent ownership or equity
interest in the owned entity. Similar to
other exemptions from aggregation, the
Commission would be able to
subsequently call for additional
information as well as reject, modify or
otherwise condition such relief. Further,
such person would be obligated to
amend the notice filing in the event of
a material change to the circumstances
described in the filing. The proposed
criteria to claim relief in proposed
regulation 151.7(b)(1)(i) would have
required a demonstration that the
person filing for disaggregation relief
and the owned entity do not have
knowledge of the trading decisions of
the other; that they trade pursuant to
separately developed and independent
trading systems; that they have, and
enforce, written procedures to preclude
one entity from having knowledge of,
gaining access to, or receiving data
about, trades of the other; that they do
not share employees that control trading
decisions and that employees do not
share trading control with respect to
both entities; and that they do not have
risk management systems that permit
the sharing of trades or trading strategies
with the other.
Third, the Commission proposed
regulation 151.7(j), which would allow
higher-tier entities to rely upon a notice
for exemption filed by the owned entity,
but such reliance would only go to the
accounts or positions specifically
identified in the notice. The proposed
regulation also would require that a
higher-tier entity that wishes to rely
upon an owned entity’s exemption
notice must comply with conditions of
the applicable aggregation exemption
other than the notice filing
requirements.
Fourth, the Commission proposed an
aggregation exemption in proposed

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regulation 151.7(g) for an ownership
interest of a broker-dealer registered
with the SEC, or similarly registered
with a foreign regulatory authority, in
an entity based on the ownership of
securities acquired as part of reasonable
activity in the normal course of business
as a dealer. However, the proposed
exemption would not have applied
where a broker-dealer acquires more
than a 50 percent ownership interest in
another entity.
Fifth, the Commission proposed to
expand the definition of independent
account controller to include the
managing member of a limited liability
company, so that ‘‘regulation 4.13
commodity pools’’ (i.e., a commodity
pool, the operator of which is exempt
from registration under regulation 4.13)
established as limited liability
companies would be accorded the same
treatment as such pools formed as
limited partnerships.
The Commission received
approximately 26 written comments on
the Part 151 Aggregation Proposal.20
II. Proposed Rules
The Commission is now proposing to
amend regulation 150.4, and certain
related regulations, to include rules to
determine which accounts and positions
a person must aggregate that are
substantially similar to the
corresponding rules in part 151, as it
was proposed to be amended in May
2012. In addition, the amendments now
being proposed to regulation 150.4
reflect the Commission’s consideration
of the comments that were received on
the Part 151 Aggregation Proposal.
Thus, the discussion below covers the
amendments in the Part 151 Aggregation
Proposal, the comments on those
proposed amendments, and the
amendments that the Commission is
now proposing.21
A. Proposed Rules on the Information
Sharing Restriction

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B.1. Part 151 Proposed Approach—
Amendment to Regulation 151.7(i)
As noted above, regulation 151.7(i)
provided exemptions from aggregation
under certain conditions where the
sharing of information would cause a
violation of Federal law or regulation.
These exemptions had not previously
been available. In the Part 151
Aggregation Proposal, the Commission
proposed to amend regulation 151.7(i)
20 The

written comments are available on the
Commission’s Web site at http://comments.cftc.gov/
PublicComments/CommentList.aspx?id=1208.
21 For additional background on part 150 and part
151 and the existing provisions for aggregation, see
the Part 151 Aggregation Proposal.

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to make clear that the exemption to the
aggregation requirement would include
circumstances in which the sharing of
information would create a ‘‘reasonable
risk’’ of a violation—in addition to an
actual violation—of federal law or
regulations adopted thereunder. The
Commission noted that whether a
reasonable risk exists would depend on
the interconnection of the applicable
statute and regulatory guidance, as well
as the particular facts and circumstances
as applied to the statute and guidance.
The proposed amendments to part
151 retained the requirement that
market participants file an opinion of
counsel to rely on the exemption in
regulation 151.7(i). The Commission
explained that requiring an opinion
would allow Commission staff to review
the legal basis for the asserted regulatory
impediment to the sharing of
information, and would be particularly
helpful where the asserted impediment
arises from laws or regulations that the
Commission does not directly
administer. Further, Commission staff
would have the ability to consult with
other federal regulators as to the
accuracy of the opinion, and to
coordinate the development of rules
surrounding information sharing and
aggregation across accounts. The
Commission also noted that the
proposed clarification regarding a
‘‘reasonable risk’’ of violation should
address the concerns that obtaining an
opinion of counsel could be difficult if
the Commission read the existing
standard to include only per se
violations.
The Commission also noted that,
notwithstanding the Commission’s facts
and circumstances review of potentially
conflicting federal laws or regulations,
the exemption in regulation 151.7(i)
would be effective upon filing of the
notice required in regulation 151.7(h)
and opinion of counsel. Further, these
provisions authorized the Commission
to request additional information
beyond that contained in the notice
filing, and the Commission may amend,
suspend, terminate or otherwise modify
a person’s aggregation exemption upon
further review. Last, the Commission
noted that as it gained further
experience with the exemption for
federal law information sharing
restriction in regulation 151.7(i), it
anticipated providing further guidance
to market participants.
a. Part 151 Proposed Rules for
Information Sharing Restriction—
Foreign Law
For the same reasons the Commission
adopted the exemption for federal
information sharing restrictions, the

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Commission proposed extending the
exemption to the law of a foreign
jurisdiction. In addition, similar to the
clarification for the exemption for
federal law information sharing
restriction, the Commission also
proposed an exemption where the
sharing of information creates a
‘‘reasonable risk’’ of violating the law of
a foreign jurisdiction. However, the
Commission remained concerned that
certain market participants could
potentially use the existing and
proposed expansion of the exemption in
regulation 151.7(i) to evade the
requirements for the aggregation of
accounts. In this regard, the proposed
amendment to part 151, consistent with
the exemption for federal law
information sharing restriction,
included the requirement to file an
opinion of counsel specifically
identifying the particular law and facts
requiring a market participant to claim
the exemption.
The Commission noted that the
aggregation petition references
information sharing restrictions that
arise from ‘‘international’’ law, and the
Commission sought comment on the
types of ‘‘international’’ law, if any,
which could create information sharing
restrictions other than the law of a
foreign jurisdiction. The Commission
asked if the regulation 151.7(i)
exemption should include
‘‘international’’ law or whether it was
sufficient to refer to the ‘‘law of a
foreign jurisdiction.’’
b. Part 151 Proposed Rules for
Information Sharing Restriction—State
Law
The Commission also proposed to
establish an exemption for situations
where information sharing restrictions
could trigger state law violations. In
addition, similar to the clarification
related to information sharing
restrictions under federal law, the
Commission also proposed that the state
law information sharing restriction
apply where the sharing of information
creates a ‘‘reasonable risk’’ of violating
the state law. However, as noted above,
the Commission remained concerned
about the potential for evasion within
the context of this exemption. In this
regard, the Part 151 Aggregation
Proposal, consistent with the federal
law information sharing restriction,
included the requirement to file an
opinion of counsel specifically
identifying the restriction of law and
facts particular to the market participant
claiming the exemption.
The clarification and expansion of the
violation of law exemption in the Part
151 Aggregation Proposal addressed

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Federal Register / Vol. 78, No. 221 / Friday, November 15, 2013 / Proposed Rules
concerns raised in the aggregation
petition. First, the clarification and
extension of the violation of law
exemption responded to concerns that
market participants could face increased
liability under state, federal and foreign
law. While the aggregation petition and
other commenters argued that an owned
non-financial entity exemption would
reduce the risk of liability under
antitrust and other laws, the
clarification and expansion in the Part
151 Aggregation Proposal would also
reduce risk of liability under antitrust or
other laws by allowing market
participants to avail themselves of the
violation of law exemption in those
circumstances where the sharing of
information created a reasonable risk of
violating the above mentioned bodies of
law.
The Commission solicited comments
as to the appropriateness of extending
the information sharing exemption to
state law. The Commission also
considered, as an alternative, a case-bycase approach, through petitions
submitted pursuant to CEA section
4a(a)(7), where the Commission would
otherwise rely upon the preemption of
state law in administering its
aggregation policy.
The Commission noted that the
aggregation petition cites to Texas
Public Utility Code Substantive Rule
25.503, which provides that ‘‘a market
participant shall not collude with other
market participants to manipulate the
price or supply of power.’’ 22 That
provision applies to intra-state
transactions and resembles regulations
of the Federal Energy Regulatory
Commission.23 In this regard, the
Commission asked if it should limit
application of the proposed exemption
for state law information sharing
restrictions to laws that have a
comparable provision at the federal
level, and what criteria it should use in
identifying state laws that a person may
rely upon for an exemption from
aggregation. The Commission also
solicited additional comment as to the
types of state laws, including specific
laws, which could create an information
sharing restriction in conflict with the
Commission’s aggregation policy.
The Commission further noted that
the aggregation petition seeks to extend
the exemption to information sharing
restrictions that arise from ‘‘local’’
law.24 However, the aggregation petition
did not provide examples of local laws
that could create restrictions on
information sharing, and the
22 Aggregation

petition at 24.
e.g., 18 CFR 1c.1 and 1c.2.
24 Aggregation petition at 24.
23 See,

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Commission was concerned that an
exemption for local law would be
difficult to implement due to the large
number of such laws and/or regulations
that would need to be considered and
the vast numbers of localities that might
issue such laws and/or regulations.
The Commission solicited comment
as to the appropriateness of extending
the information sharing exemption to
‘‘local’’ law. Commenters were asked to
provide the scope of local law and
identify any specific laws that create
information sharing restrictions that
would conflict with the Commission’s
aggregation policy. The Commission
also asked what criteria it could use in
identifying local laws that a person may
rely upon for an exemption from
aggregation, and if the Commission
should adopt a case-by-case approach
through petitions submitted pursuant to
CEA section 4a(a)(7) and otherwise rely
upon the preemption of local law in
administering its aggregation policy.
2. Commenters’ Views
One commenter said that the
information sharing exemption should
not be expanded, but should instead be
limited to violations of federal law.25
This commenter also said that the
exemption from aggregation for
potential violations should not be
included, because it is impractical to
determine if potential violations
actually justify disaggregation, and that
if the exemption is expanded, only
‘‘foreign law,’’ not ‘‘international law,’’
should be a basis for the exemption
since international law (such as a treaty)
is not directly applicable to information
sharing.26
Other commenters said that the
proposed exemptions for information
sharing requirements under state or
foreign law are appropriate, and that a
‘‘reasonable risk’’ of violation is the
right standard for the exemptions.27
Commenters also said that requirements
under state law should be a valid basis
for an exemption regardless of whether
a comparable federal law exists, and
even if federal law pre-empts state
law.28 These commenters cited state
25 Institute for Agriculture and Trade Policy on
June 29, 2012 (‘‘CL–IATP’’).
26 CL–IATP.
27 EEI on June 29, 2012 (‘‘CL–EEI’’), FIA on June
29, 2012 (‘‘CL–FIA’’), International Swaps and
Derivatives Association and Securities Industry and
Financial Markets Association, jointly on June 29,
2012 (‘‘CL–ISDA/SIFMA’’).
28 American Gas Association on June 29, 2012
(‘‘CL–AGA’’), American Petroleum Institute on June
29, 2012 (‘‘CL–API’’), Atmos Energy Holdings on
June 29, 2012 (erroneously dated July 29, 2012)
(‘‘CL–Atmos’’), CL–EEI, CL–FIA, Coalition of
Physical Energy Companies on June 29, 2012 (‘‘CL–
COPE’’).

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utility regulations and state regulation
of local gas distribution companies as
examples of the types of state laws that
could prohibit information sharing.
Without citing any examples of such
laws that may restrict information
sharing, two commenters said that local
law should also be a valid basis for an
exemption.29
Regarding which types of legal
provisions should be treated as ‘‘state
law,’’ commenters said it should
include state statutes, regulations and
common law (including, e.g., fiduciary
duties under common law),30 and rules,
regulations, administrative rulings and
court orders imposed by state
commissions or other governmental
authorities with jurisdiction.31
Addressing the requirement of an
opinion of counsel, some commenters
said that the requirement in the existing
rule should not be changed.32 These
commenters reasoned that the
presumption should be that aggregation
is required in all but the most clear-cut
cases, and for those cases an opinion
would be available.33
Other commenters said that a
memorandum of law prepared by
internal or external counsel should
suffice if it sets out a legal basis for the
exemption.34 These commenters
generally pointed out that formal legal
opinions can be expensive to obtain,
typically contain many qualifications,
and otherwise are not a practical means
of advancing the goals mentioned in the
Part 151 Aggregation Proposal.35 One
commenter said that as an alternative to
a memorandum of law, a person
claiming the exemption should be
allowed simply to provide a copy of the
court order, administrative ruling or
other document showing the prohibition
of information sharing.36
3. Proposed Rule
The Commission is proposing to
adopt rule 150.4(b)(8), which is largely
29 CL–API, Working Group of Commercial Energy
Firms and Sutherland Asbill & Brennan LLP, on
behalf of The Commercial Energy Working Group,
jointly on June 29, 2012 (‘‘CL–WGCEF’’).
30 CL–FIA, Private Equity Growth Capital Council
on June 29, 2012 (‘‘CL–PEGCC’’).
31 CL–AGA, Alternative Investment Management
Association Limited on July 6, 2012 (‘‘CL–AIMA’’),
CL–Atmos.
32 Better Markets, Inc. on June 29, 2012 (‘‘CL–
Better Markets’’), CL–IATP.
33 CL–Better Markets, CL–IATP.
34 CL–API, CL–EEI, CL–FIA, CL–ISDA/SIFMA,
CL–PEGCC, CL–WGCEF.
35 CL–API, CL–EEI, CL–FIA, CL–ISDA/SIFMA,
CL–PEGCC, CL–WGCEF. Commenters also said that
persons should be able to rely on a general legal
opinion (as compared to a legal opinion or
memorandum prepared specifically for that person)
with respect to laws that impose a broadly
applicable prohibition of information sharing.
36 CL–AIMA.

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similar to rule 151.7(i) as it was
proposed to be amended. The
Commission notes that many of the
commenters agreed that the proposed
amendment to part 151 appropriately
required that the sharing of information
create ‘‘a reasonable risk that either
person could violate state or federal law
or the law of a foreign jurisdiction, or
regulations adopted thereunder.’’ Based
on the comments received and further
consideration, the Commission does not
believe it is necessary that the person
show that a comparable federal law
exists in order for a state law to be the
basis for an exemption.
The Commission has carefully
considered the comments asserting that
local law and international law should
be a basis for the exemption. However,
the Commission does not believe that
this would be appropriate. First, the
Commission notes that the commenters
were divided on this point, and only
some supported incorporating local law
and international law into the
exemption. With regard to local law, the
Commission continues to believe, as
stated in the Part 151 Aggregation
Proposal, that an exemption for local
law would be difficult to implement due
to the number of laws and regulations
that would need to be considered and
the number of localities that might issue
them. Also, even though the number of
such laws and regulations may be large,
the Commission is not persuaded that
there would be a significant number of
instances where these laws and
regulations would prohibit information
sharing that would otherwise be
permitted under federal and state law.37
In this respect, the Commission notes
that even commenters supportive of
including exceptions for local law did
not cite any local laws that restrict the
information sharing necessary to
comply with the Commission’s
aggregation policy. Furthermore, the
Commission is concerned that
reviewing notices of exemptions based
on local laws would create a substantial
administrative burden for the
Commission. That is, balancing the
possibility that including local law as a
basis for the exemption would be
helpful to market participants against
the possibility that doing so would lead
to confusion or inappropriate results,
the Commission preliminarily
concludes that the better course is not
37 In addition, in those instances where local law
would impose an information sharing restriction
that is not present under state or federal law, the
Commission believes that it could be inappropriate
to favor the local law serving a local purpose to the
detriment of the position limits under federal law
that serve a national purpose.

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to provide for local law to be a basis for
the exemption.
With regard to international law, the
Commission is persuaded by the
commenter who pointed out that the
sources of international law, such as
treaties and international court
decisions, would be unlikely to include
information sharing prohibitions that
would not otherwise apply under
foreign or federal law, and that therefore
including international law as a basis
for the exemption is unnecessary.
The Commission’s proposed rule
150.4(b)(8) differs from the proposed
amendment to rule 151.7, in that instead
of requiring a person to provide an
opinion of counsel regarding the
reasonable risk of a violation of law, the
proposed rule would require the person
to provide a written memorandum of
law (which may be prepared by an
employee of the person or its affiliates)
which explains the legal basis for
determining that information sharing
creates a reasonable risk that either
person could violate federal, state or
foreign law. The Commission is
persuaded by the commenters saying
that requiring a formal opinion of
counsel may be expensive and may not
provide benefits, in terms of the
purposes of this requirement, as
compared to a memorandum of law. As
noted in the Part 151 Aggregation
Proposal, the purpose of this
requirement is to allow Commission
staff to review the legal basis for the
asserted regulatory impediment to the
sharing of information (which should be
particularly helpful when the asserted
impediment arises from laws that the
Commission does not directly
administer), to consult with other
regulators as to the accuracy of the
assertion, and to coordinate the
development of rules surrounding
information sharing and aggregation.
The Commission expects that a written
memorandum of law would, at a
minimum, contain information
sufficient to serve these purposes.
The Commission preliminarily
believes that if there is a reasonable risk
that persons in general could violate a
provision of federal, state or foreign law
of general applicability by sharing
information associated with position
aggregation, then the written
memorandum of law may be prepared
in a general manner (i.e., not
specifically for the person providing the
memorandum) and may be provided by
more than one person in satisfaction of
the requirement. For example, the
Commission is aware that trade
associations commission law firms to
provide memoranda on various legal
issues of concern to their members.

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Under the proposed rule, such a
memorandum (i.e., one that sets out in
detail the basis for concluding that a
certain provision of federal, state or
foreign law of general applicability
creates a reasonable risk of violation
arising from information sharing) could
be provided by various persons to
satisfy the requirement, so long as it is
clear from the memorandum how the
risk applies to the person providing the
memorandum.
On the other hand, the Commission is
not persuaded that, as suggested by
some commenters, simply providing a
copy of the law or other legal authority
would be sufficient, because this would
not set out the basis for a conclusion
that the law creates a reasonable risk of
violation if the particular person
providing the document shared
information associated with position
aggregation. If the effect of the law is
clear, the written memorandum of law
need not be complex, so long as it
explains in detail the effect of the law
on the person’s information sharing.
Proposed rule 150.4(b)(8) also reflects
the addition of a parenthetical clause to
clarify that the types of information that
may be relevant in this regard may
include, only by way of example,
information reflecting the transactions
and positions of a such person and the
owned entity. The Commission believes
it is helpful to clarify in the rule text
what types of information may
potentially be involved. The mention of
transaction and position information as
examples of this information is not
intended to limit the types of
information that may be relevant.
Finally, the Commission preliminarily
believes that the question of what legal
authorities, in particular, constitute
‘‘state law’’ or ‘‘foreign law,’’ where it is
relevant, is a question to be addressed
in the written memorandum of law. In
general, any state-level or foreign legal
authority that is binding on the person
could be a basis for the exemption.
The Commission solicits comment as
to all aspects of proposed rule
150.4(b)(8). In particular, the
Commission solicits comment as to the
appropriateness of requiring that a
person provide a written memorandum
of law, rather than an opinion of
counsel, regarding the reasonable risk of
a violation of law. Also, what types of
information may potentially be the
subject of the sharing that is of concern
in this rule?
C. Ownership of Positions Generally
1. Part 151 Proposed Approach
The Part 151 Aggregation Proposal
reflected the Commission’s long-

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standing incremental approach to
exemptions from the aggregation
requirement for persons owning a
financial interest in an entity. The Part
151 Aggregation Proposal highlighted
the relevant statutory language of
section 4a(a)(1) of the CEA, which
requires aggregation of an entity’s
positions on the basis of either
ownership or control of the entity, and
the related legislative history and
regulatory developments which support
the Commission’s approach. In addition,
the Part 151 Aggregation Proposal also
explained that the Commission’s
historical practice has been to craft
narrowly-tailored exemptions, when
and if appropriate, to the basic
requirement of aggregation when there
is either ownership or control of an
entity.38
Regarding the threshold level at
which an exemption from aggregation
on the basis of ownership would be
available, the Commission noted in the
Part 151 Aggregation Proposal that it has
generally found that an ownership or
equity interest of less than 10 percent in
an account or position that is controlled
by another person who makes
discretionary trading decisions does not
present a concern that such ownership
interest results in control over trading or
can be used indirectly to create a large
speculative position through ownership
interests in multiple accounts. As such,
the Commission has exempted an
ownership interest below 10 percent
from the aggregation requirement.39
Prior comments discussed in the Part
151 Aggregation Proposal suggested that
a similar analysis should prevail for an
ownership interest of 10 percent or
more where such ownership represents
a passive investment that does not
involve control of the trading decisions
of the owned entity, because such
passive investments would present a
reduced concern that ownership would
result in trading pursuant to direct or
indirect control, as well as a reduced
risk for persons with positions in
multiple accounts to hold an unduly
large overall position.
While other Commission rulemakings
prior to the Part 151 Aggregation
38 See

also note 41, below, and accompanying

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text.
39 The Commission codified this aggregation
threshold in its 1979 statement of policy on
aggregation, which was derived from the
administrative experience of the Commission’s
predecessor. See Statement of Policy on
Aggregation of Accounts and Adoption of Related
Reporting Rules (‘‘1979 Aggregation Policy’’), 44 FR
33839, 33843 (June 13, 1979). Note, however, that
consistent with the approach taken in 151.7(d),
proposed rule 150.4(d) will separately require
aggregation of investments in accounts with
identical trading strategies.

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Proposal generally restricted
exemptions from aggregation based on
ownership to FCMs, limited partner
investors in commodity pools, and
independent account controllers
managing customer funds for an eligible
entity, a broader passive investment
exemption has previously been
considered but not enacted by the
Commission.40 Further, the Commission
reiterated its belief in incremental
development of aggregation exemptions
over time.41 Consistent with that
incremental approach, the Commission
considered the additional information
provided and the concerns raised by the
aggregation petition, and proposed relief
from the ownership criteria of
aggregation.
The Part 151 Aggregation Proposal
would have established a notice filing
procedure to permit a person with an
ownership or equity interest in a
separately organized entity (‘‘owned
entity’’) of 10 percent or greater, but no
more than 50 percent, to disaggregate
the positions of the owned entity in
specified circumstances. Under that
40 See, e.g., 53 FR 13290, 13292 (1988) (proposal).
The 1988 proposal for the independent account
controller rule requested comment on the
possibility of a broader passive investment
exemption, and specifically noted:
[Q]uestions also have been raised regarding the
continued appropriateness of the Commission’s
aggregation standard which provides that a
beneficial interest in an account or positions of ten
percent or more constitutes a financial interest
tantamount to ownership. This threshold financial
interest serves to establish ownership under both
the ownership criterion of the aggregation standard
and as one of the indicia of control under the 1979
Aggregation Policy.
In particular, certain instances have come to the
Commission’s attention where beneficial ownership
in several otherwise unrelated accounts may be
greater than ten percent, but the circumstances
surrounding the financial interest clearly exclude
the owner from control over the positions. The
Commission is requesting comment on whether
further revisions to the current Commission rules
and policies regarding ownership are advisable in
light of the exemption hereby being proposed. If
such financial interests raise issues not addressed
by the proposed exemption for independent
account controllers, what approach best resolves
those issues while maintaining a bright-line
aggregation test?
41 See 77 FR 31767, 31773. This incremental
approach to account aggregation standards reflects
the Commission’s historical practice. See, e.g., 53
FR 41563, 41567, Oct. 24, 1988 (the definition of
eligible entity for purposes of the IAC exemption
originally only included CPOs, or exempt CPOs or
pools, but the Commission indicated a willingness
to expand the exemption after a ‘‘reasonable
opportunity’’ to review the exemption.); 56 FR
14308, 14312, Apr. 9, 1991 (the Commission
expanded eligible entities to include commodity
trading advisors, but did not include additional
entities requested by commenters until the
Commission had the opportunity to assess the
current expansion and further evaluate the
additional entities); and 64 FR 24038, May 5, 1999
(the Commission expanded the list of eligible
entities to include many of the entities commenters
requested in the 1991 rulemaking).

