U.S. regulators revise proposal on commodity position limits

(Dave Bedard photo)

Chicago | Reuters — U.S. derivatives regulators are revising their proposal to limit the positions that traders can hold in commodity markets to make it easier for some hedge funds and banks to keep large trades.

The Commodity Futures Trading Commission wants to allow financial firms to count their market positions separately from subsidiaries if the parent company says it does not control trading at the affiliate, according to a proposal issued Tuesday.

Under revised rules, a company would simply be able to file a notice with the CFTC saying that it has no control over trading at a subsidiary and that firewalls are in place to prevent access to information, CFTC chairman Timothy Massad said.

An earlier version of the proposal required firms to apply for and obtain prior approval from the CFTC to separate their positions from subsidiaries.

“We are proposing a simplification of that exemption process,” Massad said.

The CFTC proposed rules on positions limits in 2013 after Congress mandated that the agency address the risk of excessive speculation in commodity markets as part of the Dodd-Frank Wall Street reform law.

Requiring firms to apply for CFTC permission to count their positions separately from subsidiaries and to undergo a review “does not reflect the realities of modern commerce,” commissioner Christopher Giancarlo said.

“Global trading firms may often have many unconnected subsidiaries that neither communicate nor share trading strategies or market position information,” he said.

Allowing companies to file a notice “with immediate effect, rather than navigating a case-by-case Commission approval process” may boost liquidity in markets, Giancarlo added.

Citadel and Tudor Investment Corp. were among several hedge funds that met with the CFTC staff in March to discuss the proposal on position limits, according to agency records.

The CFTC asked for public comments on its revised proposal and has not yet scheduled a vote to finalize the rules.

In 2012, a U.S. judge threw out CFTC rules on position limits after the Securities Industry and Financial Markets Association and the International Swaps and Derivatives Association sued over the regulations.

Reporting for Reuters by Tom Polansek in Chicago.

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