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68951

proposal, the notice filing would
demonstrate compliance with certain
conditions set forth in the proposed
amendment to part 151. Similar to other
exemptions from aggregation, the notice
filing would be effective upon
submission to the Commission, but the
Commission would be able to
subsequently call for additional
information as well as reject, modify or
otherwise condition such relief. Further,
such person would be obligated to
amend the notice filing in the event of
a material change to the circumstances
described in the filing.
a. Initial Proposed Ownership
Threshold for Disaggregation Relief
The proposed amendment to part 151
would have conditioned disaggregation
relief on a demonstration that the
person does not have greater than a 50
percent ownership or equity interest in
the owned entity. The Part 151
Aggregation Proposal explained that an
equity or ownership interest above 50
percent constitutes a majority
ownership or equity interest of the
owned entity and is so significant as to
require aggregation under the ownership
prong of Section 4a(a)(1) of the CEA. As
noted in the Part 151 Aggregation
Proposal, the proposed amendment to
part 151 would have provided certainty
and an easily administrable bright-line
test, and would have addressed
concerns about circumvention of
position limits by coordinated trading or
direct or indirect influence between
entities. To the extent that the majority
owner may have the ability and
incentive to direct, control or influence
the management of the owned entity,
the proposed bright-line test would be a
reasonable approach to the aggregation
of owned accounts pursuant to Section
4a(a)(1). A person with a greater than 50
percent ownership interest in multiple
accounts would have the ability to hold
and control a significant and potentially
unduly large overall position in a
particular commodity, which position
limits are intended to prevent.
The owned entity exemption in the
Part 151 Aggregation Proposal would
have applied to both financial and nonfinancial entities that have passive
ownership interests. Market participants
that qualify for the exemption could file
a notice with the Commission
demonstrating independence between
entities and, thereafter, forgo the
development of monitoring and tracking
systems for the aggregation of accounts.
The Commission sought comment as to
whether such passive interests present a
significantly reduced risk of coordinated
trading compared to owned entities that
fail the criteria for the proposed

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exemption. In addition, the Commission
specifically requested comment as to
whether the proposed relief should be
limited to ownership interests in nonfinancial entities.
While the owned non-financial entity
exemption mentioned in the aggregation
petition would permit disaggregation
even if the owned entity is wholly
owned, the Commission was concerned
that an ownership interest greater than
50 percent presents heightened
concerns for coordinated trading or
direct or indirect influence over an
account or position, and that permitting
disaggregation at that level of ownership
would be inconsistent with the statutory
requirement to aggregate on the basis of
ownership. The Part 151 Aggregation
Proposal noted that while small
ownership interests of less than 10
percent do not warrant aggregation, and
although 10 percent or greater
ownership has served as a useful
threshold for aggregation, the
Commission believed relief may be
warranted for passive investments above
10 percent. However, for the reasons
discussed above, aggregation would be
inappropriate where an ownership
interest is greater than 50 percent.
Therefore, the Commission proposed
limiting the availability of the
exemption to those having an
ownership interest no greater than 50
percent.

emcdonald on DSK67QTVN1PROD with PROPOSALS2

b. Initial Proposed Criteria for
Disaggregation Relief
The proposed criteria to claim relief
under the proposed amendment to part
151 addressed the Commission’s
concerns that an ownership or equity
interest of 10 percent and above may
facilitate or enable control over trading
of the owned entity or allow a person to
accumulate a large position through
multiple accounts that could overall
amount to an unduly large position. The
Part 151 Aggregation Proposal grouped
these criteria into four general
categories.
First, the proposed amendment to part
151 would have conditioned aggregation
relief on a demonstration that the
person filing for disaggregation relief
and the owned entity do not have
knowledge of the trading decisions of
the other. The Commission noted that
where an entity has an ownership
interest in another entity and neither
entity shares trading information, such
entities demonstrate independence, but
persons with knowledge of trading
decisions of another in which they have
an ownership interest are likely to take
such decisions into account in making
their own trading decisions.

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Second, the proposed amendment to
part 151 would have conditioned
aggregation relief on a demonstration
that the person seeking disaggregation
relief and the owned entity trade
pursuant to separately developed and
independent trading systems. Further, a
demonstration that such person and the
owned entity have, and enforce, written
procedures to preclude the one entity
from having knowledge of, gaining
access to, or receiving data about, trades
of the other, would also be required.
Such procedures would address
document routing and other procedures
or security arrangements, including
separate physical locations, which
would maintain the independence of
their activities. The Part 151
Aggregation Proposal noted that these
conditions would strengthen the
independence between the two entities
for the owned entity exemption.
Third, the proposed amendment to
part 151 would have conditioned
aggregation relief on a demonstration
that the person does not share
employees that control the owned
entity’s trading decisions, and the
employees of the owned entity do not
share trading control with such persons.
The Part 151 Aggregation Proposal
noted that, similar to the restriction on
information sharing, the sharing of
employees with knowledge of trading
decisions presents a strong risk to the
independence of trading between
entities. In the Part 151 Aggregation
Proposal, the Commission sought
comment regarding whether the sharing
of employees such as attorneys,
accountants, risk managers, compliance
and other mid- and back-office
personnel compromises independence
because it would provide each entity
with knowledge of the other’s trading
decisions.42
Fourth, the proposed amendment to
part 151 would have conditioned
aggregation relief on a demonstration
that the person and the owned entity do
not have risk management systems that
permit the sharing of trades or trading
strategies with the other. This condition,
which is similar to a condition proposed
in the aggregation petition, addressed
concerns that risk management systems
that permit the sharing of trades or
trading strategies with each other
present a significant risk of coordinated
trading through the sharing of
information. The Part 151 Aggregation
Proposal did not include a condition
that the risk management systems of the
42 In the aggregation petition, the Working Groups
asserted that entities should be permitted to share
‘‘attorneys, accountants, risk managers, compliance
and other mid- and back-office personnel.’’
Aggregation petition at Exhibit A.

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two entities be separately developed,
and the Commission sought comment as
to whether independence of trading
between the two entities can be
maintained when their risk management
systems do not communicate trade
information.
c. Initial Proposed Notice Filing
Requirement
With regard to filing requirements for
the exemption in the proposed
amendment to part 151, the Commission
noted that market participants would be
required to file in accordance with
regulation 151.7(h). As such, market
participants would be required to file a
notice with the Commission with a
description of how they adhere to the
criteria in the proposed amendment to
part 151 and a certification that the
conditions are met. This certification, as
well as any other certification made
under regulation 151.7(h), would be
required to be made by a senior officer
of the market participant with
knowledge as to the contents of the
notice.43 Further, regulation 151.7(h)(3)
requires market participants to promptly
update a notice filing in the event of a
material change of the information
contained in the notice filing.44
With regard to the type of material
necessary to file a notice to claim an
exemption under the proposed
amendment to part 151, the Commission
noted that each submission would have
to be specific to the facts of the
particular entity. The person claiming
the exemption would be required to
provide specific facts that demonstrate
compliance with each condition of
relief. Such a demonstration would
likely include an organizational chart
showing the ownership and control
structure of the involved entities, a
description of the risk management
system, a description of the informationsharing systems (including bulletin
boards, and common email addresses of
the entities identified), an explanation
of how and to whom the trade data and
position information is distributed
(including the responsibilities of the
individual receiving such information),
and the officers that receive reports of
the trade data and position
information.45
43 See proposed rule 151.7(h)(1)(ii), 77 FR 31767,
31782.
44 In this regard, the Commission clarified that a
material change would include, among other
events, if the person making the original
certification is no longer employed by the company.
See also CEA sections 6(c)(2) and 9(a)(3).
45 The Commission noted that this list was not
meant to be exhaustive of the factors that would
indicate an exemption is warranted and should not
be interpreted as being solely sufficient to claim the
exemption because each filing is fact specific. And,

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exemptions. Further, the Commission
did not anticipate that the reduction in
filing would impact the Commission’s
In connection with its request for the
ability to effectively surveil the proper
Commission to include an owned nonapplication of exemptions from
financial entity exemption, the
aggregation. The first filing of an owned
aggregation petition also requested that
entity exemption notice should provide
the Commission provide relief from the
the Commission with sufficient
filing requirements for claiming the
exemption. Specifically, it argued that if information regarding the
appropriateness of the exemption, while
an entity files a notice and claims the
repetitive filings of higher-tier entities
owned non-financial entity exemption,
would not be expected to provide
then ‘‘every higher-tier company (a
additional substantive information.
company that holds an interest in the
However, the Commission again noted
company that submitted the notice)
that higher-tier entities would still be
need not aggregate the referenced
required to comply with the conditions
contracts of the owned non-financial
entities identified in the notice.’’ 46 After of the exemption specified in the owned
entity’s notice filing.
consideration of this request, the
The Commission specifically
Commission proposed rules that would
requested
comments as to the
provide relief to such ‘‘higher-tier
appropriateness of the owned entity
entities’’ within the context of a
exemption as well as the conditions
corporate structure.47
applicable to the exemption, and
The proposed amendments to part
whether the Commission should add
151 would have provided that higheradditional criteria and if so, what
tier entities may rely upon a notice for
criteria and why. The Commission also
exemption filed by the owned entity,
asked if it should require market
and such reliance would only go to the
participants to submit additional
accounts or positions specifically
information to claim the exemption, and
identified in the notice. For example, if
if so, what information and why. With
company A had a 30 percent interest in
regard to the owned entity exemption,
company B, and company B filed an
the Commission asked if it should alter
exemption notice for the accounts and
the scope of the exemption, and if so,
positions of company C, then company
how it should be altered and why.
A could rely upon company B’s
Further, the Commission asked
exemption notice for the accounts and
commenters to address the percentage
positions of company C. Should
ownership interest, if any, at which a
company A wish to disaggregate the
market participant should no longer be
accounts or positions of company B,
able to claim the exemption in the
company A would have to file a
proposed amendments to part 151, and
separate notice for an exemption.
whether there are specific
The proposed amendments to part
circumstances in which a percentage of
151 would have also provided that a
ownership higher than 50 percent
higher-tier entity that wishes to rely
would be appropriate to claim the
upon an owned entity’s exemption
exemption notwithstanding the
notice would be required to comply
concerns described above regarding
with conditions of the applicable
coordinated trading, direct or indirect
aggregation exemption other than the
influence, and significantly large and
notice filing requirements. Although
potentially unduly large overall
higher-tier entities would not have to
positions in a particular commodity. In
submit a separate notice to rely upon
addition, the Commission invited
the notice filed by an owned entity, the
Commission noted that it would be able, comment on the owned non-financial
entity exemption set forth in appendix
upon call, to request that a higher-tier
A of the aggregation petition as an
entity submit information to the
alternative to the proposed owned entity
Commission, or allow an on-site visit,
exemption.
demonstrating compliance with the
applicable conditions.
2. Commenters’ Views
The Part 151 Aggregation Proposal
stated that the proposed amendments to a. Comments on the Initial Proposed
part 151 should significantly reduce the Ownership Threshold for Disaggregation
Relief
filing requirements for aggregation
Some commenters supported the
as noted earlier, the Commission is able to demand
proposed rules requiring that, to obtain
additional information regarding the exemption
relief from the aggregation requirement,
within its discretion.
a person must own 50 percent or less of
46 Aggregation petition at 23.
an owned entity. One commenter said
47 For purposes of the discussion below, ‘‘higherthat unless the standards for an
tier’’ entities include entities with a 10 percent or
greater ownership interest in an owned entity.
independent account controller are met,

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d. Initial Proposed Treatment of Higher
Tier Entities

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68953

any exemption from aggregation for
greater than 50 percent-owned entities
would constitute an unacceptable
weakening of the position limits
regime.48 This commenter also noted
that CEA section 4a(a)(1) requires
aggregation of positions held by any
persons ‘‘directly or indirectly’’
controlled by a person, and ‘‘ownership
is the paradigm example of indirect
control.’’ 49
Two commenters said that the
proposed rules went too far in allowing
exemptions from aggregation. These
commenters were concerned that the
exemptions in the Part 151 Aggregation
Proposal could impede prevention of
excessive speculation on agricultural
futures, which requires the imposition
of position limits based on consistent
aggregation of positions,50 and that
allowing owners of more than 10
percent of another entity not to
aggregate could ‘‘potentially spark
additional ‘herd-like’ behavior, thus
causing another commodities futures
boom-bust cycle.’’ 51
The other commenters on the Part 151
Aggregation Proposal said that the
requirement of ownership of 50 percent
or less of the owned entity should not
apply, and disaggregation relief should
be available to any person
demonstrating that the owned entity’s
trading is independent according to
criteria along the lines of proposed rule
151.7(b)(1)(i).52 Some of these
commenters also said that, as an
alternative to providing relief for any
person that could demonstrate
independent trading by the owned
entity, disaggregation relief should be
available to the extent specifically
provided by the Commission in
response to a specific request for
relief,53 or if the person makes an
additional demonstration of why
majority ownership of the owned entity
does not result in trading control or
information sharing that warrants
48 CL–Better
49 CL–Better

Markets.
Markets.

50 CL–IATP.
51 International Association of Machinists and
Aerospace Workers on June 29, 2012 (‘‘CL–
IAMAW’’).
52 American Benefits Council on June 29, 2012
(‘‘CL–ABC’’), CL–AGA, CL–AIMA, CL–API,
Barclays Capital on June 29, 2012 (‘‘CL–Barclays’’),
Commodity Markets Council on June 29, 2012
(‘‘CL–CMC’’), CL–COPE, CL–EEI, CL–FIA, Iberdrola
Renewables, LLC and Iberdrola Energy Services
LLC, jointly on June 29, 2012 (‘‘CL–Iberdrola’’), CL–
ISDA/SIFMA, Managed Funds Association on June
28, 2012 (‘‘CL–MFA’’) and CL–WGCEF.
53 CL–AIMA, CL–API. Two commenters’ first
position (not an alternative position) was along
these lines—that disaggregation relief should be
available to the extent provided by the Commission.
CL–Atmos, CL–MFA.

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aggregation.54 One commenter
representing private investment funds
suggested rules allowing disaggregation
relief if a person could demonstrate
independent trading by the owned
entity and one of three alternative
conditions were met: (i) The owner uses
information about the owned entity’s
trading only for risk management, (ii)
the owned entity only enters into bona
fide hedging transactions, or (iii) the
owned entity is not consolidated on the
owner’s financial statements,
representatives of the owner on the
owned entity’s board of directors do not
control the owned entity’s trading and
the owned entity’s trading qualifies as
bona fide hedging.55
The commenters opposed to the
requirement of ownership of 50 percent
or less of the owned entity provided
various reasons for why the requirement
should not apply. Some of these
commenters said that although
ownership of more than 50 percent of an
entity is an indicator of control, such
ownership does not always equate to
control,56 because ownership of an
entity does not provide control unless
the owner has an ability to direct or
influence management) 57 or because
treating ownership as tantamount to
control is contrary to principles of
corporate separateness.58 Other
commenters said that aggregation is
consistent with the underlying purposes
of the position limits regime only if a
person has direct and actual control of
the trading of another person or has
access to information about the other
entity’s trading that facilitates its own
trading.59
Other commenters claimed that the
requirement of ownership of 50 percent
or less of the owned entity is
inconsistent with the CEA or past
practices of the Commission. These
commenters said that while CEA section
4a(a)(1) refers to positions held by
‘‘controlled’’ persons, it does not refer to
positions held by owned persons,60 that
the Commission does not require
aggregation of positions of owned
commodity pools, or of positions (even
54 CL–ISDA/SIFMA, CL–WGCEF, CL–PEGCC.
One of these commenters said that, instead of
requiring aggregation of positions, the Commission
should consider requiring that additional
safeguards be in place for majority-owned entities,
such as requiring that both the person and the
owned entity to make certain annual certifications.
CL–WGCEF.
55 CL–PEGCC and Private Equity Growth Capital
Council supplemental letter on August 20, 2012
(‘‘CL–PEGCC Supp.’’).
56 CL–AGA, CL–MFA, CL–PEGCC, CL–WGCEF.
57 CL–API, CL–Atmos.
58 CL–ISDA/SIFMA, CL–PEGCC.
59 CL–CMC, CL–EEI.
60 CL–ISDA/SIFMA, CL–PEGCC.

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those held by the entity itself) if there
is an independent account controller,61
and that the ‘‘bright line’’ standard at 50
percent ownership is arbitrary,62
inconsistent with both a 1979 policy
statement of the Commission that
trading control is a question of fact and
with prior practice of DCMs to allow
owners to demonstrate lack of control of
an owned entity’s trading,63 or
unnecessary in light of the
Commission’s Part 151 Aggregation
Proposal of factors to determine whether
a person controls the trading of an
owned entity.64
Another reason cited by commenters
against the requirement of ownership of
50 percent or less of the owned entity
is that in certain corporate structures,
majority ownership may not provide for
control of the owned entity.
Commenters said, for example, that
limited partners may not control the
trading of a limited partnership, even
though they own a majority equity
interest in the limited partnership,65 or
a joint venture may contain contractual
provisions that prevent the venture
partners from controlling its trading,66
or a passive majority investor in a
commercial company may not control
the company’s trading.67 Commenters
also said that it would be inappropriate
to treat two companies that operate in
different regions or at different levels of
commerce (e.g., wholesale and retail) as
trading under common control simply
because both companies are owned by
a common holding company.68
Commenters also described other
factors that they believe weigh against
the requirement of ownership of 50
percent or less of the owned entity in
order to disaggregate. One commenter
said that requiring persons to aggregate
the positions of all majority-owned
61 CL–PEGCC.
62 CL–AGA,

CL–API, CL–COPE.
CL–WGCEF.
64 CL–AIMA.
65 CL–CMC, CL–COPE, CL–WGCEF.
66 CL–API, CL–CMC.
67 U.S. Chamber of Commerce and the Real Estate
Roundtable, jointly on June 29, 2012 (‘‘CL–
Chamber’’). Other commenters along these lines
added that to requiring passive investors to
aggregate the positions of majority-owned
companies would inhibit legitimate commercial
and investment activity, CL–FIA, and that
providing relief from aggregation for passive
investors would be similar to the lack of aggregation
for passive owners of commodity pools. CL–PEGCC.
68 CL–AGA, CL–Iberdrola. Another commenter
added that since the independent account
controller exemption would generally not be
available to holding companies owning operating
companies, the requirement of ownership of 50
percent or less of the owned entity in order to
disaggregate creates a regulatory imbalance between
such holding companies and the entities to which
the independent account controller exemption is
available. CL–WGCEF.
63 CL–API,

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entities would lead to more information
sharing and coordinated trading
between such entities, which the
Commission should seek to prevent, and
it would also likely lead to incorrect
position reporting while disaggregation
would encourage more granular and
more accurate reporting.69 Another
commenter was concerned that the
Commission’s adoption of aggregation
rules would lead DCMs and SEFs to
apply similar aggregation rules for the
position limits regimes that they
enforce, thereby increasing the
importance of the aggregation rules to a
wider variety of firms using many
different types of swaps.70 A commenter
representing employee benefit plans
said that the Commission should not
require aggregation of the positions of a
corporate entity that is the sponsor of an
employee benefit plan with the
positions of the plan even if the
employees of the plan sponsor (or its
subsidiaries) control the investments of
the plan, because such employees have
a legal duty to act solely in the interests
of the plan.71
b. Comments on the Initial Proposed
Criteria for Disaggregation Relief
There were a variety of comments on
the criteria in the proposed amendment
to part 151 that must be met in order for
a person to obtain disaggregation relief
with respect to an owned entity. One
general point raised by several
commenters was that the limits on
sharing information between the person
and the owned entity should not apply
to employees that do not direct or
influence trading (such as attorneys or
risk management and compliance
personnel), although the employees may
have knowledge of the trading of both
the person and the owned entity.72 A
commenter representing employee
benefit plan managers said that
restrictions on information sharing are,
in general, a problem for plan managers,
which have a fiduciary duty to inquire
as to an owned entities’ activities, so the
Commission should recognize that
acting as required by fiduciary duties
69 CL–CMC.
70 CL–Chamber.
71 CL–ABC. This commenter also asked for
clarification whether a person that owns an entity
that controls the trading of an employee benefit
plan would be required to aggregate the positions
of such plan with such person’s positions. Id.
72 CL–AGA, CL–API, CL–Atmos, CL–Cargill, CL–
EEI. Commenters said that shared knowledge
among employees is not relevant if they are not
involved in trading and do not serve as conduit for
sharing trading information, CL–AGA, CL–AIMA,
CL–Atmos, and that it is important that risk
management and compliance personnel have
continuous knowledge of trading. CL–EEI.

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does not constitute a violation of the
information sharing restriction.73
Summarized below are the comments
on each of the four general categories of
criteria for disaggregation relief in the
proposed rule.
No shared knowledge of trading
decisions. Commenters said that this
proposed amendment to part 151 should
be clarified to indicate that it prohibits
the sharing only of knowledge held by
personnel with the ability to direct or
participate in trading decisions by either
the person or the owned entity that
would allow them to trade in
anticipation or in concert, and that it
allows post-trade information sharing
for risk management, accounting,
compliance, or similar purposes and
information sharing among mid- and
back-office personnel that do not control
trading.74 Another commenter said that
this proposed amendment to part 151
should be clarified to provide that
information sharing resulting when the
person and the owned entity (or two
owned entities) are counterparties in an
arm’s length transaction should not be
a violation of the rule.75
Trade pursuant to separately
developed and independent trading
systems; have and enforce written
procedures to preclude sharing of
trading information and other
procedures to maintain independence,
including separate physical locations.
Commenters said that this requirement
should not apply to commercial energy
firms which use similar trading
systems,76 or where existing systems
can be modified to prevent coordinated
trading,77 or to prevent the use of third
party ‘‘off-the-shelf’’ execution
algorithms.78 Other commenters said
the requirement should apply only to
systems that direct trading decisions,
and not trade capture, trade risk or trade
facilitation systems.79 One commenter
said this provision of the proposed
amendment to part 151 should be
deleted, because it is the use of the
system, not its development, which is
relevant.80 Commenters also said that
this proposed amendment to part 151
should apply only with respect to
personnel directing or participating in
trading decisions,81 and it should
permit the sharing of virtual
73 CL–ABC.
74 CL–AIMA,

CL–EEI, CL–MFA, CL–WGCEF.

75 CL–COPE.
76 CL–WGCEF.

documentation, so long as such
document can be accessed only by
persons that do not manage or control
trading.82 Commenters said that the
requirement of separate physical
locations should not require that
personnel be located in separate
buildings, so long as the relevant
employees of the person and the owned
entity do not have access to each other’s
physical premises.83 One commenter
said that the requirement to have
specified policies and procedures
should not apply to the owned entity,
because it does not control its owner.84
No shared employees that control
trading decisions. Commenters on this
proposed amendment to part 151 said it
should not prohibit sharing of board or
advisory committee members who do
not influence trading decisions, sharing
of research personnel, or sharing for
training, operational or compliance
purposes, so long as trading of the
person and the owned entity remains
independent.85
No risk management systems that
permit shared trading. Commenters said
that this proposed amendment to part
151 should permit continuous sharing
of position information so long as such
information is used only for risk
management and surveillance purposes
and is not shared with trading
personnel.86
c. Comments on the Initial Proposed
Notice Filing Requirement
Commenters also addressed the
burdens that would result from the
requirement that a filing be made to
support disaggregation relief for persons
owning more than 10 percent of an
owned entity. Two commenters
questioned the statement in the Part 151
Aggregation Proposal that allowing
persons that own more than 50 percent
of an owned entity to file requests for
disaggregation relief would be
burdensome, saying that such filings
would be required only if the person
were seeking disaggregation relief, and
that such filings could be tailored so as
to provide the necessary information in
an efficient way.87 One of these
commenters also said that requiring
private investment funds to aggregate
positions held by majority-owned
entities would be burdensome because
it would lead to persons owning
between 10 and 50 percent of the fund
to make filings to support disaggregation

77 CL–API.
78 CL–AIMA. The commenter said that, in this
case, the rule should require only that the systems
be independently operated.
79 CL–EEI, CL–FIA.
80 CL–COPE.
81 CL–WGCEF.

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82 CL–FIA.
83 CL–API,

CL–EEI, CL–WGCEF.

84 CL–AIMA.
85 CL–API,

CL–Cargill.
CL–WGCEF.
87 CL–Atmos, CL–PEGCC.
86 CL–FIA,

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68955

relief.88 Another commenter said that a
single aggregate notice filing (with
annual updates for material changes)
should be permitted, where the person
would list all owned entities for which
it claims an exemption from the
aggregation requirement and make the
required certifications, that the filing
should be effective retroactively to the
beginning of the prior filing period, and
that affiliates at same level of ownership
should be able to rely on each other’s
notice filings (as do higher tier owners)
if the filings contain the appropriate
demonstrations of compliance by the
affiliates.89 Last, one commenter said
that no filing should be required to
support disaggregation relief or, in the
alternative, a filing should be required
only where the absence of control of the
owned entity is not obvious and the
filing should not be required until 90
days after the threshold level of
ownership of the owned entity is
obtained.90
d. Comments on Other Issues Relating to
Disaggregation Relief in the Part 151
Aggregation Proposal
Commenters addressed several
miscellaneous issues arising from the
proposed amendments to part 151
requiring ownership of 50 percent or
less of the owned entity in order to
disaggregate. In response to the
Commission’s request for comment on
whether applications for exemption
from the aggregation requirements
should be handled on a case-by-case
basis, several commenters said that
doing so would not be efficient and the
process in the proposed rule is
preferable.91 One commenter said that
the final regulation on aggregation
adopted by the Commission should also
apply for exemptions from the
aggregation requirements of DCMs and
SEFs.92 Another commenter requested a
transition period of at least six months
after the date that compliance with the
position limits regime is required before
compliance with the aggregation
requirements would be required.93
Several commenters said that when
aggregation of positions are required,
the positions should be attributed from
the owned entity to the owner on a basis
that is pro rata to the owner’s interest in
88 CL–PEGCC.
89 CL–FIA.
90 CL–Barclays. Another commenter said that
requiring a person owning 50 percent or less of an
owned entity to make a filing in support of
disaggregation relief is overly burdensome, and
such filings should be required only if the person
owns more than 50 percent of the owned entity.
CL–ISDA/SIFMA.
91 CL–AGA, CL–EEI, CL–FIA.
92 CL–MFA.
93 CL–FIA.

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the owned entity, to avoid double
counting and an artificial limit on
trading that may affect liquidity.94 Two
commenters addressed information that
the Commission may request under the
proposed amendments to part 151,
saying they should be amended to
specifically limit such information to
that which is relevant to establishing
whether a person meets the criteria for
disaggregation and will be kept
confidential.95
One commenter said that the
Commission should not adopt a rule
regarding aggregation of positions of
owned entities and that the Commission
should instead rely on information
provided on reports on Commission
Form 40, which includes information
regarding whether the respondent
controls, or is controlled by, any other
entity.96 Another commenter said that
the position limits regime is long
overdue and there should be a general
requirement of aggregation, with no
exceptions or waivers.97
3. Proposed Rule
The Commission continues to believe,
as stated in the Part 151 Aggregation
Proposal, that ownership of an entity is
an appropriate criterion for aggregation
of that entity’s positions. Section
4a(a)(1) of the CEA provides for the
general aggregation standard with regard
to position limits, and specifically
provides:
In determining whether any person has
exceeded such limits, the positions held and
trading done by any persons directly or
indirectly controlled by such person shall be
included with the positions held and trading
done by such person; and further, such limits
upon positions and trading shall apply to
positions held by, and trading done by, two
or more persons acting pursuant to an
expressed or implied agreement or
understanding, the same as if the positions
were held by, or the trading were done by,
a single person.98

The legislative history to the enactment
of this provision in 1968 states that
Congress added this language to
expressly incorporate prior
administrative determinations of the
Commodity Exchange Authority
(predecessor to the Commission) into
the statute.99 These prior administrative
emcdonald on DSK67QTVN1PROD with PROPOSALS2

94 CL–ABC,

CL–Barclays, CL–FIA.
CL–WGCEF.
96 CL–Barclays.
97 CL–Ja Sto.
98 7 U.S.C. 6a(a)(1).
99 See S. Rep No. 947, 90th Cong., 2 Sess. 5 (1968)
regarding the CEA Amendments of 1968, Public
Law 90–258, 82 Stat. 26 (1968). This Senate Report
provides:
Certain longstanding administrative
interpretations would be incorporated in the act. As
an example, the present act authorizes the
95 CL–API,

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determinations, as well as regulations of
the Commodity Exchange Authority,
announced standards that included
control of trading and financial interests
in positions. As early as 1957, the
Commission’s predecessor issued
determinations requiring that accounts
in which a person has a financial
interest be included in aggregation.100 In
Commodity Exchange Commission to fix limits on
the amount of speculative ‘‘trading’’ that may be
done. The Commission has construed this to mean
that it has the authority to set limits on the amount
of buying or selling that may be done and on the
size of positions that may be held. All of the
Commission’s speculative limit orders, dating back
to 1938, have been based upon this interpretation.
The bill would clarify the act in this regard. . . .
Section 2 of the bill amends section 4a(1) of the
act to show clearly the authority to impose limits
on ‘‘positions which may be held.’’ It further
provides that trading done and positions held by a
person controlled by another shall be considered as
done or held by such other; and that trading done
or positions held by two or more persons acting
pursuant to an express or implied understanding
shall be treated as if done or held by a single
person.
100 See Administrative Determination (‘‘A.D.’’)
163 (Aug. 7, 1957) (‘‘[I]n the application of
speculative limits, accounts in which the firm has
a financial interest must be combined with any
trading of the firm itself or any other accounts in
which it in fact exercises control.’’). In addition, the
Commission’s predecessor, and later the
Commission, provided the aggregation standards for
purposes of position limits in the large trader
reporting rules. See Supersedure of Certain
Regulations, 26 FR 2968, Apr. 7, 1961. In 1961, then
regulation 18.01 read:
(a) Multiple Accounts. If any trader holds or has
a financial interest in or controls more than one
account, whether carried with the same or with
different futures commission merchants or foreign
brokers, all such accounts shall be considered as a
single account for the purpose of determining
whether such trader has a reportable position and
for the purpose of reporting. 17 CFR 18.01 (1961).
In the 1979 Aggregation Policy, the Commission
discussed regulation 18.01, stating:
Financial Interest in Accounts. Consistent with
the underlying rationale of aggregation, existing
reporting Rule 18.10(a) a (sic) basically provides
that if a trader holds or has a financial interest in
more than one account, all accounts are considered
as a single account for reporting purposes. Several
inquiries have been received regarding whether a
nomial (sic) financial interest in an account requires
the trader to aggregate. Traditionally, the
Commission’s predecessor and its staff have
expressed the view that except for the financial
interest of a limited partner or shareholder (other
than the commodity pool operator) in a commodity
pool, a financial interest of 10 percent or more
requires aggregation. The Commission has
determined to codify this interpretation at this time
and has amended Rule 18.01 to provide in part that,
‘‘For purposes of this Part, except for the interest
of a limited partner or shareholder (other than the
commodity pool operator) in a commodity pool, the
term ‘financial interest’ shall mean an interest of 10
percent or more in ownership or equity of an
account.’’
Thus, a financial interest at or above this level
will constitute the trader as an account owner for
aggregation purposes.
1979 Aggregation Policy, 44 FR at 33843.
The provisions concerning aggregation for
position limits generally remained part of the
Commission’s large trader reporting regime until
1999 when the Commission incorporated the

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addition, the definition of ‘‘proprietary
account’’ in regulation 1.3(y), which has
been in effect for decades, includes any
account in which there is 10 percent
ownership.101
In light of the language in section 4a,
its legislative history, subsequent
regulatory developments, and the
Commission’s historical practices in this
regard, the Commission continues to
believe that section 4a requires
aggregation on the basis of either
ownership or control of an entity. The
Commission also believes that
aggregation of positions across accounts
based upon ownership is a necessary
part of the Commission’s position limit
regime.102
Also, an ownership standard
establishes a bright-line test that
provides certainty to market
participants and the Commission.103
Without aggregation on the basis of
ownership, the Commission would have
to apply a control test in all cases,
which would pose significant
administrative challenges to
individually assess control across all
market participants. Further, the
Commission considers that if the statute
required aggregation based only on
control, market participants may be able
to use an ownership interest to directly
or indirectly influence the account or
aggregation provisions into rule 150.4 with the
existing position limit provisions in part 150. See
64 FR 24038, May 5, 1999. The Commission’s part
151 rulemaking also incorporated the aggregation
provisions in rule 151.7 along with the remaining
position limit provisions in part 151. See 76 FR
71626, Nov. 18, 2011.
101 17 CFR 1.3(y). This provision has been in
Regulation 1.3(y)(1)(iv) since at least 1976, which
the Commission adopted from regulations of its
predecessor, with ‘‘for the most part, procedural,
housekeeping-type modifications, conforming the
regulations to the recently enacted CFTCA.’’ See 41
FR 3192, 3195 (January 21, 1976).
102 See Revision of Federal Speculative Position
Limits and Associated Rules, 64 FR 24038, 24044,
May 5, 1999 (‘‘[T]he Commission . . . interprets the
‘held or controlled’ criteria as applying separately
to ownership of positions or to control of trading
decisions.’’). See also, Exemptions from Speculative
Position Limits for Positions which have a Common
Owner but which are Independently Controlled and
for Certain Spread Positions, 53 FR 13290, 13292,
Apr. 22, 1988. In response to two separate petitions,
the Commission proposed the independent account
controller exemption from speculative position
limits, but declined to remove the ownership
standard from its aggregation policy.
103 In this regard, the Commission is mindful of
the point raised by some commenters that the
aggregation rules adopted by the Commission
would be a precedent for aggregation rules enforced
by DCMs and SEFs, leading to the application of the
aggregation rules to a wide variety of firms. See CL–
Chamber. The Commission believes that for this
reason, it is important that the aggregation rules set
out, to the extent feasible, ‘‘bright line’’ rules that
are capable of easy application by a wide variety
of market participants while not being susceptible
to circumvention.

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Federal Register / Vol. 78, No. 221 / Friday, November 15, 2013 / Proposed Rules
position and thereby circumvent the
aggregation requirement.
The Commission does not believe, as
suggested by some commenters, that an
aggregation requirement would lead to
more information sharing and
significantly increased levels of
coordinated speculative trading by the
entities subject to aggregation. Among
other things, the position limits would
affect the trading of only the relatively

small number of entities that hold
positions in excess of the limits.104
For example, the following table
shows the relatively small number of
persons that held positions over the
applicable limit during the period of
January 17 to September 12, 2012. For
comparison, the table also shows the
number of persons with positions at a
level in excess of 60 percent or 80
percent of the applicable limit. It is

important to note that this table was
prepared by applying the current
aggregation requirements in regulation
150.4 without applying any of the
current exemptions to aggregation that
may be available. Thus, this table
reflects the maximum number of
persons that may hold positions of the
level shown, assuming that no
exemptions to aggregation apply.

NUMBER OF UNIQUE PERSONS OVER 60, 80, AND 100 PERCENT OF LEVELS OF RULE 150.2 FEDERAL SPECULATIVE
POSITION LIMITS JANUARY 17, 2012 TO SEPTEMBER 30, 2012 105
Spot month
Contract/DCM

Percent of limit
level

Total number
of unique
persons over
level

Single month

Number of
person-days

Total number
of unique
persons over
level

All months

Number of
person-days

Total number
of unique
persons over
level

Number of
person-days

Chicago Board of Trade
Corn and Mini-Corn .....
Oats ..............................
Soybeans and MiniSoybeans ..................
Wheat and Mini-Wheat
Soybean Oil .................
Soybean Meal ..............

60
80
100
60
80
100

97
72
26
*
*
*

517
372
198
*
*
*

22
11
5
6
*
*

1347
643
315
436
*
*

26
13
9
8
5
4

2289
1069
822
527
283
217

60
80
100
60
80
100
60
80
100
60
80
100

59
39
19
19
12
6
54
34
12
26
18
8

316
223
102
95
53
32
211
126
47
158
99
45

33
20
11
33
18
13
36
25
14
33
18
7

2751
1580
979
2877
1660
1050
3291
2161
1281
2546
1480
895

36
25
16
32
23
15
47
32
17
37
21
12

3044
1962
1244
3181
2342
1446
3568
2589
1551
2690
1645
930

6
*
*

334
*
*

7
*
*

450
*
*

—
—
—

—
—
—

*
—
—

*
—
—

35
21
14

3386
2133
1363

39
25
17

3417
2554
1701

Kansas City Board of Trade
Hard Winter Wheat ......

60
80
100

10
5
4

38
28
20

Minneapolis Grain Exchange
Hard Red Spring Wheat

60
80
100

5
5
*

12
12
*
ICE Futures U.S.

emcdonald on DSK67QTVN1PROD with PROPOSALS2

Cotton No. 2 .................

60
80
100

5
5
5

31
30
25

Also, some of the entities subject to
aggregation, which is based on common
ownership or control, might already
share information regarding their
trading activities. Thus, the Commission
continues to believe, as it explained in
the Part 151 Aggregation Proposal, that

the regulations proposed here will not
result in a significantly increased level
of information sharing that would
increase coordinated speculative
trading. The Commission notes that
these proposed regulations will provide
further aggregation exemptions,

lessening the need to share information
regarding speculative trading to ensure
compliance with position limits.
As a final introductory point, the
Commission has considered that relief
from any rule requiring the aggregation
of positions held by separate entities is

104 See, e.g., Position Limits for Futures and
Swaps, 76 FR 71626, 71668 (Nov. 18, 2011)

(describing the number of traders estimated to be
subject to position limits).

105 In this table, ‘‘*’’ means fewer than 4 unique
owners exceeded the level, and ‘‘—’’ means no
unique owner exceeded the level.

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only necessary where the entities would
be below the relevant limits on an
individual basis, but above a limit when
aggregated. Thus, if a group of affiliated
entities can take steps to maintain an
aggregate position that does not exceed
any limit, then the group will not have
to seek disaggregation relief.
In other words, seeking disaggregation
relief is one option for those groups of
affiliated entities that may exceed a
limit on an aggregate basis but will
remain below the relevant limits on an
individual basis. Other avenues are also
available to corporate groups that seek
to remain in compliance with the
position limit regime. For example, the
affiliated entities may put into place
procedures to avoid exceeding the limits
on an aggregate basis.106 One potential
approach that could be available to a
holding company with multiple
subsidiaries would be to assign each
subsidiary an internal limit based on a
percentage of the level of the position
limit. The holding company would
allocate no more in aggregate internal
limits than the level of the position
limit.107 Further, a breach of an internal
limit would provide the holding
company with notice that it should
consider filing for bona fide hedging
exemptions or taking other compliance
steps, as applicable.

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a. Disaggregation Relief for Ownership
or Equity Interests of 50 Percent or Less
The Commission is proposing to
adopt rule 150.4(b)(2), which is largely
similar to proposed rule 151.7(b)(1).
Proposed rule 150.4(b)(2) would
continue the Commission’s
longstanding rule that persons with
either an ownership or an equity
interest in an account or position of less
than 10 percent need not aggregate such
positions solely on the basis of the
ownership criteria, and persons with a
106 The procedures adopted by the affiliates may
obviate more complex steps such as the
implementation of real-time monitoring software to
consolidate all derivative activities of the affiliates,
especially if the group currently does not have an
aggregate position approaching the size of a
position limit and has historically not changed
position sizes day-over-day by a significant
percentage of the position limit.
107 An even more cautious approach would be for
the holding company to limit the overall allocation
to the subsidiaries to less than 100% of the position
limit. For example, a holding company with three
subsidiaries may assign each subsidiary an internal
limit equal to 30% of the level of the federal limit.
Thus, the holding company has allocated
permission to subsidiaries to hold, in the aggregate,
positions equal to up to 90% of the level of the
relevant position limit. Each subsidiary would
simply report at close of business its derivative
position to the holding company. The 10% cushion
provides the holding company with the ability to
remain in compliance with the limit, even if all
subsidiaries slightly exceed the internal limits on
the same side of the market at the same time.

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10 percent or greater ownership interest
would still generally be required to
aggregate the account or positions.108
However, rule 150.4(b)(2) would
establish a notice filing procedure,
effective upon submission, to permit a
person with either an ownership or an
equity interest in an owned entity of 50
percent or less to disaggregate the
positions of an owned entity in
specified circumstances, even if such
person has a 10 percent or greater
interest in the owned entity.109 The
notice filing would have to demonstrate
compliance with certain conditions set
forth in proposed rule 150.4(b)(2). As
discussed in the Part 151 Aggregation
Proposal, and similar to other
exemptions from aggregation, the notice
filing would be effective upon
submission to the Commission, but the
Commission would be able to
subsequently call for additional
information, and to amend, terminate or
otherwise modify the person’s
aggregation exemption for failure to
comply with the provisions of rule
150.4(b)(2). Further, the person would
be obligated to amend the notice filing
in the event of a material change to the
circumstances described in the filing.
The Commission preliminarily
believes that a 50 percent limit on the
ownership interest in another entity is
a reasonable, ‘‘bright line’’ standard for
determining when aggregation of
positions is required, even where the
ownership interest is passive. As
explained in the Part 151 Aggregation
Proposal, majority ownership (i.e., over
50 percent) is indicative of control, and
this standard addresses the
Commission’s concerns about
circumvention of position limits by
coordinated trading or direct or indirect
influence between entities. To the
extent that a majority owner would have
the ability and incentive to direct,
control or influence the management of
the owned entity, the 50 percent limit
is a reasonable approach to the
aggregation of owned accounts pursuant
to Section 4a(a)(1) of the CEA.
Aggregation based upon an ownership
108 For purposes of aggregation, the Commission
believes that contingent ownership rights, such as
an equity call option, would not constitute an
ownership or equity interest.
109 Under the approach proposed here, and in a
manner similar to current regulation, if a person
qualifies for disaggregation relief, the person would
nonetheless have to aggregate those same accounts
or positions covered by the relief if they are held
in accounts with substantially identical trading
strategies. See proposed rule 150.4(a)(2). The
exemptions in proposed rule 150.4 are set forth as
alternatives, so that, for example, the applicability
of the exemption in paragraph (b)(2) would not
affect the applicability of a separate exemption from
aggregation (e.g., the independent account
controller exemption in paragraph (b)(5)).

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or equity interest of greater than 50
percent is appropriate to address the
heightened risk of direct or indirect
influence over the owned entity.110
Moreover, greater than 50 percent
ownership is a standard used by other
government agencies and reflects a
general understanding that ownership at
this level poses substantial potential for
direct or indirect control over an owned
entity. For example, the U.S. Federal
Trade Commission and U.S. Department
of Justice use a 50 percent ownership
threshold test to determine ‘‘control’’ for
the purpose of defining pre-merger and
acquisition filing requirements under
the Hart-Scott-Rodino Antitrust
Improvements Act of 1974.111
The Commission notes that a
requirement of ownership of 50 percent
or less of the owned entity in order to
obtain disaggregation relief by making a
notice filing would not affect a person’s
ability to obtain other exemptions. For
example, exemptions from position
limits for bona fide hedging positions or
from aggregation for independent
account controllers, if applicable, would
still be utilized to the extent an owned
entity is entering into positions for bona
fide hedging or on behalf of customers,
as provided in those exemptions.
Regarding those commenters who said
that if an owned entity’s positions are
aggregated with the owner’s position,
the aggregation should be pro rata to the
ownership interest, the Commission
believes that a pro rata approach could
be administratively burdensome for
both owners and the Commission. For
110 The Commission notes that, as stated in the
Part 151 Aggregation Proposal, the requirement in
proposed rule 150.4(b)(2) of aggregation based on
ownership depends on a person’s ownership
interest in another entity, regardless of the person’s
voting control of that entity. However, as discussed
further below, the Commission believes that relief
from the aggregation requirement may be
appropriate in some circumstances, where the
owned entity is not consolidated on the owner’s
financial statements. Since the extent of the owner’s
voting interest in the owned entity may be a factor
in determining whether financial consolidation is
required, the voting interest may indirectly be a
factor in determining if aggregation is required.
111 15 U.S.C. 18(a); see also 16 CFR 801.1(b)
(defining ‘‘control’’ for purpose of implementing
regulations to include ‘‘[h]olding 50 percent or
more of the outstanding voting securities of an
issuer or, in the case of any unincorporated entity,
having the right to 50 percent or more of the profits
of the entity, or having the right in the event of
dissolution to 50 percent or more of the assets of
the entity’’); Premerger Notification; Reporting and
Waiting Period Requirements, 43 FR 33450, 33457
(July 31, 1978) (‘‘ ‘Control’ was defined at the level
of 50 percent stock ownership for two reasons.
First, it supplied an objective, easily administrable
criterion. Second, except for cases in which the
holding is exactly 50 percent, majority ownership
will always enable the holder to direct the day-today activities of the controlled entity, even though
for many large corporations, de facto control may
arise from holdings well below 50 percent’’).

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Federal Register / Vol. 78, No. 221 / Friday, November 15, 2013 / Proposed Rules
example, the level of ownership interest
in a particular owned entity may change
over time for a number of reasons,
including stock repurchases, stock
rights offerings, or mergers and
acquisitions, any of which may dilute or
concentrate an ownership interest.
Thus, it may be burdensome to
determine and monitor the appropriate
pro rata allocation on a daily basis.
Moreover, the Commission has
historically interpreted the statute to
require aggregation of all the relevant
positions of owned entities, absent an
exemption. This is consistent with the
view that a holder of a significant
ownership interest in another entity
may have the ability to influence all the
trading decisions of the entity in which
such ownership interest is held.
The Commission invites commenters
to address whether the Commission
should adopt an approach that would
require aggregation of only a pro-rata
allocation of owned-entity positions to
equity owners based on the percentage
of ownership interest. How could
aggregation in a manner pro rata to the
ownership interest be effected in
practice? What procedures could be
used to implement a pro rata method,
and what would those procedures
entail? If procedures to implement a pro
rata method are suggested, please
address the burden those procedures
could place on the owners and on the
Commission.
The Commission also solicits
comment on whether the Commission
should permit a person to file a notice
that would inform the Commission of
that person’s ownership interest in an
owned entity, and permit that person to
aggregate only a pro rata allocation of
the owned-entity’s positions based on
that person’s less than 100 percent
ownership. In light of the potential
administrative burdens associated with
the adoption of an aggregation
methodology based on allocation pro
rata to ownership interest, should the
Commission provide for aggregation of
an owned-entity’s positions to the
owner based on ownership tiers?
Commenters may address, for example,
the establishment of two ownership
tiers, one for an ownership interest of 10
percent to 25 percent, with an
attribution of 25 percent of the ownedentity’s positions (rather than 100
percent of the affiliate’s position) to the
owner, and another tier for an
ownership interest of greater than 25
percent to 50 percent, with an
attribution of 50 percent of the ownedentity’s positions (rather than 100
percent of the affiliate’s position) to the
owner. Would a tiered approach such as
this alleviate concerns about aggregation

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in general? What are the potential
burdens of applying this approach? If
this approach is implemented, should
owners be required to file a notice with
the Commission when the relevant
ownership interest changes from one
tier to another?
Regarding those commenters who said
that there should be a transition period
for application of the requirement of
ownership of 50 percent or less of the
owned entity in order to obtain
disaggregation relief, the Commission
notes that this proposal would apply to
existing position limits currently in
effect, and as noted above, would
provide further aggregation exemptions.
The Commission also considered
comments that aggregation of positions
is unnecessary because information
about ownership and control is
available to the Commission through
reports on Commission Form 40.
However, the Commission is not
persuaded that these reports are a
sufficient substitute for the position
limits regime. While these reports
provide some information necessary for
surveillance of positions, some owned
entities may not file these reports. Also,
the obligation to provide updates to the
Commission if there are material
changes to the relevant information,
which is included in the proposed
revision of rule 150.4, may not
necessarily apply to information
provided in the reports on Form 40. On
a more fundamental level, the
Commission believes that compliance
with the position limit rules, including
aggregation of the positions of owned
entities, is primarily the responsibility
of the owned entities and their owners.
Even if the information on Form 40
were sufficient, it would be impractical
and inefficient for the Commission to
use that information to monitor
compliance with the position limit
rules, as compared to the ability of the
entities themselves to maintain
compliance with the position limits.
Similarly, the Commission is not
persuaded by the commenter who
asserted that aggregation of positions
would, in general, lead to inaccurate
reporting of positions. Rather, the
Commission believes that the proposed
rule would facilitate accurate reporting
by providing a ‘‘bright line’’ rule for
determining when aggregation is
required.112 The Commission
emphasizes the responsibility of those
who are subject to the aggregation and
position reporting requirements to
ensure that the information required by
112 See

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the Commission’s regulations is
provided accurately.
b. Disaggregation Relief for Ownership
or Equity Interests of Greater Than 50
Percent
The Commission continues to believe,
as stated in the Part 151 Aggregation
Proposal, that an equity or ownership
interest above 50 percent constitutes a
majority ownership or equity interest of
the owned entity and is so significant as
to justify aggregation under the
ownership prong of Section 4a(a)(1) of
the CEA. A person with a greater than
50 percent ownership interest in
multiple accounts would have the
ability to hold and control a significant
and potentially unduly large overall
position in a particular commodity,
which position limits are intended to
prevent. Also, as noted above, in general
this ‘‘bright line’’ approach would
provide administrative certainty.
While the Commission continues to
believe that relief from the aggregation
requirement should not be available
merely upon a notice filing by a person
who has a greater than 50 percent
ownership or equity interest in the
owned entity, the Commission has
considered the points raised by
commenters in this regard. In view of
the comments, the Commission
understands that in some limited
situations disaggregation relief may be
appropriate even for majority owners if
the owned entity is not required to be,
and is not, consolidated on the financial
statement of the person, if the person
can demonstrate that the person does
not control the trading of the owned
entity, based on the criteria in proposed
rule 150.4(b)(2)(i), and if both the
person and the owned entity have
procedures in place that are reasonably
effective to prevent coordinated trading.
The person would have to demonstrate
that it does not control the owned
entity’s trading even though the person
is the majority owner of the owned
entity.
To provide such limited relief in
order to address issues raised by
commenters would represent a break by
the Commission from past practice. The
Commission is authorized to provide
such relief by the plenary authority
granted to the Commission in section
4a(a)(7) of the CEA to provide relief
from the requirements of the position
limits regime.
Consequently, the proposed rules
includes a provision (proposed rule
150.4(b)(3)) that would permit a person
with a greater than 50 percent
ownership of an owned entity to apply
to the Commission for relief from
aggregation on a case-by-case basis. The

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person would be required to
demonstrate to the Commission that:
i. the owned entity is not required to
be, and is not, consolidated on the
financial statement of the person,
ii. the person does not control the
trading of the owned entity (based on
criteria in rule 150.4(b)(2)(i)), with the
person showing that it and the owned
entity have procedures in place that are
reasonably effective to prevent
coordinated trading in spite of majority
ownership,113
iii. each representative of the person
(if any) on the owned entity’s board of
directors attests that he or she does not
control trading of the owned entity, and
iv. the person certifies that either (a)
all of the owned entity’s positions
qualify as bona fide hedging
transactions or (b) the owned entity’s
positions that do not so qualify do not
exceed 20 percent of any position limit
currently in effect, and the person
agrees in either case that:
D if this certification becomes untrue
for the owned entity, the person will
aggregate the owned entity for three
complete calendar months and if all of
the owned entity’s positions qualify as
bona fide hedging transactions during
that time the person would have the
opportunity to make the certification
again and stop aggregating,
D upon any call by the Commission,
the owned entity(ies) will make a filing
responsive to the call, reflecting the
owned entity’s positions and
transactions only, at any time (such as
when the Commission believes the
owned entities in the aggregate may
exceed a visibility level), and
D the person will provide additional
information to the Commission if any
owned entity engages in coordinated
activity, short of common control
(understanding that if there were
common control, the positions of the
owned entity(ies) would be aggregated).
The Commission wishes to clarify that
this relief would not be automatic, but
rather would be available only if the
Commission finds, in its discretion, that
the four conditions above are met. Thus,
persons applying for this relief should
not assume that relief would be granted.
The proposed rule would not impose
any time limits on the Commission’s
process for making the determination of
whether relief is appropriately granted,
and relief would be available only if and
113 The Commission points out that since this
criterion requires a person to certify that the person
does not control trading of its owned entity, the
criterion could not be met by a natural person or
any entity, such as a partnership, where it is not
possible to separate knowledge and control of the
person from that of the owned entity.

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when the Commission acts on a
particular request for relief.
The first requirement would be that
the owned entity is not, and is not
required to be, consolidated on the
financial statements of the person. The
Commission is aware that, for most
entities, ownership of more than 50
percent of another entity’s voting shares
is the point at which consolidation of
the owned entity on the owner’s
financial statements is required under
U.S. Generally Accepted Accounting
Principles (‘‘GAAP’’).114 Consequently,
if a person holds an equity or ownership
interest above 50 percent in another
entity, but does not hold a greater than
50 percent voting interest in that entity,
it may be possible that the owned entity
would not be required to be
consolidated on the person’s financial
statements and the person would,
therefore, be able to apply to the
Commission for relief from the
aggregation requirement. Similarly, in
some cases, limited partners holding a
greater than 50 percent equity or
ownership interest in a limited
partnership are not required to
consolidate the limited partnership
because it is controlled by the general
partner.115 Also, the Commission
realizes that there are exceptions to the
consolidation requirement for certain
types of entities. For example, financial
consolidation may also not be required
for entities that are ‘‘investment
companies’’ under GAAP, and certain
broker-dealers may not be required to
consolidate certain owned entities over
which the broker-dealer is likely to have
only temporary control. The
Commission reiterates that lack of
financial consolidation would be only
one of the factors in determining
whether aggregation relief would be
granted, and even if the owned entity is
not consolidated and other requirements
for relief are satisfied, the Commission
could nevertheless, in its discretion,
determine that relief is not appropriate.
The Commission preliminarily
believes, based in part on points raised
by commenters, that the presence of
114 See Financial Accounting Standards Board
Accounting Standards Codification Topic 810, at
paragraphs 810–10–15–8 and 10, available at
https://asc.fasb.org/. See also Accounting Research
Bulletin 51 at paragraph 3 and Statement of
Financial Accounting Standard No. 94 at paragraph
2.
115 Thus, proposed rule 150.4(b)(3) would address
those commenters who said that aggregation should
not be required by limited partners who own a
majority equity interest in a limited partnership but
do not control its trading. Where a limited partner
does not consolidate the limited partnership on its
financial statements, and the other conditions of the
proposed rule are met, the limited partner could
apply to the Commission for relief from the
aggregation requirement.

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certain additional factors may, in
particular circumstances, be favorable to
granting relief from the aggregation
requirement (although no such factor
would be dispositive and the
Commission could deny granting relief
even in the presence of any or all such
factors). These factors could include
certain points raised by commenters,
such as the owned entity being a newly
acquired standalone business or a joint
venture subject to special restrictions on
control, or two different owned entities
conducting operations at different levels
of commerce (such as retail and
wholesale).116 Under the proposed
approach, the Commission would
interpret factors such as these to be
favorable to granting relief from the
aggregation requirement.
If a person with greater than 50
percent ownership of an owned entity
could not meet the conditions in
proposed rule 150.4(b)(3), the person
could apply to the Commission for relief
from aggregation under CEA section
4a(a)(7).117 Persons wishing to seek such
relief should apply to the Commission
stating the particular facts and
circumstances that justify the relief. For
example, if the owned entity is
consolidated on the financial statement
of the person, the person could describe
the facts and circumstances which the
person believes indicate that the person
should not be considered to own or
control the owned entity’s positions,
notwithstanding that financial
consolidation may be associated with
ownership and control. The
Commission notes that CEA section
4a(a)(7) does not impose any time limits
on the Commission’s process for
determining whether relief under that
section is appropriate, nor does it
prescribe or limit the factors that the
Commission may consider to be relevant
in determining whether to grant relief.
The Commission solicits comment as to
whether relief from aggregation under
CEA section 4a(a)(7) should be available
to persons with greater than 50 percent
ownership of owned entities who
cannot meet the conditions in proposed
rule 150.4(b)(3), and as to the facts and
circumstances that the Commission
should take into account in considering
such relief.
The Commission has considered the
comment that a corporate entity that is
the sponsor of an employee benefit plan
should not be required to aggregate the
positions of the plan with the sponsor’s
116 See generally CL–AGA, CL–API, CL–Chamber,
CL–CMC, CL–Iberdrola.
117 Section 4a(a)(7) of the CEA provides authority
to the Commission to grant relief from the position
limits regime.

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proprietary positions.118 The
Commission notes that the sponsor of an
employee benefit plan is an ‘‘eligible
entity’’ as defined in regulation
150.1(d),119 and the Commission
preliminarily believes it is appropriate
to provide relief in this regard that is
similar to the provisions that apply to
positions controlled by an IAC. In
particular, the Commission proposes to
treat the manager of the employee
benefit plan as an IAC and the plan’s
positions as client positions. To effect
this treatment, the Commission is
proposing amended rule 150.1(e)(5) and
proposed rule 150.4(b)(5) that would
allow managers of employee benefit
plans (i.e., persons that manage a
commodity pool, the operator of which
is excluded from registration as a
commodity pool operator under rule
4.5(a)(4)) to be treated as an IAC, on the
condition that an IAC notice filing is
made as required under rule 150.4(c).
The Commission emphasizes that this
proposed relief would be limited to
employee benefit plans.
c. Proposed Criteria for Disaggregation
Relief
The Commission is proposing criteria
to claim disaggregation relief in
proposed rule 150.4(b)(2)(i) that are
similar to the criteria set forth in
proposed rule 151.7(b)(1)(i). Essentially,
the criteria are the conditions that
would have to be met in order for a
person to rebut the presumption that an
ownership or equity interest of between
10 and 50 percent (inclusive) requires
aggregation of the positions of the
owned entity.120
In general, the Commission proposes
that these criteria would be interpreted
and applied in accordance with the
Commissions’ past practices in this
regard.121 In accordance with these
118 CL–ABC.

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119 The

definition of ‘‘eligible entity’’ in
regulation 150.1(d) includes the operator of a
trading vehicle which is excluded from the
definition of the term ‘‘pool’’ under regulation 4.5,
which in turn excludes, in regulation 4.5(a)(4), the
sponsors of most employee benefit plans.
120 As noted in the Part 151 Aggregation Proposal,
the criteria would apply to the person filing the
notice as well as the owned entity. In addition, for
purposes of meeting the criteria, such ‘‘person’’
would include any entity that such person must
aggregate pursuant to proposed rule 150.4. For
example, if company A files a notice under
proposed rule 150.4(c) for company A’s equity
interest of 30 percent in company B, then company
A must comply with the conditions for the
exemption, including any entity with which
company A aggregates positions proposed rule
150.4. In this connection, if company A controlled
the trading of company C, then company A’s
150.4(c) notice filing must demonstrate that there is
independence between company B and company C.
121 See, e.g., 1979 Aggregation Policy, 44 FR
33839 (providing indicia of independence); CFTC

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precedents, the Commission would not
expect that the criteria would impose
requirements beyond a reasonable,
plain-language interpretation of the
criteria. For example, routine pre- or
post-trade systems to effect trading on
an operational level (such as trade
capture, trade risk or order-entry
systems) would not, broadly speaking,
have to be independently developed in
order to comply with the criteria. Also,
employees that do not direct or
participate in an entity’s trading
decisions would generally not be subject
to these requirements. A brief
discussion of each of the five criteria in
proposed rule 150.4(b)(2)(i) is set forth
below.
Proposed rule 150.4(b)(2)(i)(A) would
condition aggregation relief on a
demonstration that the person filing for
disaggregation relief and the owned
entity do not have knowledge of the
trading decisions of the other. The
Commission preliminarily believes that
where an entity has an ownership
interest in another entity and neither
entity shares trading information, such
entities demonstrate independence. In
contrast, persons with knowledge of
trading decisions of another in which
they have an ownership interest are
likely to take such decisions into
account in making their own trading
decisions, which implicates the
Commission’s concern about
independence and enhances the risk for
coordinated trading.122 As noted above,
this proposed criterion would address
concerns regarding knowledge of
employees who control, direct or
participate in an entity’s trading
decisions, and would not prohibit
information sharing solely for risk
management, accounting, compliance,
or similar purposes and information
sharing among mid- and back-office
Interpretive Letter No. 92–15 (CCH ¶ 25,381)
(ministerial capacity overseeing execution of trades
not necessarily inconsistent with indicia of
independence); revision of federal speculative
position limits, 64 FR 24038, 24044 (May 5, 1999)
(intent in issuing final aggregation rule ‘‘merely to
codify the 1979 Aggregation Policy, including the
continued efficacy of the [1992] interpretative
letter’’).
122 As noted in the Part 151 Aggregation Proposal,
the Commission does not consider knowledge of
overall end-of-day position information to
necessarily constitute knowledge of trading
decisions, so long as the position information
cannot be used to dictate or infer trading strategies.
As such, the knowledge of end-of-day positions for
the purpose of monitoring credit limits for
corporate guarantees does not necessarily constitute
knowledge of trading information. However, the
ability to monitor the development of positions on
a real time basis could constitute knowledge of
trading decisions because of the substantial
likelihood that such knowledge might affect trading
strategies or influence trading decisions of the
other.

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personnel that do not control, direct or
participate in trading decisions. In
response to comments on this criterion,
the Commission wishes to clarify that
this criterion would generally not
require aggregation solely based on
knowledge that a party gains during
execution of a transaction regarding the
trading of the counterparty to that
transaction, nor would it encompass
knowledge that an entity would gain
when carrying out due diligence under
a fiduciary duty, so long as such
knowledge is not directly used to affect
the entity’s trading.
Proposed rule 150.4(b)(2)(i)(B) would
condition aggregation relief on a
demonstration that the person seeking
disaggregation relief and the owned
entity trade pursuant to separately
developed and independent trading
systems. Further, proposed rule
150.4(b)(2)(i)(C) would condition relief
on a demonstration that such person
and the owned entity have, and enforce,
written procedures to preclude the one
entity from having knowledge of,
gaining access to, or receiving data
about, trades of the other. Such
procedures would have to include
document routing and other procedures
or security arrangements, including
separate physical locations, which
would maintain the independence of
their activities. As noted in the Part 151
Aggregation Proposal, the Commission
has applied these same conditions in
connection with the IAC exemption to
ensure independence of trading between
an eligible entity and an affiliated
independent account controller.123
Similar to the IAC exemption, proposed
rule 150.4(b)(2) permits disaggregation
in certain circumstances where there is
independence of trading between two
entities. Thus, the Commission is
proposing the above conditions, which
are already applicable and working well
in the IAC context, and which are
expected to strengthen the
independence between the two entities
for the owned entity exemption.
The Commission proposes that the
phrase ‘‘separately developed and
independent trading systems’’ should be
interpreted in accordance with the
Commission’s prior practices in this
regard.124 The Commission generally
123 See regulation 150.3(a)(4) (proposed here to be
replaced by proposed rule 150.4(b)(5)). Such
conditions have been useful in ensuring that trading
is not coordinated through the development of
similar trading systems, and that procedures are in
place to prevent the sharing of trading decisions
between entities.
124 See, e.g., 1979 Aggregation Policy, 44 FR
33839, 33840–1 (futures commission merchant
(FCM) ‘‘deemed to control’’ trading of customer
accounts in trading program where FCM gives

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does not expect that this criterion would
prevent an owner and an owned entity
from both using the same ‘‘off-the-shelf’’
system that is developed by a third
party. Rather, the Commission’s concern
is that trading systems (in particular, the
parameters for trading that are applied
by the systems) could be used by
multiple parties who each know that the
other parties are using the same trading
system as well as the specific
parameters used for trading and,
therefore, are indirectly coordinating
their trading.125
The requirement of ‘‘separate physical
locations’’ in proposed rule
150.4(b)(2)(i)(C) would not necessarily
require that the relevant personnel be
located in separate buildings. The
Commission believes that the important
factor is that there be a physical barrier
between the personnel that prevents
access between the personnel that
would impinge on their independence.
For example, locked doors with
restricted access would generally be
sufficient, while merely providing the
purportedly ‘‘independent’’ personnel
with desks of their own would not.
Similar principles would apply to
sharing documents or other resources.
Proposed rule 150.4(b)(2)(i)(D) would
condition aggregation relief on a
demonstration that the person does not
share employees that control the owned
entity’s trading decisions, and the
employees of the owned entity do not
share trading control with such persons.
The Commission continues to be
concerned that, as stated in the Part 151
Aggregation Proposal, shared employees
with control of trading decisions may
undermine the independence of trading
between entities. Regarding the
comments on the sharing of attorneys,
accountants, risk managers, compliance
and other mid- and back-office
personnel, the Commission proposes, as
noted above, that sharing of such
personnel between entities would
generally not compromise
independence so long as the employees
do not control, direct or participate in
the entities’ trading decisions.126
specific advice or recommendations not made
available to other customers, unless such accounts
and programs are traded independently and for
different purposes than proprietary accounts).
125 Compare id. at 33841. ‘‘However, the
Commission also recognizes that purportedly
different programs which in fact are similar in
design and purpose and are under common control
may be initiated in an attempt to circumvent
speculative limit and reporting requirements.’’
126 As noted in the Part 151 Aggregation Proposal,
the condition barring the sharing of employees that
control the owned entity’s trading decisions would
include a prohibition on sharing of the types of
employees described in the aggregation petition
(attorneys, accountants, risk managers, compliance
and other mid-and back-office personnel), to the

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Similarly, sharing of board or advisory
committee members, research personnel
or sharing of employees for training,
operational or compliance purposes
would not result in a violation of the
criteria if the personnel do not influence
(e.g., ‘‘have a say in’’) or direct the
entities’ trading decisions.127
Proposed rule 150.4(b)(2)(i)(E) would
condition aggregation relief on a
demonstration that the person and the
owned entity do not have risk
management systems that permit the
sharing of trades or trading strategies
with the other. This condition would
address concerns that risk management
systems that permit the sharing of trades
or trading strategies with each other
present a significant risk of coordinated
trading through the sharing of
information.128 The Commission
proposes that this criterion generally
would not prohibit sharing of
information to be used only for risk
management and surveillance purposes,
when such information is not used for
trading purposes and not shared with
employees that, as noted above, control,
direct or participate in the entities’
trading decisions. Thus, sharing with
employees who use the information
solely for risk management or
compliance purposes would generally
be permitted, even though those
employees’ risk management or
compliance activities could be
considered to have an ‘‘influence’’ on
the entity’s trading.
extent such employees participate in control of the
trading decisions of the person or the owned entity.
For further clarification, see previous discussion
regarding the condition under proposed rule
150.4(b)(2)(i)(A) (conditioning aggregation relief on
a demonstration that the person filing for
disaggregation relief and the owned entity do not
have knowledge of the trading decisions of the
other, and discussing what constitutes ‘‘knowledge’’
for this purpose).
127 In this respect, proposed rule 150.4(b)(2)(i)(D)
would be consistent with the Commission’s
Interpretive Letter No. 92–15 (CCH ¶ 25,381), where
an employee both oversaw the execution of orders
for a commodity pool, as well as maintained delta
neutral option positions in non-agricultural
commodities for the proprietary account of an
affiliate of the sponsor of the commodity pool. The
Commission concluded that the use of clerical
personnel who are dual employees of both affiliates
would not require aggregation when the clerical
personnel engage in ministerial activities and steps
are taken to maintain independence, such as: (i)
Limiting trading authority so that the personnel do
not have responsibility for the two entities’
activities in the same commodity; and (ii)
separating the times at which the personnel
conduct activities for the two entities.
128 The Commission remains concerned, as stated
in the Part 151 Aggregation Proposal and as noted
above, that a trading system, as opposed to a risk
management system, that is not separately
developed from another system can subvert
independence because such a system could apply
the same or similar trading strategies even without
the sharing of trading information.

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d. Proposed Notice Filing Requirement
The Commission is proposing a notice
filing requirement in proposed rule
150.4(c) that is similar to the criteria set
forth in proposed rule 151.7(h)(1), with
a modification to add an application
procedure for ownership interests of
more than 50 percent under proposed
rule 150.4(b)(3). The proposed rule
contemplates that the filing under
proposed rule 150.4(c)(1) would be
made before the exemption from
aggregation is needed, since the filing is
a pre-requisite for obtaining the
exemption. However, where a prior
filing is impractical (such as where a
person lacks information regarding a
newly-acquired subsidiary’s activities),
the Commission proposes that the filing
under proposed rule 150.4(c)(1) should
be made as promptly as practicable.
Even though a filing under proposed
rule 150.4(c)(1) may be made after an
ownership or equity interest is acquired,
the Commission proposes that the
exemption from aggregation would not
be effective retroactively because the
filing is a pre-requisite to the
exemption. The Commission believes
that retroactive application of such
filings could result in administrative
difficulty in monitoring the scope of
exemptions from aggregation and
negatively affect the Commission staff’s
surveillance efforts.
Generally, the Commission proposes
that entities could consolidate these
filings in any efficient manner by, for
example, discussing more than one
owned entity in a single filing, so long
as the scope of the filing is made
clear.129 The Commission also wishes to
emphasize that if an entity determines
to no longer apply an exemption (or if
an exemption is no longer available), the
entity would be required to inform the
Commission by making a filing under
proposed rule 150.4(c) because this
would constitute a material change to
the prior filing. Of course, once an
exemption no longer applies to an
owned entity, the person would be
required to subsequently aggregate the
positions of the entity in question.
In order to implement an application
procedure for ownership interests of
more than 50 percent under proposed
rule 150.4(b)(3), as noted above, the
Commission is also proposing proposed
rule 150.4(c)(2), under which filings
would not be effective until the
Commission’s finding that the person
129 In response to commenters on the Part 151
Aggregation Proposal, the Commission clarifies that
section 8 of the CEA would apply to the
information that the Commission may request
under proposed rule 150.4(c), and sets out the
extent to which such information will be treated
confidentially.

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Federal Register / Vol. 78, No. 221 / Friday, November 15, 2013 / Proposed Rules
has satisfied the conditions of proposed
rule 150.4(b)(3).
The Commission solicits comment as
to all aspects of proposed rule 150.4.
Commenters are invited to address the
potential effects and implications of the
proposed rule as the scope of the
position limits regime may change in
the future. For example, what issues or
concerns arising from the scope and the
requirements of the disaggregation relief
in the proposed rule would have to be
addressed if the Commission were to
adopt its proposal to establish
speculative position limits for 28
exempt and agricultural commodity
futures and option contracts, and
physical commodity swaps that are
‘‘economically equivalent’’ to such
contracts? 130
If the Commission were to adopt its
proposal to establish position limits on
physical commodity swaps, are there
any implications with respect to the
interplay between the disaggregation
relief in the proposed rule and the
Commission’s other rules relating to
swaps? For instance, the Commission
understands that various corporate
groups organize the swap activities of
the affiliated entities within corporate
groups in different ways. Some
corporate groups centralize some or all
swap activities in a particular affiliate,
while in other groups the affiliates
engage in swaps independently. Also,
corporate groups may apply centralized
risk management policies to varying
degrees, which may affect how the
affiliated entities in the group engage in
swaps. What are the implications of the
disaggregation relief in the proposed
rule for the various ways that affiliated
entities in corporate groups organize
their swap activities? In considering the
proposed rule, what other Commission
rules should the Commission take into
account and what are the implications
of how other Commission rules may
affect affiliated entities? Have corporate
groups begun to organize their swap
activities to comply with other
Commission rules in ways that could be
affected by the proposed rule? If so,
what considerations should the
Commission take into account in this
regard?
The Commission also solicits
comment as to the appropriateness of
the conditions for disaggregation relief
in proposed rule 150.4(b), and whether
relief should be available for persons
that have a greater than 50 percent
ownership or equity interest in an
owned entity. If such relief should be
available, is it appropriate to condition
130 See Position Limits for Derivatives (November
5, 2013).

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such relief on the owned entity not
being, and not being required to be,
consolidated on the financial statements
of the owner? Is financial consolidation
a relevant consideration in this regard?
Why or why not? For example, is
financial consolidation a useful proxy
for other characteristics that are relevant
to the position limits regime, such as
ownership and control?
Regarding the condition in proposed
rule 150.4(b)(3)(iii), is it clear when an
individual board member is considered
the ‘‘representative’’ of a person on the
board of directors? Are there
modifications to this condition that
would help to identify which board
members should be required to make
the certification?
e. Proposed Revisions To Clarify
Regulations
In connection with the proposed
modifications to rule 150.4, the
Commission has reviewed whether the
text of existing regulation 150.4 is easy
to understand and apply. In this regard,
the Commission notes that the existing
regulation may be unclear, especially in
terms of the relationship between the
provisions of paragraphs (a) through (d)
of the existing regulation and whether a
particular paragraph is an exception to
another. Also, as more different types of
market participants have studied
existing regulation 150.4 (and regulation
151.7, which has similar provisions),
both in connection with the Dodd-Frank
Act and otherwise, questions have
arisen about the application of the
aggregation requirements to a wide
variety of circumstances. The
Commission believes it is important that
the rules setting forth the aggregation
requirements be clear in their
application to both the circumstances in
which they currently apply, and the
various circumstances in which they
may apply in the future. These textual
modifications are not intended to effect
any substantive change to the meaning
of rule 150.4, and the Commission
invites commenters to address whether
any of these modifications change the
meaning of the aggregation requirements
in their particular circumstances.131
Therefore, the Commission is
proposing to modify the text to clarify
that paragraph (a) of rule 150.4 states
the general requirement to aggregate
131 The textual modifications proposed here relate
to the Commission regulations currently in effect.
The Commission notes that its proposal regarding
position limits includes amendments to the text of
certain Commission regulations. See Position Limits
for Derivatives (November 5, 2013). If both of the
proposals are adopted, conforming technical
changes to reflect the interplay between the two
amendments may be necessary.

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positions a person may hold in various
accounts, and paragraph (b) of the rule
sets out the exemptions to the
aggregation requirement that may apply.
The Commission believes that this
format clarifies that the exemptions in
rule 150.4(b) are alternatives; that is,
aggregation is not required to the extent
that any of the exemptions in rule
150.4(b) may apply.
In rule 150.4(b), the Commission is
proposing text for rule 150.4(b)(1) that is
substantially similar to existing
regulation 150.4(c). The Commission
believes that stating this provision as
the first exemption will clarify that any
person that is a limited partner, limited
member, shareholder or other similar
type of pool participant holding
positions in which the person by power
of attorney or otherwise directly or
indirectly has a 10 percent or greater
ownership or equity interest in a pooled
account or positions may apply this
exemption. That is, if the requirements
of this exemption are satisfied with
respect to a person, then the person
need not determine if the requirements
of the exemption in paragraph (b)(2) or
(b)(3) are satisfied. The text of
paragraphs (b)(2) and (b)(3), in turn,
state that they apply to persons with an
ownership or equity interest in an
owned entity, other than an interest in
a pooled account which is subject to
paragraph (b)(1).
Proposed rule 150.4(b)(1) states that
for any person that is a limited partner,
limited member, shareholder or other
similar type of pool participant holding
positions in which the person by power
of attorney or otherwise directly or
indirectly has a 10 percent or greater
ownership or equity interest in a pooled
account or positions, aggregation of the
accounts or positions of the pool is not
required, except as provided in
paragraphs (b)(1)(i), (b)(1)(ii) or
(b)(1)(iii). Although existing regulation
150.4(c) does not contain any explicit
statement of this rule, the lack of an
aggregation requirement in these
circumstances is implicit in the existing
regulation’s statement that aggregation
is required only in certain specified
circumstances. Thus, proposed rule
150.4(b)(1)(i) states explicitly a
principle that is implicit in the existing
regulation.132 Paragraphs (b)(1)(i),
(b)(1)(ii) and (b)(1)(iii) of proposed rule
150.4 set out the circumstances in
which aggregation requirements apply;
these circumstances are substantially
similar to those covered by paragraphs
132 This modification to the rule is not intended
to effect a substantive change. Rather, it is intended
to state explicitly a rule that the Commission has
applied since at least 1979. See note 100, above.

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(c)(1), (c)(2) and (c)(3) of existing
regulation 150.4, but the text of the rule
has been modified to simplify the
wording of the provisions.133
Paragraphs (b)(4) to (b)(8) of rule
150.4 set forth other exemptions that
may apply in various circumstances.
The exemption for certain accounts held
by FCMs in paragraph (b)(4) is
substantially the same as existing
regulation 150.4(d), except that it has
been rephrased in a form of a statement
of when an exemption is available,
instead of the statement in the existing
regulation that the aggregation
requirement applies unless certain
conditions are met. Paragraph (b)(5) sets
forth the exemption for accounts carried
by an IAC that is substantially similar to
existing regulation 150.3(a)(4).
Paragraphs (b)(6), (b)(7) and (b)(8) set
forth the exemptions for underwriting,
broker-dealer activity and circumstances
where laws restrict information sharing
that are discussed in more detail above.
Paragraph (b)(9) describes how highertier entities may apply an exemption
pursuant to a notice filed by an owned
entity.
The Commission solicits comment as
to whether the revised text of rule 150.4
is easy to understand and apply.
D. Underwriting
1. Part 151 Proposed Approach

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As noted above, regulation 151.7(g)
includes an exemption from aggregation
where an ownership interest is in an
unsold allotment of securities. In the
Part 151 Aggregation Proposal, the
Commission noted that the ownership
interest of a broker-dealer 134 in an
entity based on the ownership of
securities acquired as part of reasonable
activity in the normal course of business
as a dealer is largely consistent with the
ownership of an unsold allotment of
securities covered by the underwriting
exemption in regulation 151.7(g). In
both circumstances, the ownership
interest is likely transitory and not to
hold for investment purposes.
Accordingly, the Commission proposed
to include an aggregation exemption in
regulation 151.7(g) for such activity.135
However, the Commission noted in
the Part 151 Aggregation Proposal that
133 The revised text also includes references to a
‘‘limited member’’ in addition to the references in
the existing regulation to a limited partner in a
pool.
134 Broker-dealers are those persons registered as
such with the SEC, see 15 U.S.C. 78o, or similarly
registered with a foreign regulatory authority.
135 The Commission specifically noted that this
proposed exemption would not apply to registered
broker-dealers that acquire an ownership interest in
securities with the intent to hold for investment
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this exemption would not have applied
where a broker-dealer acquires more
than a 50 percent ownership interest in
another entity because such acquisition
would not be consistent with holding a
transitory interest for the purpose of
market making and runs a higher risk of
coordinated trading.136 Therefore, a
broker-dealer that acquires a greater
than 50 percent ownership interest in
another entity would be required to
aggregate the positions of that entity, in
the absence of another aggregation
exemption.
The Commission requested comment
on whether ownership of stock, by a
broker-dealer registered with the SEC or
similarly registered with a foreign
regulatory authority, that is acquired as
part of reasonable activity in the normal
course of business as a dealer, without
other ownership interests or indicia of
control or concerted action, warrants
aggregation.
2. Commenters’ Views
FIA commented on the Part 151
Aggregation Proposal, saying that the
underwriting exemption should not
require that ownership be acquired ‘‘as
part of [the] reasonable activity’’ of a
broker-dealer, because the normal
course requirement is sufficient and the
additional requirement that the
acquisition be part of reasonable activity
creates uncertainty.137 FIA also said that
broker-dealers should be able to use the
underwriting exemption for any level of
ownership, i.e., even a more than 50
percent ownership interest, or,
alternatively, the ownership interests
that a broker-dealer holds in its capacity
as a broker-dealer should not be
aggregated with ownership interests
held by the broker-dealer or its affiliates
in any other capacity.138
3. Proposed Rule
The Commission continues to believe
that any acquisition by a broker-dealer
of a greater than 50 percent ownership
interest in an owned entity (other than
in a distribution of securities directly by
an issuer or through an underwriter)
requires aggregation, and further relief
from this requirement is not
appropriate. For example, if a brokerdealer has a 49 percent ownership
interest in an entity and then acquires
a 2 percent ownership interest in the
same entity in the normal course of the
136 The proposed rules would encompass within
the proposed exemption a broker-dealer’s
ownership of securities in anticipation of demand
or as part of routine life cycle events, if the activity
was in the normal course of the person’s business
as a broker-dealer.
137 CL–FIA.
138 CL–FIA.

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broker-dealer’s activity, aggregation of
the owned entity’s positions should be
required.
On the other hand, the Commission is
proposing an exemption from
aggregation where an ownership interest
is in an unsold allotment of securities in
proposed rule 150.4(b)(7) that is
essentially the same as the exemption in
regulation 151.7(g). However, proposed
rule 150.4(b)(7) does not include the
phrase ‘‘as part of reasonable activity,’’
as was suggested by a commenter on the
Part 151 Aggregation Proposal, because
the Commission proposes to interpret
the phrase ‘‘reasonable activity’’ to be
effectively synonymous with the phrase
‘‘normal course of business’’ in this
context.
The Commission solicits comment as
to all aspects of proposed rule
150.4(b)(7). In particular, the
Commission solicits comment as to the
appropriateness of the proposed
treatment of ownership interests
acquired in the normal course of the
broker-dealer’s activity.
E. Independent Account Controller for
Eligible Entities
1. Part 151 Proposed Approach
As noted above, regulation 150.3(a)(4)
provides an eligible entity with an
exemption from aggregation of the
eligible entity’s customer accounts that
are managed and controlled by
independent account controllers. The
definition of eligible entity in regulation
150.1(d) includes ‘‘the limited partner
or shareholder in a commodity pool the
operator of which is exempt from
registration under § 4.13 of this
chapter. . . .’’ However, with regard to
a CPO that is exempt under regulation
4.13, the definition of an independent
account controller in regulation
150.1(e)(5) only extends to ‘‘a general
partner of a commodity pool the
operator of which is exempt from
registration under § 4.13 of this
chapter.’’ At the time the Commission
expanded the IAC exemption to include
regulation 4.13 commodity pools,
market participants generally structured
such pools as limited partnerships.139
The Commission understands that
today, not all regulation 4.13
commodity pools are formed as
partnerships. For example, regulation
4.13 pools may be formed as limited
liability companies and have managing
members, not general partners.
Accordingly, in the Part 151
Aggregation Proposal, the Commission
proposed to expand the definition of
independent account controller to
139 See

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include the managing member of a
limited liability company, and to amend
the definitions of eligible entity and
independent account controller to
specifically provide for regulation 4.13
commodity pools established as limited
liability companies.

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2. Commenters’ Views
One commenter said that the
independent account controller rule
should be expanded to apply to any
person with a role equivalent to a
general partner in a limited partnership
or managing member of a limited
liability company, to accommodate
various structures that are used for
commodity pools in jurisdictions
outside the U.S.140
Another commenter addressed 4.13
pools more broadly, and said that the
Commission’s rules should treat
ownership of 4.13 pools in the same
way that the rules treat ownership of
operating companies.141 In particular,
this commenter said that the
Commission should eliminate the
requirement that the positions of a 4.13
pool be aggregated with the positions of
any person that owns more than 25% of
the 4.13 pool.142
3. Proposed Rule
The Commission proposes to adopt
rule 150.4(b)(5) to take the place of the
existing IAC rule in regulation
150.3(a)(4), so that the IAC exemption is
in the regulatory section providing for
aggregation of positions. Proposed rule
150.4(b)(5) is substantially similar to
existing regulation 150.3(a)(4) except
that, in response to the commenters, the
Commission proposes to modify it (and
the related definitions in regulation
150.1) so that it could be applied with
respect to any person with a role
equivalent to a general partner in a
limited liability partnership or a
managing member of a limited liability
company.
Regarding the treatment of regulation
4.13 pools in a manner that is
equivalent to the treatment of operating
companies, the Commission believes
that this is a matter that could be the
subject of relief granted under CEA
section 4a(a)(7).143 Persons wishing to
seek such relief should apply to the
Commission stating the particular facts
and circumstances that justify the relief.
The Commission solicits comment as
to all aspects of the proposed rule
150.4(b)(5) and the related amendments
140 CL–AIMA.
141 CL–ABC.
142 CL–ABC.
143 Section 4a(a)(7) of the CEA provides authority
to the Commission to grant relief from the position
limits regime.

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to regulation 150.1. In particular, the
Commission solicits comment as to the
appropriateness of treating limited
liability companies that are commodity
pools in the same way as limited
liability partnerships that are
commodity pools. Commenters are
invited to provide information regarding
the considerations that determine
whether commodity pools are, in
practice, structured as limited liability
companies or limited liability
partnerships and whether there are any
relevant differences in the two types of
entities. Also, what are the facts and
circumstances that commenters believe
would justify relief under CEA section
4a(a)(7)?
III. Related Matters
A. Considerations of Costs and Benefits
Section 15(a) of the CEA requires the
Commission to consider the costs and
benefits of its actions before
promulgating a regulation under the
CEA or issuing certain orders. Section
15(a) further specifies that the costs and
benefits shall be evaluated in light of the
following 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 considers the costs and
benefits resulting from its discretionary
determinations with respect to the
section 15(a) factors.
On May 30, 2012, the Commission
proposed, partially in response to a
petition for interim relief from part
151’s provision for the aggregation of
positions across accounts,144 certain
modifications to its policy for
aggregation under the part 151 position
limits regime (the ‘‘Part 151 Aggregation
Proposal’’). In an order dated September
28, 2012, the District Court for the
District of Columbia vacated part 151 of
the Commission’s regulations. The
Commission is now proposing
modifications to part 150 of the
Commission’s regulations that are
substantially similar to the
modifications proposed to part 151.
144 A copy of the petition (the ‘‘aggregation
petition’’) can be found on the Commission’s Web
site at www.cftc.gov/stellent/groups/public/@
rulesandproducts/documents/ifdocs/
wgap011912.pdf. The aggregation petition was
originally filed by the Working Group of
Commercial Energy Firms; certain members of the
group later reconstituted as the Commercial Energy
Working Group. Both groups (hereinafter,
collectively, the ‘‘Working Groups’’) presented one
voice with respect to the aggregation petition.

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The Part 151 Aggregation Proposal
provided the public with an opportunity
to comment on the Commission’s
considerations of costs and benefits of
the proposed rules. In the Part 151
Aggregation Proposal, the Commission
explained its position that the proposed
changes to the aggregation policy
would, on net, lower costs for market
participants without lessening the
effectiveness of the Commission’s
position limits regime. The Commission
requested comment on all aspects of its
consideration of costs and benefits,
including identification and assessment
of any costs and benefits not discussed
therein. In addition, the Commission
requested that commenters provide data
and any other information or statistics
that they believe supports their
positions with respect to the
Commission’s consideration of costs
and benefits.
The modifications to part 150
proposed herein reflect the
Commission’s consideration of the
comments that were received on the
proposed amendments to part 151. The
Commission summarizes the proposed
modifications to part 150 below,
including those provisions proposed to
be modified or amended in response to
public comment on the Part 151
Aggregation Proposal, describes
expected costs and benefits of the
proposed regulations, requests public
comment on its considerations of costs
and benefits, and considers the
proposed regulations in light of the five
factors outlined in Section 15(a).145
1. Background
As discussed above, the Commission’s
historical approach to position limits
generally includes three components:
(1) The level of the limits, which set a
threshold that restricts the number of
speculative positions that a person may
hold in the spot-month, in any
individual month, and in all months
combined, (2) an exemption for
positions that constitute bona fide
hedging transactions, and (3) rules to
determine which accounts and positions
a person must aggregate for the purpose
of determining compliance with the
position limit levels.
The proposed rules address the third
component of the Commission’s
position limits regime—aggregation—
which is set out in regulation 150.4.
This regulation generally requires that
145 The Commission notes that the opinions and
beliefs expressed herein are preliminary assertions
based on comments from previous releases, and are
subject to change after consideration of any further
comments. The Commission welcomes public
comment on all aspects of this release in order to
better inform its policy determinations.

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unless a particular exemption applies, a
person must aggregate all positions for
which that person: (1) Controls the
trading decisions, or (2) has a 10 percent
or greater ownership interest in an
account or position; and in doing so the
person must treat positions that are held
by two or more persons pursuant to an
express or implied agreement or
understanding as if they were held by a
single person.

emcdonald on DSK67QTVN1PROD with PROPOSALS2

2. Part 151 Aggregation Proposal
As noted above, the Commission
received the aggregation petition on
January 19, 2012.146 The aggregation
petition requested interim relief under
CEA section 4a(a)(7) from, among other
things, part 151’s provision for
aggregation of positions across accounts.
The Commission also received letters
that were generally supportive of the
aggregation petition. In addition, several
commenters opined on the aggregation
rules in connection with the
Commission’s request for comment on
the spot-month position limits on cashsettled contracts established on an
interim final basis in November 2011.147
As further discussed in the Part 151
Aggregation Proposal, the aggregation
petition and the interim final regulation
commenters asserted that the
Commission should clarify regulation
151.7(i), which provides an exemption
where the sharing of information would
cause a violation of federal law, and
expand the exemption to include
circumstances in which the sharing of
information would cause a violation of
state or foreign law. In addition, the
aggregation petition and commenters to
the interim final regulation requested
that the Commission create an
aggregation exemption for owned nonfinancial entities. In this connection,
some interim final regulation
commenters argued that the
Commission should only aggregate on
the basis of control and not ownership.
Finally, one interim final regulation
commenter requested that the
Commission expand the exemption
provided in § 151.7(g) for the ownership
interests of broker-dealers connected
with specific market-making activity.
As regards the violation-of-laws
exemption in § 151.7(i), the Part 151
Aggregation Proposal clarified that the
exemption would apply where the
sharing of information presents a
‘‘reasonable risk’’ of violating the
applicable law(s), retained the
requirement to submit an opinion of
counsel, and expanded the violation-of146 See
147 See

note 18, supra.
Proposed Rules, 77 FR at 31769, fn. 24.

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laws exemption to include state law and
the law of foreign jurisdictions.
Proposed rule 151.7(b)(1) in the Part
151 Aggregation Proposal provided that
any person with an ownership or equity
interest in an entity (financial or nonfinancial) of between 10 percent and 50
percent (inclusive) may disaggregate the
owned entity’s positions upon
demonstrating compliance with each of
several specified indicia of
independence. The proposed indicia
were that such person and the owned
entity: (1) Do not have knowledge of the
trading decisions of the other; (2) trade
pursuant to separately developed and
independent trading systems; (3) have
in place policies and procedures to
preclude sharing knowledge of, gaining
access to, or receiving data about, trades
of the other; (4) do not share employees
that control the trading decisions of the
other; and (5) maintain a risk
management system that does not allow
the sharing of trade information or
trading strategies between entities.
The Commission also proposed to
expand the exemption for the
underwriting of securities in regulation
151.7(g) to include ownership interests
acquired through the market-making
activities of an affiliated broker dealer.
The Part 151 Aggregation Proposal
proposed to exempt from aggregation
ownership interests acquired as part of
a person’s reasonable market-making
activity in the normal course of business
as a broker-dealer registered with the
SEC or comparable registration in a
foreign jurisdiction, so long as there is
no other ownership interests or indicia
of control or concerted action. The
Commission said in the Part 151
Aggregation Proposal that this
exemption would apply to ownership
interests that are likely transitory and
not for investment purposes.
Proposed rule 151.7(j) in the Part 151
Aggregation Proposal extended filing
relief to ‘‘higher-tier’’ entities—i.e.,
entities with an ownership interest in
the entity that is itself the owner of an
entity and the subject of a filing for
relief from aggregation. As such, the
proposed rule allowed higher-tier
entities to rely on exemption notices
filed by owned entities. The Part 151
Aggregation Proposal explained that
such an exemption would reduce the
burden of filing exemption notices by
eliminating redundancies.
The Commission also proposed in the
Part 151 Aggregation Proposal to amend
the IAC exemption in regulation
151.7(f), which includes commodity
pools exempt from registration under
§ 4.13 that are structured as limited
partnerships, to also encompass

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commodity pools structured as limited
liability companies.
As discussed below, the Commission
received comments on the Part 151
Aggregation Proposal.148 The
amendments now being proposed to
regulation 150.4 reflect the
Commission’s consideration of the
comments that were received on the
Part 151 Aggregation Proposal. Thus,
the discussion below covers the
amendments in the Part 151 Aggregation
Proposal and the comments on those
proposed amendments.149 The
Commission considers these comments,
discusses the current proposed
amendments to the aggregation
provisions in § 150.4, considers the
costs and benefits of the current
proposal, and evaluates the current
proposal in light of the five enumerated
factors of Section 15(a)(2) of the CEA.
3. Comments on the Part 151
Aggregation Proposal
The Commission received numerous
comments regarding the proposed
changes to the aggregation policy in
§ 151.7. This section summarizes the
issues raised in those comments
relevant to the Commission’s
considerations of costs and benefits; a
more thorough discussion of comments
relating to each provision of the Part 151
Aggregation Proposal can be found in
section II of this release.
The proposed owned-entity
exemption and its attendant indicia of
independence was a topic in the
majority of comments. Several
commenters requested the Commission
extend the owned entity exemption to a
person with a greater than 50 percent
ownership in the owned entity, so long
as the person and the owned entity can
both demonstrate independence.150
These commenters generally objected to
the 50 percent ceiling on the grounds
that ownership above 50 percent is
potentially indicative of control but
does not equate to control, and that
ownership of an entity regardless of
control over that entity is not an
appropriate measure to determine
aggregation.151 Some commenters
asserted that the ‘‘bright-line test’’ of 50
148 The written comments are available on the
Commission’s Web site at http://comments.cftc.gov/
PublicComments/CommentList.aspx?id=1208.
149 For additional background on part 150 and
part 151 and the existing provisions for aggregation,
see the Part 151 Aggregation Proposal.
150 CL–ABC, CL–AGA, CL–AIMA, CL–API, CL–
Barclays, CL–CMC, CL–COPE, CL–EEI, CL–FIA,
CL–Iberdrola, CL–ISDA/SIFMA, CL–MFA, CL–
WGCEF.
151 CL–AGA, CL–MFA, CL–PEGCC, CL–WGCEF,
CL–API, CL–Atmos, CL–CMC, CL–Chamber, CL–
EEI.

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emcdonald on DSK67QTVN1PROD with PROPOSALS2

percent ownership is arbitrary.152
Another claimed that passive ownership
poses little risk of coordinated trading
and that requiring aggregation even
when management and trading are
independent inhibits legitimate
commercial activity.153 Some
commenters expressed concern that the
aggregation standards may require
information sharing and coordination
between entities that had previously
constructed barriers to preclude such
activity, and that relaxing those barriers
to comply with aggregation standards
may create antitrust concerns.154
Conversely, other commenters
expressed support for the Commission’s
proposed 50 percent ceiling as
reasonable and appropriate.155 Two
commenters suggested that the
Commission should not expand the
exemption for owned entities.156
Commenters presented several
alternatives to the 50 percent threshold.
Some commenters suggested that
ownership over 50 percent should
create a ‘‘rebuttable presumption,’’
requiring entities to demonstrate why
ownership above that threshold does
not result in trading control or
information sharing.157 Others
supported disaggregation relief for an
entity with greater than 50 percent
ownership only in circumstances in
which the Commission had specifically
approved a request for relief.158 One
commenter requested an exemption
specifically for private equity
investment funds that meet certain
criteria.159 Another requested an
exemption for pension plans to free
them from aggregating a plan sponsor’s
corporate positions with the plan’s
positions given that pension plan
managers are subject to fiduciary
responsibilities to the plans they
manage.160 In lieu of a new rule on
owned entities, one commenter urged
the Commission to rely on Form 40
reports and raise the presumptive
control standard to 50 percent instead of
10 percent, thus never requiring
aggregation below 50 percent
ownership.161
Commenters also expressed concerns
about the costs associated with the
owned-entity exemption—in particular,
the direct and indirect costs of the 50
152 CL–AGA,

CL–API, CL–COPE.

153 CL–FIA.

CL–CMC, CL–COPE.
Markets, Chris Barnard on June 21,
2012 (‘‘CL–Barnard’’).
156 CL–IAMAW, CL–IATP.
157 CL–ISDA/SIFMA, CL–WGCEF, CL–PEGCC.
158 CL–AIMA, CL–API, CL–Atmos, CL–MFA.
159 CL–PEGCC.
160 CL–ABC.
161 CL–Barclays.

percent ‘‘ceiling’’ for disaggregation
imposed by § 151.7(b)(1)(ii). Several
noted that developing a system to
coordinate trading among aggregated
entities will be costly for market
participants.162 One commenter said it
would be costly to implement a system
to monitor when ownership of an entity
exceeds 10 percent.163
More specifically, two commenters
said that the rules would require entities
that are currently operated and managed
separately, but who have common
upstream ownership greater than 50
percent, to implement information
sharing systems solely to comply with
the Commission’s position limits
regime. These commenters noted that
these systems would be costly to
implement without providing a
corresponding benefit because these
entities are not currently operating in
concert.164 Similarly, another
commenter said that aggregation is
impractical for commercial entities
engaged in independent operations
under common ownership and may put
such entities at a competitive
disadvantage.165 Another commenter
noted that automatic aggregation at 50
percent would require sophisticated
information controls and expensive
trade monitoring systems.166
Commenters also stated concerns
about costs of complying with the 50
percent ‘‘ceiling’’ for private funds and
pension plans. One commenter noted
that private funds would need entirely
new (and costly) programs to monitor,
allocate, and coordinate trading across
portfolio companies though the fund
company was not previously involved
in trading.167 Another commenter had
the same concern regarding the costs
incurred by pension plans, which do
not currently collect position or trading
information from owned collective
investment vehicles, to monitor
positions in real-time across potentially
hundreds of these vehicles.168
Commenters were also concerned that
the automatic aggregation at 50 percent
would lead to indirect costs by
unnecessarily limiting hedging, because
commonly owned companies will have
to remain below position limits unless
a bona fide hedging exemption is
available.169 Commenters were also
concerned about potential impacts on
investment in other entities; one opined

154 CL–WGCEF,
155 CL–Better

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that the rules would discourage
investment because owners would have
to be more deeply involved in the
operations of owned companies,
including by overseeing trading.170 One
commenter said that automatic
aggregation at 50 percent would hinder
management and could limit jointventure formation.171
Commenters also weighed in on the
other aspects of the Commission’s
proposed rules. Regarding the filing of
exemptions, one commenter noted that
the Commission’s estimated costs of
aggregation filings appeared to be
correct. This commenter also disputed
the validity of the Working Group’s
‘‘fear of vast new information
infrastructure’’ and said that entities
affected by the provisions will have the
resources to apply for and receive the
proposed exemptions from
aggregation.172
Regarding the violation-of-laws
exemption, several commenters
generally expressed support for the
‘‘reasonable risk’’ of violation
standard,173 and the proposed
exemption for federal, state, or foreign
laws.174 One commenter expressed that
the exemption should be limited to
violations of federal law, and that
exemption from aggregation for
potential violations is impractical and
should not be allowed.175 Further, some
commenters opined that a memorandum
of law, prepared by internal, as opposed
to outside, counsel, should suffice,
thereby mitigating outside legal fees.176
Another commenter noted it had no
objection to the proposed opinion of
counsel requirement,177 while others
expressed support for the requirement
as proposed, on grounds that
aggregation relief should be available in
only the most clear-cut cases.178
Some commenters asserted that
aggregation should be applied on a prorata basis to avoid the double-counting
of positions and a potential limit on
trading that may affect liquidity.179 One
commenter said that the aggregation
requirements would cause pension
plans to reconsider investing in
collective investment vehicles. This
commenter also maintained that the
current federal position limits regime
has had little effect on commodity pools
170 CL–CMC,

CL–Chamber.

171 CL–WGCEF.
172 CL–IATP.

162 CL–API,

CL–Chamber, CL–CMC.
163 CL–Barclays.
164 CL–COPE, CL–Iberdrola.
165 CL–Chamber.
166 CL–WGCEF.
167 CL–PEGCC.
168 CL–ABC.
169 CL–API, CL–Chamber, CL–PEGCC.

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173 CL–EEI,

CL–FIA.

174 CL–ISDA/SIFMA.
175 CL–IATP.
176 CL–API, CL–EEI, CL–FIA, CL–ISDA/SIFMA,
CL–PEGCC, CL–WGCEF.
177 CL–Atmos.
178 CL–Better Markets, CL–IATP.
179 CL–ABC, CL–Barclays, CL–FIA.

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because position limits were imposed
on only nine agricultural products.180
One commenter noted that the Part
151 Aggregation Proposal to allow
higher-tier entities to rely on filings by
subsidiaries strikes an appropriate cost
balance.181 Another commenter
expressed support for the alternative of
a single aggregate notice filing, that
filing should be effective retroactively,
and that sister affiliates of the filing
entity should be able to rely on the
filing.182

emcdonald on DSK67QTVN1PROD with PROPOSALS2

4. The Proposed Amendments to Part
150
a. Aggregation of Positions in Owned
Entities
The Commission is proposing two
exemptions concerning the aggregation
of positions in owned entities. First, as
proposed in the Part 151 Aggregation
Proposal, the Commission is proposing
to allow a person to disaggregate the
positions of an owned entity provided
such person demonstrates compliance
with the conditions of the exemption.
Such conditions include ownership of
less that 50 percent of the owned entity,
independent trading systems,
prohibition of the sharing of trading
knowledge between the entities, and the
other criteria found in proposed
regulations 150.4(b)(2)(i)(A–E). Second,
the Commission is proposing to allow
persons with a greater than 50 percent
ownership interest to apply for relief in
accordance with proposed regulation
150.4(b)(3), subject to the conditions of
that section and the approval of the
Commission or its delegate.
As noted above and in the Part 151
Aggregation Proposal, the Commission’s
general policy on aggregation is derived
from CEA Section 4a(a)(1), which
directs the Commission to aggregate
positions based on separate
considerations of ownership, control, or
persons acting pursuant to an express or
implied agreement. The Commission’s
historical approach to its statutory
aggregation obligation has thus included
both ownership and control factors in a
manner designed to prevent evasion of
prescribed position limits. The
Commission continues to believe that
ownership of an entity is an appropriate
criterion for aggregation of that entity’s
positions.
Some commenters on the Part 151
Aggregation Proposal opposed the
requirement that a person own 50
percent or less of another entity in order
to obtain relief from the aggregation
requirement, asserting that an
180 CL–ABC.
181 CL–IATP.
182 CL–FIA.

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ownership stake of greater than 50
percent does not necessarily indicate
control. However, as explained in part
II.B.3. above, this requirement of 50
percent or less ownership is in line with
the language in CEA section 4a, the
legislative history of that section,
subsequent regulatory developments,
and the Commission’s historical
practices in this regard. Moreover, the
ability for persons owning 50 percent or
less of another entity (subject to
establishing the indicia of
independence) to disaggregate the
positions of the owned entity would
substantially liberalize the
Commission’s approach to aggregation
for position limits. The Commission
does not consider this ceiling on
disaggregation to be arbitrary; rather,
ownership above 50 percent of an entity
is a level at which there is a strong
likelihood that a person would be able
to use its ownership interest to directly
or indirectly influence the owned
entity’s accounts or positions. As noted
above, 50 percent ownership is a
standard used by other government
agencies and reflects a general
understanding that greater than 50
percent ownership level poses
substantial potential for direct or
indirect control over an owned entity.
Accordingly, the Commission views the
50 percent ceiling to be a reasonable
outer limit in most cases on the general
availability of aggregation exemptions,
even for passively-owned entities.
However, the Commission recognizes
that in certain specific circumstances it
may be appropriate to allow exemptions
from aggregation of an owned entity’s
positions, even at greater than 50
percent ownership. In particular, the
Commission notes that while, in many
instances, ownership of more than 50
percent of an entity requires the owner
to consolidate the financial statements
of the owned entity, consolidation is not
always required. Thus, as discussed in
more detail in section II.B3.b of this
release, the proposed amendments to
part 150 include a provision for a
person with more than 50 percent
ownership of an owned entity, but that
does not consolidate that entity in its
financial statements, to apply to the
Commission for aggregation relief on a
case-by-case basis, provided the
applicant can demonstrate adherence to
stringent indicia of independence.
Notwithstanding that it represents a
relaxation from historical practice, the
Commission believes that allowing caseby-case applications for disaggregation
addresses commenters’ concerns
without jeopardizing the effectiveness of

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the Commission’s position limits
regime.
The Commission expects no material
negative effects on market quality as a
result of the proposed relief from
aggregation that would be available to
persons that hold ownership interests in
other entities. The Commission does not
believe that a material reduction in
hedging will result from the proposed
requirement that, to obtain relief from
aggregation based on notice only, a
person must own 50 percent or less of
an entity, because hedge exemptions
would be available to any entity
regardless of position aggregation. In
addition, the proposed aggregation
exemptions are more permissive than
the 10 percent threshold currently
applied. Impacts from the proposed
regulations on investment activity
where the investor desires a passive
interest should also be minor, as these
proposed regulations permit a passive
investor to have a larger ownership
interest and still claim an exemption
from aggregation. As noted above, prior
rules required aggregation at a 10
percent ownership level, so these
proposed regulations allowing for relief
from aggregation at higher ownership
levels should lower the overall impact
of aggregation on market quality factors.
The Commission requests comment
on its proposed amendments to
regulation 150.4. Are there other
potential impacts on market quality
factors that the Commission should
consider? What costs and benefits may
attend the proposed owned entity
exemptions in proposed regulations
150.4(b)(2) and 150.4(b)(3) that the
Commission should consider?
b. Consideration of Alternative
Approaches to Aggregation of Positions
in Owned Entities
The Commission believes that the
approach reflected in these proposed
regulations—a bright-line ceiling on the
availability of notice relief from
aggregation at 50 percent ownership,
with the potential for case-by-case relief
in appropriate circumstances—is
preferable to the various alternatives
suggested by commenters for a variety of
reasons.
Several commenters to the Part 151
Aggregation Proposal suggested that the
aggregation requirements should be
loosened further than was proposed by
allowing persons with a more than 50
percent ownership interest in another
entity to obtain relief from aggregation
by demonstrating independent trading
by the two entities. While this approach
would make relief from the aggregation
requirements available to more entities
in more different situations, the

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Federal Register / Vol. 78, No. 221 / Friday, November 15, 2013 / Proposed Rules
Commission believes, as noted above,
that CEA Section 4a(a)(1) requires the
aggregation of positions of an owned
entity and that a 50 percent ownership
interest is a reasonable indicator that a
person is the owner of an entity and
therefore aggregation should be
required. The Commission notes that
the proposed amendments to regulation
150.4 would allow an entity with a more
than 50 percent ownership interest in
another entity to apply for relief from
the aggregation requirement on a caseby-case basis if it meets the other
conditions in regulation 150.4(b)(3).
Through an exemption application,
such entities may be able to rebut the
presumption that greater than 50
percent ownership results in trading
control or information sharing; however,
the Commission does not believe it is
appropriate to grant such entities a
broader exemption based only on a
notice filing, because of the importance
of the ownership standard in the statute
as described above. The Commission
has not proposed the commenters’
alternative because, while to loosen the
standards as requested might lower
immediate compliance burdens, the
Commission believes it would also
lessen the effectiveness of the position
limits regime.
Another commenter on the Part 151
Aggregation Proposal urged that the
Commission not require aggregation of
positions and instead rely on
information reported on Form 40.
However, the Commission notes that not
necessarily all subsidiaries file those
reports, and in any case the Commission
believes that effective and efficient
compliance with position limit
regulations, including compliance with
aggregation requirements, is better
served when it is primarily the
responsibility of each market
participant. The Commission believes
that each entity can track its own
compliance more efficiently compared
to the Commission tracking the
compliance of all the market
participants involved; thus, the
Commission does not endorse the
shifting of the compliance burden from
large traders to the Commission. For
these reasons, the Commission believes
that this proposed alternative does not
have advantages that would justify its
acceptance, and instead it could
potentially impede compliance with the
position limits regime.
The Commission believes that
aggregation on a pro-rata basis, as
suggested by some commenters, would
be administratively burdensome for
both owners of financial interests and
the Commission. For example, since the
level of financial interest in a particular

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company may change over time, it
would be burdensome to determine and
monitor the appropriate pro rata
allocation on a daily basis. Moreover, a
pro rata approach would be inconsistent
with the Commission’s historical
requirement of aggregation of all the
relevant positions of owned entities,
absent an exemption. This is consistent
with the view that a holder of a
significant ownership interest in
another entity may have the ability to
influence all the trading decisions of
that entity in which such ownership
interest is held. For these reasons, the
Commission declines to propose
amending the policy in § 150.4 to
require a pro-rata aggregation of
positions.
c. Other § 150.4 Exemptive Relief
The Commission is proposing the
violation-of-laws exemption largely as
previously adopted in part 151 with the
proposed changes in the Part 151
Aggregation Proposal, with one
amendment. The Commission has
proposed the alternative posed by
commenters to allow a memorandum of
law, which can be prepared by internal
counsel, to satisfy the requirement that
the applicant explain the potential for a
violation of law. This requirement is
intended to provide the Commission
with the ability to review the legal basis
for the asserted regulatory impediment
to the sharing of information,
particularly where the asserted
impediment arises from laws and/or
regulations that the Commission does
not directly administer; to consult with
other federal regulators as to the
accuracy of the opinion; and to
coordinate the development of rules
surrounding information sharing and
aggregation across accounts in the
future. The Commission believes that a
memorandum of law prepared by
internal counsel could provide the
information and legal analysis to
accomplish these goals, and a formal
opinion of counsel is not required.
Thus, the proposed amendments to part
150 include the requirement suggested
by commenters on the Part 151
Aggregation Proposal.
The Commission requests comment as
to the costs and benefits of proposed
rule 150.4(b)(8). In particular, the
Commission requests comment as to the
relative costs and benefits of requiring a
written memorandum of law, rather
than an opinion of counsel, regarding
the reasonable risk of a violation of law.
Regarding higher-tier entities, the
Commission is proposing regulation
150.4(b)(9), which is identical to
previously proposed regulation 151.7(j).
The exemption in proposed regulation

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150.4(b)(9) would allow higher-tier
entities to rely on exemption notices
filed by the owned entity, with respect
to the accounts or positions specifically
identified in the notice. In response to
the suggestion of one Part 151
Aggregation Proposal commenter that
aggregate notice filings should be
permitted, the Commission notes, as
discussed above, that entities would be
able to utilize the exemption in the
manner most efficient for their
enterprise. However, the Commission is
not persuaded by the commenter’s
assertion that the filing should be
permitted to be effective retroactively,
because retroactive application would
result in administrative difficulty in
monitoring the scope of exemptions
from aggregation and negatively affect
the Commission staff’s surveillance
efforts.
The Commission is also proposing
exemptions for underwriting activity in
proposed regulation 150.4(b)(6) and for
broker dealer activity in proposed
regulation 150.4(b)(7). The Commission
believes that such activity may present
less of a risk of coordinated trading
because in both circumstances, the
ownership interest is likely transitory
and not held for investment purposes.
Finally, consistent with the approach
taken in 151.7(d), proposed rule
150.4(d) will require aggregation of
investments in accounts with
substantially identical trading strategies.
5. Costs and Benefits
In the Part 151 Aggregation Proposal,
the Commission stated its goal in
proposing to amend the aggregation
provisions of part 151:
It is the Commission’s goal that this
proposal uphold part 151’s regulatory aims
without diminishing its effectiveness. In so
doing, the Commission adheres to its belief
that aggregation represents a key element to
prevent evasion of prescribed position limits
and that its historical approach towards
aggregation—one that appropriately blends
consideration of ownership and control
indicia—remains sound.’’ 183

Similarly, in proposing these
amendments to part 150, the
Commission aims to achieve an
appropriate balance between reducing
costs for market participants and
maintaining the effectiveness of part
150’s regulatory objectives. The
Commission believes that the
regulations proposed herein would
contribute to that goal by maintaining
the Commission’s historical approach to
aggregation while simultaneously
updating that approach with thoughtful
exemptions that relieve the burdens of
183 77

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aggregation for those market
participants who can demonstrate
compliance with certain criteria and
who choose to avail themselves of the
exemptions—without undermining the
effectiveness of the Commission’s
position limits regime.
In adopting the now-vacated part 151,
the Commission noted that the
amendments to regulation 151.7 largely
tracked regulation 150.4 and therefore
reflected continuity in the position
limits regime. In this release, the
Commission is proposing to provide the
same exemptions that it had provided in
regulation 151.7, along with the
additional exemptions proposed in the
Part 151 Aggregation Proposal, with
some changes to reflect the views of
commenters on that release.184
Using existing part 150 as the
standard for comparison, the
Commission will consider the
incremental costs and benefits that arise
from these proposed amendments. That
is, if these proposed regulations are not
adopted, the aggregation standards that
would apply would be those described
in regulation 150.4 as it currently exists.
Although the Commission anticipates
certain costs as a result of the proposed
regulations—including a greater number
of entities preparing and filing notices
and memoranda of law, among other
costs, since the availability of relief from
aggregation has been expanded—the
Commission believes that the
regulations proposed herein, on a net
basis, would cause market participants
that use the exemptions in the
regulations to incur a smaller burden as
compared to the burden they would
have incurred under regulation 150.4.

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a. Costs
There are a myriad of ways a market
participant could conceivably ensure
proper compliance with the proposed
amendments to regulation 150.4,
depending on the particular
circumstances of each market
participant. In general, however, the
Commission anticipates that entities
184 In regulation 151.7, the Commission added a
requirement that accounts trading pursuant to
identical trading strategies be aggregated. The
Commission also provided exemptions for the
underwriters of securities and for instances in
which the sharing of information between persons
would cause either person to violate federal law or
regulations adopted thereunder. The Commission
proposed in the Part 151 Aggregation Proposal to
extend the violation-of-laws exemption to include
state law and the laws of a foreign jurisdiction; to
include an exemption for broker-dealers engaged in
market-making activity; to allow higher-tier entities
to file notices on behalf of lower-tier entities; to
expand the applicability of the IAC exemption to
include limited liability companies; and to provide
a limited exemption for entities owning greater than
10 but less than 50 percent of another entity.

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who wish to take advantage of the
exemptions in proposed regulation
150.4 will incur direct costs associated
with the following: (1) Developing a
system for aggregating positions across
owned entities; (2) initially determining
which owned entities, other persons, or
transactions qualify for any of the
exemptions in regulation 150.4; (3)
developing and maintaining some
system of determining the scope of such
exemptions over time; (4) potentially
amending current operational structures
to achieve eligibility for such
exemptions; and (5) preparing and filing
notices of exemption with the
Commission, including memoranda of
law if claiming the violation-of-laws
exemption.185
To a large extent, market participants
have incurred many of these costs to
comply with existing regulation 150.4.
For example, market participants that
are affected by the existing aggregation
requirement should already have a
system in place for aggregating positions
across owned entities. This rulemaking
does not increase the costs of complying
with the basic aggregation requirements
of part 150, and in fact may decrease
those costs by providing for relief from
the aggregation requirements in certain
situations. Because the Commission and
DCMs generally have required
aggregation of positions starting at a 10
percent ownership threshold under the
current regulatory requirements of part
150 and the acceptable practice found in
the prior version of part 38, the
Commission expects that market
participants active on DCMs have
developed systems of aggregating
positions across owned entities.186
Thus, the main direct costs associated
with the proposed amendments to
regulation 150.4, relative to the standard
of existing regulation150.4, would be
those incurred by entities as they
determine whether they may be eligible
185 The Commission notes that direct costs
associated with how a particular entity aggregates
its positions would be dependent upon that entity’s
individual ownership structure, how and why the
entity chooses to avail themselves of any particular
exemption, and the methods employed by the entity
to ensure compliance. Thus, as noted in the Part
151 Aggregation Proposal, costs relating to this rule
are highly entity-specific; actual costs may be
higher or lower than the Commission can anticipate
accurately.
186 The 10 percent threshold has been in place for
the nine agricultural contracts with federal limits
for decades, and for other contracts where limits
were imposed by DCMs and enforced by the
Commission. See supra, note 39 (citing to the
statement of policy on aggregation issued in 1979,
where the Commission codified its view, that,
except in certain limited circumstances, a financial
interest in an account at or above 10 percent ‘‘will
constitute the trader as an account owner for
aggregation purposes.’’ 44 FR 33839, 33843, June
13, 1979).

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for the proposed exemptions, and as
they make subsequent filings required
by the exemptions. For example, the
Commission recognizes that there may
be costs to market participants to adapt
their systems in order to allow such
systems to be used to determine
whether persons qualify for the
exemptions from the aggregation
requirement proposed herein. Some
entities may also incur direct costs to
modify existing operational
procedures—such as firewalls and
reporting schemes—in order to be
eligible to claim an exemption.
The Commission does not believe that
these proposed regulations would result
in material indirect costs to market
participants or the public. For market
participants, these proposed regulations
provide for relief in certain
circumstances from the requirement to
aggregate positions. For the public, the
Commission believes that these
proposed regulations appropriately
balance the need for exemptions from
aggregation in certain circumstances
with the public interest in maintaining
the effectiveness of the Commission’s
position limits regime.
The direct costs of the proposed
regulations are impracticable to quantify
in the aggregate because such costs are
heavily dependent on the characteristics
of each entity’s current systems, its
corporate structure, its use of
derivatives, the specific modifications it
would implement in order to qualify for
an exemption, and other circumstances.
However, the Commission believes that
market participants would choose to
incur the costs of qualifying for and
using the exemptions in the proposed
regulations only if doing so is less costly
than complying with the position limits.
Thus, by providing these market
participants with a lower cost
alternative (i.e., qualifying for and using
the exemptions) the proposed
regulations may ease the overall
compliance burden resulting from
position limits, for it is reasonable to
assume that no entity will elect the
exemption if the benefits of doing so do
not justify the costs. Accordingly, the
Commission anticipates that
notwithstanding the additional costs of
determining eligibility and filing
exemptions, the net result of the
proposed rules for impacted market
participants would be a reduction in
costs as compared to the current
standard in regulation 150.4.
In the Part 151 Aggregation Proposal,
the Commission requested ‘‘that
commenters submit data from which the
Commission can consider and quantify
the costs of the proposed rules’’ because
it recognized that ‘‘costs associated with

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the aggregation of positions are highly
variable and entity-specific.’’ No
commenter on that rule provided data,
leaving the Commission without
additional data or another basis to
quantify the incremental direct costs to
determine eligibility and file for
exemptions beyond those previously
estimated by the Commission.
One commenter asserted that the
compliance with the rules would cost in
excess of the $5.9 million estimate
stated in the Part 151 Aggregation
Proposal; however, the Commission
notes that this comment relates to an
estimate of costs relating to now-vacated
regulation 151.7 and not the costs
relating to the proposed rules in this
release. Another commenter, without
providing estimates, described a list of
costs that could be incurred by each
affected entity, including: (1) Evaluating
its business structure and determine
whether or not it qualifies for
disaggregation relief; (2) planning for
being compelled to aggregate should
corporate structure change; (3)
designing, testing, and implementing
systems to aggregate positions across
multiple entities across jurisdictions to
ensure intraday compliance with
position limits; and (4) incurring the ‘‘as
yet unknown and ongoing cost of
complying’’ with the proposed rules.
The Commission again notes that
entities who have been transacting in
futures markets have been subject to
these aggregation requirements for
decades, and should have means of
aggregating positions across multiple
owned entities.
Some of the costs mentioned above
likely relate to the imposition of the
Commission’s aggregation provision on
swaps contracts as well as on the
additional contract markets that would
have been subject to federal position
limits under the now-vacated part 151.
Although part 151 is no longer in effect,
the Commission has proposed, in
accordance with the Dodd-Frank Act
revisions to CEA section 4a,
amendments to part 150 that would,
among other things: expand the number
of contract markets subject to federal
position limits; impose speculative
limits on swaps contracts; and require
exchanges to conform their aggregation
policies to the Commission’s
aggregation policy in § 150.4.187 That
proposed rulemaking thus may have
significant implications for the
Commission’s considerations of costs
and benefits of the instant proposal.
Should that rule be adopted as
proposed, the aggregation policies
187 See

Position Limits for Derivatives (November

5, 2013).

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proposed herein would apply on a
federal level to commodity derivative
contracts, including swaps, based on an
additional 19 commodities. This
expansion may create additional
compliance costs for futures market
participants, who would have to expand
current procedures for aggregating
futures positions in order to include
swaps positions, as well as for swaps
market participants, who would be
required to develop a system to comply
with aggregation policies or expand
already existing policies and procedures
to incorporate the aggregation rules.
Further, should the other proposed
rulemaking be adopted as proposed,
exchanges would be required to
conform their aggregation policies to the
Commission’s aggregation policy. As
such, all contracts with speculative
position limits, including exempt
commodity contracts, would utilize the
Commission’s aggregation policy,
including the amendments to that
policy proposed in this rulemaking.
Until and unless that proposal is
finalized by the Commission, part 150
applies to only the nine contracts
enumerated in current § 150.2; in that
case, the Commission believes that
many of the costs described by
commenters would be substantially less
than previously estimated. The
Commission requests that commenters
submit data from which the
Commission can quantify the costs of
the proposed rules amending § 150.4.
The Commission also requests that
commenters provide data that would
help the Commission to compare the
potential cost implications of the instant
proposal in the event that the other
amendments to part 150 are adopted to
the potential cost implications in the
event that they are not.
The Commission understands that the
additional exemptions proposed herein
may create additional costs to file the
proper exemptive notices in accordance
with regulations 150.4(c) and 150.4(d).
However, the exemptions are elective,
so no entity is required to make this
filing if that entity determines the costs
of doing so do not justify the potential
benefit resulting from the exemption.
Thus, the Commission does not
anticipate the costs of obtaining any of
the exemptions to be overly
burdensome. Nor does the Commission
anticipate the costs would be so great as
to discourage entities from utilizing
available exemptions, as applicable.
In accordance with the Paperwork
Reduction Act (PRA) the Commission
has estimated the costs of the paperwork
required to claim the proposed
exemptions. As stated in the PRA
section of this release, the Commission

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68971

estimates that 240 entities will submit a
total of 340 responses per year and incur
a total burden of 7,100 labor hours at a
cost of approximately $852,000
annually in order to claim exemptive
relief under regulation 150.4.188 This
burden includes a recounting of the
estimates included in the final
regulations promulgating now vacated
part 151, as those exemptions are being
re-proposed in part 150; however, the
estimates have been reduced from that
rulemaking because of the relatively
smaller sphere of impact for part 150 as
compared to part 151. That is, as part
151 extended federal position limits to
swap contracts, the impact of that rule
was broader than the impact anticipated
for the proposed regulations herein.
Should the proposed amendments to
other sections of part 150 be adopted,
the Commission anticipates the PRA
burden would increase accordingly.
The Commission requests comment
on its consideration of the costs
imposed by the proposed regulations.
Are there other direct or indirect costs
that the Commissions should consider?
Has the Commission accurately
characterized the nature of the costs to
be incurred? Commenters are
specifically encouraged to submit both
qualitative and quantitative estimates of
the potential costs associated with the
proposed changes to § 150.4, as well as
data or other information to support
such estimates.
b. Benefits
As discussed above, the Commission’s
goal in proposing amendments to its
aggregation policy in regulation 151.7
was to reduce costs for market
participants without jeopardizing the
effectiveness of its aggregation policy
and by extension its position limits
regime. Similarly, the Commission
believes that the proposed amendments
to regulation 150.4 would help to realize
that goal, essentially benefiting both
market participants (through lower
costs) and the market at large (through
an effective position limits regime).
The Commission continues to view
aggregation as an essential part of its
position limits regime. The proposed
regulations include exemptions from the
aggregation policy, the purpose of
which is to prevent evasion of position
limits through coordinated trading. The
Commission believes that because the
proposed exemptions would require
demonstration of eligibility and
qualification for an entity to take
advantage of them, only those entities
188 See Section III.B of this release for a more
detailed summary of the Commission’s PRA burden
estimates.

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whose activities impose a lesser risk of
coordinated trading would be exempted
from the aggregation requirements. In
this way, the Commission believes that
the exemptions that would be available
through these proposed regulations
would not inhibit the effectiveness of
the Commission’s aggregation policy in
particular or position limits regime in
general.
However, for those entities who
represent a lesser risk of coordinated
trading—as demonstrated by their
eligibility to obtain an applicable
exemption—the proposed rule
represents a benefit in the form of lower
costs of complying with the
Commission’s position limits regime
while preserving the important
protections of the existing aggregation
policy. Based on the comments received
on the part 151 Aggregation Proposal,
the Commission has attempted where
possible to minimize the regulatory
burden of applying for the exemption—
for example, allowing a memorandum of
law prepared by internal counsel
instead of a formal opinion—to increase
the net benefits available to market
participants. The Commission also
proposed an avenue for certain entities
to apply for relief on a case-by-case
basis, providing additional flexibility for
market participants.
The Commission requests comment
on its considerations of the benefits of
the proposed rules. Are there other
benefits to markets, market participants,
and/or the public that the Commission
should consider? Commenters are
specifically encouraged to include both
quantitative and qualitative assessments
of the potential benefits of the proposed
regulations in § 150.4, as well as data or
other information to support such
assessments.

a. Protection of Market Participants and
the Public

6. Section 15(a) Considerations

b. Efficiency, Competition, and
Financial Integrity of Markets

As the Commission has long held,
position limits are an important
regulatory tool that is designed to
prevent concentrated positions of
sufficient size to manipulate or disrupt
markets. The aggregation of accounts for
purposes of applying position limits
represents an integral component that
impacts the effectiveness of those limits.
The rules proposed herein would
amend the Commission’s longstanding
aggregation policy to introduce certain
exemptions. The Commission believes
these proposed regulations would
preserve the important protections of
the existing aggregation policy, but at a
lower cost for market participants.

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The Commission believes these
proposed rules would not materially
affect the level of protection of market
participants and the public provided by
the aggregation policy reflected
currently in regulation 150.4. Given that
the account aggregation standards are
necessary to implement an effective
position limit regime, it is important
that the exemptions proposed herein be
sufficiently tailored to exempt from
aggregation only those accounts that
pose a low risk of coordinated trading.
The owned-entity exemption would
maintain the Commission’s historical
presumption threshold of 10 percent
ownership or equity interest and make
that presumption rebuttable only where
several conditions indicative of
independence are met. This proposed
exemption focuses on the conditions
that impact trading independence. In
addition, by providing an avenue to
apply for relief when ownership is
greater than 50 percent of the owned
entity, the proposed rules would allow
market participants greater flexibility in
meeting the requirements of the position
limits regulations, provided they are
eligible to apply. The Commission
believes that these proposed exemptions
would allow the Commission to direct
its resources to monitoring those entities
that pose a higher risk of coordinated
trading and thus a higher risk of
circumventing position limits, without
reducing the protection of market
participants and the public that the
Commission’s aggregation policy
affords.
The Commission believes the
proposed exemptions would reduce
costs for market participants without
compromising the integrity or
effectiveness of the Commission’s
aggregation policy.

As discussed above, the Commission
does not believe that the proposed
regulations would negatively impact
market quality indicators, such as
liquidity or incentive for investment, to
the detriment of the efficiency,
competitiveness, or integrity of
derivatives markets. Rather, the
Commission believes that these
proposed regulations would balance
appropriately the need to preserve
account aggregation as a tool to uphold
the integrity of the part 151 position
limit regime, while also providing for
relief from the aggregation requirements
where they are not necessary to prevent
coordinated speculative trading. The

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Commission expects the proposed rules
to further the Commission’s mission to
deter and prevent manipulative
behavior while maintaining sufficient
liquidity for hedging activity and
protecting the price discovery process.
Prior rules required aggregation at a 10
percent ownership level, so these
regulations, which propose relief from
aggregation at higher ownership levels,
should lower the overall impact of
aggregation on market quality factors
without imposing unnecessary or
inappropriate restrictions on trading.
c. Price Discovery
Similarly, because the Commission
has structured the exemptions in these
proposed regulations to maintain the
effectiveness of the position limits
regime in part 150, the Commission
believes that these rules would not
impact the price discovery process,
which the position limit regime
(including the account aggregation
provisions in regulation 150.4) is
designed to protect. Because the
exemptions in and of themselves do not
directly impact the formation of
prices—only the aggregation of
positions—the rules would not impact
the price discovery process.
d. Risk Management
The Commission has stated
previously that the imposition of
position limits requires market
participants to ensure they do not amass
positions of sufficient size to disrupt the
orderly flow of the market or to
influence unduly the formation of
prices. In so doing, market participants
protect themselves—and the market as a
whole—from the disruption that such
large positions could cause, when
traded improperly.189 The proposed
rules would allow entities to not
aggregate positions in circumstances
where the Commission has determined
that the positions are at a lesser risk of
disrupting the market through the
coordinated trading of affiliated entities.
Thus, the Commission believes these
rules, if adopted, would not lessen the
effectiveness of the sound risk
management practices that the position
limits regime promotes. The
Commission does not expect the
proposed regulations to materially
inhibit the use of derivatives for
hedging, because hedge exemptions are
available to any entity regardless of
position aggregation and the proposed
regulations would be more permissive
than the 10 percent threshold for
189 76

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aggregation that applied in existing
regulation 150.4.

comments on the RFA in relation to the
proposed rulemaking.

e. Other Public Interest Considerations

C. Paperwork Reduction Act

The Commission has not identified
any other public interest considerations
related to the costs and benefits of the
rules.

1. Overview
The Paperwork Reduction Act
(‘‘PRA’’) imposes certain requirements
on Federal agencies in connection with
their conducting or sponsoring any
collection of information as defined by
the PRA. An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless it displays a currently valid
control number issued by the Office of
Management and Budget (‘‘OMB’’).
Certain provisions of the proposed
regulations would result in amendments
to a previously-approved collection of
information requirements within the
meaning of the PRA. Therefore, the
Commission is submitting to OMB for
review in accordance with 44 U.S.C.
3507(d) and 5 CFR 1320.11 the
information collection requirements
proposed in this rulemaking proposal as
an amendment to the previouslyapproved collection associated with
OMB control number 3038–0013.
If adopted, responses to this
collection of information would be
mandatory. The Commission will
protect proprietary information
according to the Freedom of Information
Act and 17 CFR part 145, headed
‘‘Commission Records and
Information.’’ In addition, the
Commission emphasizes that section
8(a)(1) of the Act strictly prohibits the
Commission, unless specifically
authorized by the Act, from making
public ‘‘data and information that
would separately disclose the business
transactions or market positions of any
person and trade secrets or names of
customers.’’ The Commission also is
required to protect certain information
contained in a government system of
records pursuant to the Privacy Act of
1974. In January of 2012, the
Commission received a petition
requesting relief under section 4a(a)(7)
of the CEA and clarification of certain
aggregation requirements in regulation
151.7.
On May 30, 2012, the Commission
published in the Federal Register a
notice of proposed modifications to part
151 of the Commission’s regulations.
The modifications addressed the policy
for aggregation under the Commission’s
position limits regime for 28 exempt
and agricultural commodity futures and
options contracts and the physical
commodity swaps that are economically
equivalent to such contracts. In an
Order dated September 28, 2012, the
District Court for the District of

B. Regulatory Flexibility Act
The Regulatory Flexibility Act
(‘‘RFA’’) requires that agencies consider
whether the rules they propose will
have a significant economic impact on
a substantial number of small entities
and, if so, provide a regulatory
flexibility analysis respecting the
impact.190 A regulatory flexibility
analysis or certification typically is
required for ‘‘any rule for which the
agency publishes a general notice of
proposed rulemaking pursuant to’’ the
notice-and-comment provisions of the
Administrative Procedure Act, 5 U.S.C.
553(b).191 The requirements related to
the proposed amendments fall mainly
on registered entities, exchanges, FCMs,
swap dealers, clearing members, foreign
brokers, and large traders. The
Commission has previously determined
that registered DCMs, FCMs, swap
dealers, major swap participants,
eligible contract participants, SEFs,
clearing members, foreign brokers and
large traders are not small entities for
purposes of the RFA.192 While the
requirements under the proposed
rulemaking may impact non-financial
end users, the Commission notes that
position limits levels apply only to large
traders. Accordingly, the Chairman, on
behalf of the Commission, hereby
certifies, on behalf of the Commission,
pursuant to 5 U.S.C. 605(b), that the
actions proposed to be taken herein
would not have a significant economic
impact on a substantial number of small
entities. The Chairman made the same
certification in the Proposal,193 and the
Commission did not receive any
190 44

U.S.C. 601 et seq.
U.S.C. 601(2), 603–05.
192 See Policy Statement and Establishment of
Definitions of ‘‘Small Entities’’ for Purposes of the
Regulatory Flexibility Act, 47 FR 18618, 18619,
Apr. 30, 1982 (DCMs, FCMs, and large traders)
(‘‘RFA Small Entities Definitions’’); Opting Out of
Segregation, 66 FR 20740, 20743, Apr. 25, 2001
(eligible contract participants); Position Limits for
Futures and Swaps; Final Rule and Interim Final
Rule, 76 FR 71626, 71680, Nov. 18, 2011 (clearing
members); Core Principles and Other Requirements
for Swap Execution Facilities, 78 FR 33476, 33548,
June 4, 2013 (SEFs); A New Regulatory Framework
for Clearing Organizations, 66 FR 45604, 45609,
Aug. 29, 2001 (DCOs); Registration of Swap Dealers
and Major Swap Participants, 77 FR 2613, Jan. 19,
2012, (swap dealers and major swap participants);
and Special Calls, 72 FR 50209, Aug. 31, 2007
(foreign brokers).
193 See 77 FR 31780.

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Columbia vacated part 151 of the
Commission’s regulations. The
Commission is now proposing
modifications to the aggregation
provisions of part 150 of the
Commission’s regulations that are
substantially similar to the aggregation
modifications proposed to part 151,
except that the modifications address
the policy for aggregation under the
Commission’s position limits regime for
futures and option contracts on nine
agricultural commodities set forth in
part 150.
The Commission is also proposing to
amend other sections of part 150 in a
separate rulemaking that would, among
other things: Expand the number of
contract markets subject to federal
position limits; impose speculative
limits on swaps contracts; and require
exchanges to conform their aggregation
policies to the Commission’s
aggregation policy in part 150.4.194
Given the increase in scope proposed in
the other rulemaking, the Commission
anticipates a corresponding increase in
the PRA burdens arising from this
proposal should the amendments to
other sections of part 150 be adopted.
Unless and until that rulemaking is
finalized, however, the instant proposal
applies only to the nine commodities
enumerated in current § 150.2. The
Commission requests comment
regarding the impact on its PRA analysis
should the amendments to part 150
proposed in the separate rulemaking be
adopted.
Specifically, regulation 150.4(b)(2)
proposes an exemption for a person to
disaggregate the positions of a
separately organized entity (‘‘owned
entity’’). To claim the exemption, a
person would need to meet certain
criteria and file a notice with the
Commission in accordance with
regulation 150.4(c). The notice filing
would need to demonstrate compliance
with certain conditions set forth in
regulations 150.4(b)(2)(i)(A)–(E). Similar
to other exemptions from aggregation,
the notice filing would be effective upon
submission to the Commission, but the
Commission may call for additional
information as well as reject, modify or
otherwise condition such relief. Further,
such person is obligated to amend the
notice filing in the event of a material
change to the filing.
The proposed rules also contain
proposed regulation 150.4(b)(3) which
establishes a similar but separate
owned-entity exemption with more
intensive qualifications for exemption.
To claim the exemption, a person would
194 See Position Limits for Derivatives (November
5, 2013).

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need to meet certain criteria above and
beyond that imposed by regulation
150.4(b)(2) and file an application for
exemption with the Commission in
accordance with regulation 150.4(c).
The notice filing would need to
demonstrate compliance with certain
conditions as well as additional
information that could inform the
Commission’s decision to grant or not to
grant the person’s application. Similar
to other exemptions from aggregation,
the notice filing would be effective upon
submission to the Commission, but the
Commission may call for additional
information as well as reject, modify or
otherwise condition such relief. Further,
such person is obligated to amend the
notice filing in the event of a material
change to the filing.
The Commission is also proposing to
amend the definitions of eligible entity
and independent account controller in
part 150.1 and 150.4(5) to specifically
provide for regulation 4.13 commodity
pools established as limited liability
companies. In addition, the Commission
is proposing to amend the definition of
independent account controller to
specifically provide for commodity pool
operators that operate excluded pools as
defined under regulation 4.5(a)(4) of the
Commission’s regulations. These
amendments would likely expand the
number of entities that can file for the
independent account controller
aggregation exemption.
The proposal includes two provisions
in proposed regulations 150.4(b)(6) and
150.4(b)(7) providing exemptions from
aggregation for underwriting agents and
broker-dealers engaging in market
making activity, respectively. Both
exemptions are self-executing and do
not require a notice filing.
The proposal also includes proposed
regulation 150.4(b)(8) which provides
an exemption from aggregation where
the sharing of information between
persons would cause either person to
violate federal law. The exemption
would apply to a situation where the
sharing of information creates a
reasonable risk of a violation of federal,
state, or foreign law or regulations
adopted thereunder. The rules also
propose a requirement that market
participants file a notice demonstrating
compliance with the condition,
including an internal memorandum of
counsel. The memorandum allows
Commission staff to review the legal
basis for the asserted regulatory
impediment to the sharing of
information, and is particularly helpful
where the asserted impediment arises
from laws and/or regulations that the
Commission does not directly
administer. Further, Commission staff

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will have the ability to consult with
other federal regulators as to the
accuracy of the opinion, and to
coordinate the development of rules
surrounding information sharing and
aggregation across accounts in the
future.
Finally, the proposed rules propose
relief from notice filings for ‘‘highertier’’ entities, which, under proposed
regulation 150.4(b)(9), may rely on the
filings submitted by owned entities. A
‘‘higher-tier’’ entity need not submit a
separate notice pursuant to the notice
filing requirements to rely upon the
notice filed by an owned entity as long
as it complies with conditions of the
applicable aggregation exemption.
2. Methodology and Assumptions
It is not possible at this time to
precisely determine the number of
respondents affected by the proposed
rules. Many of the regulations that
impose PRA burdens are exemptions
that a market participant may elect to
take advantage of, meaning that without
intimate knowledge of the day-to-day
business decisions of all its market
participants, the Commission could not
know which participants, or how many,
may elect to obtain such an exemption.
Further, the Commission is unsure of
how many participants not currently in
the market may be required to or may
elect to incur the estimated burdens in
the future.
These limitations notwithstanding,
the Commission has made best-effort
estimations regarding the likely number
of affected entities for the purposes of
calculating burdens under the PRA. The
Commission used its proprietary data,
collected from market participants, to
estimate the number of respondents for
each of the proposed obligations subject
to the PRA by estimating the number of
respondents who may be close to a
position limit and thus may file for
relief from aggregation requirements.
The Commission’s estimates
concerning wage rates are based on 2011
salary information for the securities
industry compiled by the Securities
Industry and Financial Markets
Association (‘‘SIFMA’’). The
Commission is using a figure of $120
per hour, which is derived from a
weighted average of salaries across
different professions from the SIFMA
Report on Management & Professional
Earnings in the Securities Industry
2011, modified to account for an 1800hour work-year, adjusted to account for
the average rate of inflation in 2012.
This figure was then multiplied by 1.33

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to account for benefits 195 and further by
1.5 to account for overhead and
administrative expenses.196 The
Commission anticipates that compliance
with the provisions would require the
work of an information technology
professional; a compliance manager; an
accounting professional; and an
associate general counsel. Thus, the
wage rate is a weighted national average
of salary for professionals with the
following titles (and their relative
weight); ‘‘programmer (average of senior
and non-senior)’’ (15% weight), ‘‘senior
accountant’’ (15%) ‘‘compliance
manager’’ (30%), and ‘‘assistant/
associate general counsel’’ (40%). All
monetary estimates have been rounded
to the nearest hundred dollars.
The Commission welcomes comment
on its assumptions and estimates.
3. Reporting Burdens
Proposed regulation 150.4(b)(2) would
require qualified persons to file a notice
in order to claim exemptive relief from
aggregation. Further, proposed
regulation 150.4(b)(2)(ii) states that the
notice is to be filed in accordance with
proposed regulation 150.4(c), which
requires a description of the relevant
circumstances that warrant
disaggregation and a statement that
certifies that the conditions set forth in
the exemptive provision have been met.
Regulation 150.4(b)(3) specifies that
qualified persons may request an
exemption from aggregation in
accordance with proposed regulation
150.4(c). Such a request would be
required to include a description of the
relevant circumstances that warrant
disaggregation and a statement
certifying the conditions have been met.
Persons claiming these exemptions
would be required to submit to the
Commission, as requested, such
information as relates to the claim for
exemption. An updated or amended
notice must be filed with the
Commission upon any material change.
195 The Bureau of Labor Statistics reports that an
average of 32.8% of all compensation in the
financial services industry is related to benefits.
This figure may be obtained on the Bureau of Labor
Statistics Web site, at http://www.bls.gov/
news.release/ecec.t06.htm. The Commission
rounded this number to 33% to use in its
calculations.
196 Other estimates of this figure have varied
dramatically depending on the categorization of the
expense and the type of industry classification used
(see, e.g., BizStats at http://www.bizstats.com/
corporation-industry-financials/finance-insurance52/securities-commodity-contracts-other-financialinvestments-523/commodity-contracts-dealing-andbrokerage-523135/show and Damodaran Online at
http://pages.stern.nyu.edu/∼adamodar/pc/datasets/
uValuedata.xls. The Commission has chosen to use
a figure of 50% for overhead and administrative
expenses to attempt to conservatively estimate the
average for the industry.

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The release also proposes to extend
relief available under 150.4(b)(5) to
additional entities; the Commission
expects that, as a result of the expanded
exemptive relief available to these
entities, a greater number of persons
will file exemptive notices under
150.4(b)(5). The Commission also
expects entities to file for relief under
proposed regulation 150.4(b)(8), which
allows for entities to file a notice,
including a memorandum of law, in
order to claim the exemption.
Given the expansion of the
exemptions that market participants
may claim, the Commission anticipates
an increase in the number of notice
filings. However, because of the relief
for ‘‘higher-tier’’ entities under
regulation 150.4(b)(9) the Commission
expects that increase to be offset
partially by a reduction in the number
of filings by ‘‘higher-tier’’ entities. Thus,
the Commission anticipates a net
increase in the number of filings under
regulation 150.4 as a result of the
adoption of these proposed rules. The
Commission believes that this increase
will create an increase in the annual
labor burden. However, because entities
have already incurred the capital, startup, operating, and maintenance costs to
file other exemptive notices—such as
those currently allowed for independent
account controllers and futures
commission merchants under regulation
150.4—the Commission does not
anticipate an increase in those costs.
The Commission estimates that 100
entities will each file two notices
annually under proposed regulation
150.4(b)(2), at an average of 20 hours per
filing. Thus, the Commission
approximates a total per entity burden
of 40 labor hours annually. At an
estimated labor cost of $120, the
Commission estimates a cost of
approximately $4,800 per entity for
filings under proposed regulation
150.4(b)(2).
The Commission estimates that 25
entities will each file one notice
annually under proposed regulation
150.4(b)(3), at an average of 30 hours per
filing. Thus, the Commission
approximates a total per entity burden
of 30 labor hours annually. At an
estimated labor cost of $120, the
Commission estimates a cost of
approximately $3,600 per entity for
filings under proposed regulation
150.4(b)(3).
The Commission estimates that 75
entities will each file one notice
annually under proposed regulation
150.4(b)(5), at an average of 10 hours per
filing. Thus, the Commission
approximates a total per entity burden
of 10 labor hours annually. At an

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estimated labor cost of $120, the
Commission estimates a cost of
approximately $1,200 per entity for
filings under proposed regulation
150.4(b)(5).
The Commission estimates that 40
entities will each file one notice
annually under proposed regulation
150.4(b)(8), including the requisite
memorandum of law, at an average of 40
hours per filing. Thus, the Commission
approximates a total per entity burden
of 40 labor hours annually. At an
estimated labor cost of $120,197 the
Commission estimates a cost of
approximately $4,800 per entity for
filings under proposed regulation
150.4(b)(8).
In sum, the Commission estimates
that 240 entities will submit a total of
340 responses per year and incur a total
burden of 7,100 labor hours at a cost of
approximately $852,000 annually in
order to claim exemptive relief under
regulation 150.4.
4. Comments on Information Collection
The Commission invites the public
and other federal agencies to comment
on any aspect of the reporting and
recordkeeping burdens discussed above.
Pursuant to 44 U.S.C. 3506(c)(2)(B), the
Commission solicits comments in order
to: (1) Evaluate whether the proposed
collections of information are necessary
for the proper performance of the
functions of the Commission, including
whether the information will have
practical utility; (2) evaluate the
accuracy of the Commission’s estimate
of the burden of the proposed
collections of information; (3) determine
whether there are ways to enhance the
quality, utility, and clarity of the
information to be collected; and (4)
minimize the burden of the collections
of information on those who are to
respond, including through the use of
automated collection techniques or
other forms of information technology.
Comments may be submitted directly
to the Office of Information and
Regulatory Affairs, by fax at (202) 395–
6566 or by email at OIRA-submissions@
omb.eop.gov. Please provide the
Commission with a copy of comments
submitted so that all comments can be
summarized and addressed in the final
regulation preamble. Refer to the
Addresses section of this notice for
comment submission instructions to the
Commission. A copy of the supporting
statements for the collection of
information discussed above may be
obtained by visiting RegInfo.gov. OMB
is required to make a decision
concerning the collection of information
197 See

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between 30 and 60 days after
publication of this release.
Consequently, a comment to OMB is
most assured of being fully considered
if received by OMB (and the
Commission) within 30 days after the
publication of this notice of proposed
rulemaking.
As noted above, the following
proposed amendments to part 150 may
require conforming technical changes if
the Commission also adopts any
proposed amendments to its regulations
regarding position limits.198
List of Subjects in 17 CFR Part 150
Position limits, Bona fide hedging,
Referenced contracts.
For the reasons discussed in the
preamble, the Commission proposes to
amend 17 CFR part 150 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 Title VII of the Dodd-Frank Wall
Street Reform and Consumer Protection Act,
Pub. L. 111–203, 124 Stat. 1376 (2010).

2. Amend § 150.1 to revise paragraphs
(d), (e)(2), and (e)(5) to read as follows:

■

§ 150.1

Definitions.

*

*
*
*
*
(d) Eligible entity means a commodity
pool operator; the operator of a trading
vehicle which is excluded, or which
itself has qualified for exclusion from
the definition of the term ‘‘pool’’ or
‘‘commodity pool operator,’’
respectively, under § 4.5 of this chapter;
the limited partner, limited member or
shareholder in a commodity pool the
operator of which is exempt from
registration under § 4.13 of this chapter;
a commodity trading advisor; a bank or
trust company; a savings association; an
insurance company; or the separately
organized affiliates of any of the above
entities:
(1) Which authorizes an independent
account controller independently to
control all trading decisions with
respect to the eligible entity’s client
positions and accounts that the
independent account controller holds
directly or indirectly, or on the eligible
entity’s behalf, but without the eligible
entity’s day-to-day direction; and
(2) Which maintains:
(i) Only such minimum control over
the independent account controller as is
consistent with its fiduciary
responsibilities to the managed
positions and accounts, and necessary
198 See Position Limits for Derivatives (November
5, 2013).

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to fulfill its duty to supervise diligently
the trading done on its behalf; or
(ii) If a limited partner, limited
member or shareholder of a commodity
pool the operator of which is exempt
from registration under § 4.13 of this
chapter, only such limited control as is
consistent with its status.
(e) * * *
(2) Over whose trading the eligible
entity maintains only such minimum
control as is consistent with its
fiduciary responsibilities to the
managed positions and accounts to
fulfill its duty to supervise diligently the
trading done on its behalf or as
consistent with such other legal rights
or obligations which may be incumbent
upon the eligible entity to fulfill;
*
*
*
*
*
(5) Who is:
(i) Registered as a futures commission
merchant, an introducing broker, a
commodity trading advisor, or an
associated person of any such registrant,
or
(ii) A general partner, managing
member or manager of a commodity
pool the operator of which is excluded
from registration under § 4.5(a)(4) of this
chapter or § 4.13 of this chapter,
provided that such general partner,
managing member or manager complies
with the requirements of § 150.4(c).
*
*
*
*
*
§ 150.3

[Amended]

3. Amend § 150.3 as follows:
a. Remove the semicolon and the
word ‘‘or’’ at the end of paragraph (a)(3);
■ b. Add a period at the end of
paragraph (a)(3); and
■ c. Remove paragraph (a)(4).
■ 4. Revise § 150.4 to read as follows:
■
■

emcdonald on DSK67QTVN1PROD with PROPOSALS2

§ 150.4

Aggregation of positions.

(a) Positions to be aggregated—(1)
Trading control or 10 percent or greater
ownership or equity interest. For the
purpose of applying the position limits
set forth in § 150.2, unless an exemption
set forth in paragraph (b) of this section
applies, all positions in accounts for
which any person, by power of attorney
or otherwise, directly or indirectly
controls trading or holds a 10 percent or
greater ownership or equity interest
must be aggregated with the positions
held and trading done by such person.
For the purpose of determining the
positions in accounts for which any
person controls trading or holds a 10
percent or greater ownership or equity
interest, positions or ownership or
equity interests held by, and trading
done or controlled by, two or more
persons acting pursuant to an expressed
or implied agreement or understanding
shall be treated the same as if the

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positions or ownership or equity
interests were held by, or the trading
were done or controlled by, a single
person.
(2) Substantially identical trading.
Notwithstanding the provisions of
paragraph (b) of this section, for the
purpose of applying the position limits
set forth in § 150.2, any person that, by
power of attorney or otherwise, holds or
controls the trading of positions in more
than one account or pool with
substantially identical trading strategies,
must aggregate all such positions.
(b) Exemptions from aggregation. For
the purpose of applying the position
limits set forth in § 150.2, and
notwithstanding the provisions of
paragraph (a)(1) of this section, but
subject to the provisions of paragraph
(a)(2) of this section, the aggregation
requirements of this section shall not
apply in the circumstances set forth in
this paragraph (b).
(1) Exemption for ownership by
limited partners, shareholders or other
pool participants. Any person that is a
limited partner, limited member,
shareholder or other similar type of pool
participant holding positions in which
the person by power of attorney or
otherwise directly or indirectly has a 10
percent or greater ownership or equity
interest in a pooled account or positions
need not aggregate the accounts or
positions of the pool with any other
accounts or positions such person is
required to aggregate, except that such
person must aggregate the pooled
account or positions with all other
accounts or positions owned or
controlled by such person if such
person:
(i) Is the commodity pool operator of
the pooled account;
(ii) Is a principal or affiliate of the
operator of the pooled account, unless:
(A) The pool operator has, and
enforces, written procedures to preclude
the person from having knowledge of,
gaining access to, or receiving data
about the trading or positions of the
pool;
(B) The person does not have direct,
day-to-day supervisory authority or
control over the pool’s trading
decisions;
(C) The person, if a principal of the
operator of the pooled account,
maintains only such minimum control
over the commodity pool operator as is
consistent with its responsibilities as a
principal and necessary to fulfill its
duty to supervise the trading activities
of the commodity pool; and
(D) The pool operator has complied
with the requirements of paragraph (c)
of this section on behalf of the person
or class of persons; or

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(iii) Has, by power of attorney or
otherwise directly or indirectly, a 25
percent or greater ownership or equity
interest in a commodity pool, the
operator of which is exempt from
registration under § 4.13 of this chapter.
(2) Exemption for certain ownership
of greater than 10 percent in an owned
entity. Any person with an ownership or
equity interest in an owned entity of 10
percent or greater but not more than 50
percent (other than an interest in a
pooled account subject to paragraph
(b)(1) of this section), need not aggregate
the accounts or positions of the owned
entity with any other accounts or
positions such person is required to
aggregate, provided that:
(i) Such person, including any entity
that such person must aggregate, and the
owned entity:
(A) Do not have knowledge of the
trading decisions of the other;
(B) Trade pursuant to separately
developed and independent trading
systems;
(C) Have and enforce written
procedures to preclude each from
having knowledge of, gaining access to,
or receiving data about, trades of the
other. Such procedures must include
document routing and other procedures
or security arrangements, including
separate physical locations, which
would maintain the independence of
their activities;
(D) Do not share employees that
control the trading decisions of either;
and
(E) Do not have risk management
systems that permit the sharing of trades
or trading strategy; and
(ii) Such person complies with the
requirements of paragraph (c) of this
section.
(3) Exemption for certain ownership
of greater than 50 percent in an owned
entity. Any person with a greater than
50 percent ownership or equity interest
in an owned entity (other than an
interest in a pooled account subject to
paragraph (b)(1) of this section), need
not aggregate the accounts or positions
of the owned entity with any other
accounts or positions such person is
required to aggregate, provided that:
(i) Such person certifies to the
Commission that the owned entity is not
required under U.S. generally accepted
accounting principles to be, and is not,
consolidated on the financial statement
of such person;
(ii) Such person, including any entity
that such person must aggregate, and the
owned entity meet the requirements of
paragraphs (b)(2)(i)(A) through (E) of
this section and such person
demonstrates to the Commission that
procedures are in place that are

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reasonably effective to prevent
coordinated trading decisions by such
person, any entity that such person
must aggregate, and the owned entity;
(iii) Each representative (if any) of the
person on the owned entity’s board of
directors (or equivalent governance
body) certifies that he or she does not
control the trading decisions of the
owned entity;
(iv) Such person certifies to the
Commission that either all of the owned
entity’s positions qualify as bona fide
hedging transactions or the owned
entity’s positions that do not so qualify
do not exceed 20 percent of any position
limit currently in effect, and agrees with
the Commission that:
(A) If such certification becomes
untrue for any owned entity of the
person, such person will aggregate the
accounts or positions of the owned
entity with any other accounts or
positions such person is required to
aggregate; however, after a period of
three complete calendar months in
which such person aggregates such
accounts or positions and all of the
owned entity’s positions qualify as bona
fide hedging transactions, such person
may make such certification again and
be permitted to cease such aggregation;
(B) Any owned entity of the person
shall, upon call by the Commission at
any time, make a filing responsive to the
call, reflecting only such owned entity’s
positions and transactions, and not
reflecting the inventory of the person or
any other accounts or positions such
person is required to aggregate (this
requirement shall apply regardless of
whether the owned entity or the person
is subject to § 18.05 of this chapter); and
(C) Such person shall inform the
Commission, and provide to the
Commission any information that the
Commission may request, if any owned
entity engages in coordinated activity
regarding the trading of such owned
entity, such person, or any other
accounts or positions such person is
required to aggregate, even if such
coordinated activity does not conflict
with any of the requirements of
paragraphs (b)(2)(i)(A) to (b)(2)(i)(E) of
this section;
(v) The Commission finds, in its
discretion, that such person has
satisfied the conditions of this
paragraph (b)(3);
(vi) Such person, when first
requesting disaggregation relief under
this paragraph, complies with the
requirements of paragraph (c)(2) of this
section; and
(vii) Such person complies with the
requirements of paragraph (c)(1) of this
section if, subsequent to a Commission
finding that the person has satisfied the

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conditions of this paragraph (b)(3), there
is a material change to the information
provided to the Commission in the
person’s original filing under paragraph
(c)(2) of this section.
(4) Exemption for accounts held by
futures commission merchants. A
futures commission merchant or any
affiliate of a futures commission
merchant need not aggregate positions it
holds in a discretionary account, or in
an account which is part of, or
participates in, or receives trading
advice from a customer trading program
of a futures commission merchant or
any of the officers, partners, or
employees of such futures commission
merchant or of its affiliates, if:
(i) A person other than the futures
commission merchant or the affiliate
directs trading in such an account;
(ii) The futures commission merchant
or the affiliate maintains only such
minimum control over the trading in
such an account as is necessary to fulfill
its duty to supervise diligently trading
in the account;
(iii) Each trading decision of the
discretionary account or the customer
trading program is determined
independently of all trading decisions
in other accounts which the futures
commission merchant or the affiliate
holds, has a financial interest of 10
percent or more in, or controls; and
(iv) The futures commission merchant
or the affiliate has complied with the
requirements of paragraph (c) of this
section.
(5) Exemption for accounts carried by
an independent account controller. An
eligible entity need not aggregate its
positions with the eligible entity’s client
positions or accounts carried by an
authorized independent account
controller, as defined in § 150.1(e),
except for the spot month in physicaldelivery commodity contracts, provided
that the eligible entity has complied
with the requirements of paragraph (c)
of this section, and that the overall
positions held or controlled by such
independent account controller may not
exceed the limits specified in § 150.2.
(i) Additional requirements for
exemption of affiliated entities. If the
independent account controller is
affiliated with the eligible entity or
another independent account controller,
each of the affiliated entities must:
(A) Have, and enforce, written
procedures to preclude the affiliated
entities from having knowledge of,
gaining access to, or receiving data
about, trades of the other. Such
procedures must include document
routing and other procedures or security
arrangements, including separate
physical locations, which would

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68977

maintain the independence of their
activities; provided, however, that such
procedures may provide for the
disclosure of information which is
reasonably necessary for an eligible
entity to maintain the level of control
consistent with its fiduciary
responsibilities to the managed
positions and accounts and necessary to
fulfill its duty to supervise diligently the
trading done on its behalf;
(B) Trade such accounts pursuant to
separately developed and independent
trading systems;
(C) Market such trading systems
separately; and
(D) Solicit funds for such trading by
separate disclosure documents that meet
the standards of § 4.24 or § 4.34 of this
chapter, as applicable, where such
disclosure documents are required
under part 4 of this chapter.
(6) Exemption for underwriting. A
person need not aggregate the positions
or accounts of an owned entity if the
ownership or equity interest is based on
the ownership of securities constituting
the whole or a part of an unsold
allotment to or subscription by such
person as a participant in the
distribution of such securities by the
issuer or by or through an underwriter.
(7) Exemption for broker-dealer
activity. A broker-dealer registered with
the Securities and Exchange
Commission, or similarly registered
with a foreign regulatory authority, need
not aggregate the positions or accounts
of an owned entity if such broker-dealer
does not have greater than a 50 percent
ownership or equity interest in the
owned entity and the ownership or
equity interest is based on the
ownership of securities acquired in the
normal course of business as a dealer,
provided that such person does not have
actual knowledge of the trading
decisions of the owned entity.
(8) Exemption for information sharing
restriction. A person need not aggregate
the positions or accounts of an owned
entity if the sharing of information
associated with such aggregation (such
as, only by way of example, information
reflecting the transactions and positions
of a such person and the owned entity)
creates a reasonable risk that either
person could violate state or federal law
or the law of a foreign jurisdiction, or
regulations adopted thereunder,
provided that such person does not have
actual knowledge of information
associated with such aggregation, and
provided further that such person has
filed a prior notice pursuant to
paragraph (c) of this section and
included with such notice a written
memorandum of law explaining in
detail the basis for the conclusion that

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the sharing of information creates a
reasonable risk that either person could
violate state or federal law or the law of
a foreign jurisdiction, or regulations
adopted thereunder. However, the
exemption in this paragraph shall not
apply where the law or regulation serves
as a means to evade the aggregation of
accounts or positions. All documents
submitted pursuant to this paragraph
shall be in English, or if not,
accompanied by an official English
translation.
(9) Exemption for higher-tier entities.
If an owned entity has filed a notice
under paragraph (c) of this section, any
person with an ownership or equity
interest of 10 percent or greater in the
owned entity need not file a separate
notice identifying the same positions
and accounts previously identified in
the notice filing of the owned entity,
provided that:
(i) Such person complies with the
conditions applicable to the exemption
specified in the owned entity’s notice
filing, other than the filing
requirements; and
(ii) Such person does not otherwise
control trading of the accounts or
positions identified in the owned
entity’s notice.
(iii) Upon call by the Commission,
any person relying on the exemption in
this paragraph (b)(9) shall provide to the
Commission such information
concerning the person’s claim for
exemption. Upon notice and
opportunity for the affected person to
respond, the Commission may amend,
suspend, terminate, or otherwise modify
a person’s aggregation exemption for
failure to comply with the provisions of
this section.
(c) Notice filing for exemption. (1)
Persons seeking an aggregation
exemption under paragraph (b)(1)(ii),
(b)(2), (b)(3)(vii), (b)(4), (b)(5), or (b)(8)
of this section shall file a notice with
the Commission, which shall be
effective upon submission of the notice,
and shall include:
(i) A description of the relevant
circumstances that warrant
disaggregation; and
(ii) A statement of a senior officer of
the entity certifying that the conditions
set forth in the applicable aggregation
exemption provision have been met.
(2) Persons with a greater than 50
percent ownership or equity interest in
an owned entity seeking an aggregation
exemption under paragraph (b)(3)(vi) of
this section shall file a request with the
Commission, which shall not become
effective unless and until the
Commission finds, in its discretion, that
such person has satisfied the conditions

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of paragraph (b)(3) of this section, and
shall include:
(i) A description of the relevant
circumstances that warrant
disaggregation;
(ii) A statement of a senior officer of
the entity certifying that the conditions
set forth in paragraph (b)(3) of this
section have been met;
(iii) A demonstration that procedures
are in place that are reasonably effective
to prevent coordinated trading decisions
by such person, any entity that such
person must aggregate, and the owned
entity; and
(iv) All certifications required under
paragraph (b)(3) of this section.
(3) Upon call by the Commission, any
person claiming an aggregation
exemption under this section shall
provide such information demonstrating
that the person meets the requirements
of the exemption, as is requested by the
Commission. Upon notice and
opportunity for the affected person to
respond, the Commission may amend,
suspend, terminate, or otherwise modify
a person’s aggregation exemption for
failure to comply with the provisions of
this section.
(4) In the event of a material change
to the information provided in any
notice filed under this paragraph (c), an
updated or amended notice shall
promptly be filed detailing the material
change.
(5) Any notice filed under this
paragraph (c) shall be submitted in the
form and manner provided for in
paragraph (d) of this section.
(d) Form and manner of reporting and
submitting information or filings. Unless
otherwise instructed by the Commission
or its designees, any person submitting
reports under this section shall submit
the corresponding required filings and
any other information required under
this part to the Commission using the
format, coding structure, and electronic
data transmission procedures approved
in writing by the Commission. Unless
otherwise provided in this section, the
notice shall be effective upon filing.
When the reporting entity discovers
errors or omissions to past reports, the
entity shall so notify the Commission
and file corrected information in a form
and manner and at a time as may be
instructed by the Commission or its
designee.
(e) Delegation of authority to the
Director of the Division of Market
Oversight. (1) The Commission hereby
delegates, until it orders otherwise, to
the Director of the Division of Market
Oversight or such other employee or
employees as the Director may designate
from time to time, the authority:
(i) In paragraph (b)(3) of this section:

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(A) To determine, after consultation
with the General Counsel or such other
employee or employees as the General
Counsel may designate from time to
time, if a person has satisfied the
conditions of paragraph (b)(3) of this
section; and
(B) To call for additional information
from a person claiming the exemption
in paragraph (b)(3) of this section,
reflecting such owned entity’s positions
and transactions (regardless of whether
the owned entity or the person is subject
to § 18.05 of this chapter).
(ii) In paragraph (b)(9)(iii) of this
section to call for additional information
from a person claiming the exemption
in paragraph (b)(9)(i) of this section.
(iii) In paragraph (d) of this section for
providing instructions or determining
the format, coding structure, and
electronic data transmission procedures
for submitting data records and any
other information required under this
part.
(2) The Director of the Division of
Market Oversight may submit to the
Commission for its consideration any
matter which has been delegated in this
section.
(3) Nothing in this section prohibits
the Commission, at its election, from
exercising the authority delegated in
this section.
Issued in Washington, DC, on November 8,
2013, by the Commission.
Christopher J. Kirkpatrick,
Deputy Secretary of the Commission.

Appendices to Aggregation of
Positions—Commission Voting
Summary and Statement of Chairman
Note: The following appendices will not
appear in the Code of Federal Regulations.

Appendix 1—Commission Voting
Summary
On this matter, Chairman Gensler and
Commissioners Chilton, O’Malia, and Wetjen
voted in the affirmative; no Commissioner
voted in the negative.

Appendix 2—Statement of Chairman
Gary Gensler
I support the proposed rule that would
modify the CFTC’s aggregation provisions for
limits on speculative positions.
As we move forward on position limits for
futures and swaps, it is important to
concurrently implement reforms to the
Commission’s current regulations regarding
which positions are totaled up as being
owned or controlled by a particular entity.
These total, aggregated positions under
common control are then subject to the
speculative position limits, taking into
consideration any relevant exemptions.
We live in a time when companies often
have numerous affiliated entities, sometimes

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measured in the hundreds or thousands.
Thus, it is appropriate to look at how
speculative position limits apply across the
enterprise. When Lehman Brothers failed, it
had 3,300 legal entities within its corporate
family. The question is—do you count all
those 3,300 legal entities that Lehman
Brothers once controlled, or do you apply a
limit for each and every one of the 3,300? If
we chose the second, that would be, in
practice, a loophole around congressional
intent. That’s why this issue of aggregation
comes into play.
The proposal generally provides for
aggregation when various entities are under

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common control. For instance, if the
ownership interest is greater than 50 percent,
it will be presumed to be aggregated and part
of the group.
The proposal provides for certain
exemptions from aggregation for the
following reasons:
• Where sharing of information would
violate or create reasonable risk of violating
a federal, state or foreign jurisdiction law or
regulation;
• Where an ownership interest is less than
50 percent and trading is independently
controlled;

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• Where an ownership interest is greater
than 50 percent in a non-consolidated entity
whose trading is independently controlled,
and an applicant certifies that such entity’s
positions either qualify as bona fide hedging
positions or do not exceed 20 percent of any
position limit; or
• Where ownership of less than 50 percent
results from broker-dealer activities in the
normal course of business.
[FR Doc. 2013–27339 Filed 11–14–13; 8:45 am]
BILLING CODE 6351–01–P

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