[Federal Register Volume 72, Number 224 (Wednesday, November 21, 2007)]
[Proposed Rules]
[Pages 65483-65487]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-22681]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 150

RIN 3038-AC140


Revision of Federal Speculative Position Limits

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Commodity Futures Trading Commission (``Commission'') 
periodically reviews the speculative position limits for certain 
agricultural commodities set out in Commission regulation 150.2 
(``Federal speculative position limits''). In this regard, the 
Commission has reviewed the existing levels for Federal speculative 
position limits and is now proposing to increase these limits for all 
single-month and all-months-combined positions in all commodities 
except oats, based on the formula set out in Commission Regulation 
150.5(c). In addition, the Commission is also proposing to aggregate 
traders' positions for purposes of ascertaining compliance with Federal 
speculative position limits when a designated contract market (``DCM'') 
lists for trading a futures contract that shares substantially 
identical terms with a Regulation 150.2-enumerated contract listed on 
another DCM, including a futures contract that is cash-settled based on 
the settlement prices for a futures contract that is already 
enumerated. The Commission is requesting comment on these rule 
amendments.

DATES: Comments must be received on or before December 21, 2007.

ADDRESSES: Comments should be submitted to David Stawick, Secretary, 
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st 
Street, NW., Washington, DC 20581. Comments also may be sent by 
facsimile to (202) 418-5521, or by electronic mail to 
[email protected]. Reference should be made to ``Proposed Revision of 
Federal Speculative Position Limits.'' Comments may also be

[[Page 65484]]

submitted by connecting to the Federal eRulemaking Portal at http://www.regulations.gov and following comment submission instructions.

FOR FURTHER INFORMATION CONTACT: Don Heitman, Attorney, Division of 
Market Oversight, Commodity Futures Trading Commission, Three Lafayette 
Centre, 1155 21st Street, NW., Washington, DC 20581, telephone (202) 
418-5041, facsimile number (202) 418-5507, electronic mail 
[email protected]; or Martin Murray, Economist, Division of Market 
Oversight, telephone (202) 418-5276, facsimile number (202) 418-5507, 
electronic mail [email protected].

SUPPLEMENTARY INFORMATION:

I. Background

A. Introduction

    The Commission has long established and enforced speculative 
position limits for futures contracts on various agricultural 
commodities. The Commission periodically reviews these Federal 
speculative position limits, which are set out in Commission regulation 
150.2.\1\ In this regard, the Commission has reviewed the existing 
levels for Federal speculative position limits and is now proposing to 
increase these limits for all single-month and all-months-combined 
positions in all commodity markets enumerated in Commission regulation 
150.2, except Chicago Board of Trade (``CBT'') Oats, based on the 
formula set out in Commission Regulation 150.5(c). In particular, the 
Commission is proposing to increase levels for single-month and all-
months-combined positions for CBT Corn, Soybeans, Wheat, Soybean Oil, 
and Soybean Meal; Minneapolis Grain Exchange (MGE) Hard Red Spring 
Wheat; Kansas City Board of Trade (KCBT) Hard Winter Wheat, and New 
York Board of Trade (NYBOT) Cotton No. 2. The spot month limits for all 
of these commodities would remain unchanged. In addition, the 
Commission is also proposing to aggregate traders' positions for 
purposes of ascertaining compliance with Federal speculative position 
limits when a DCM lists for trading a futures contract that shares 
substantially identical terms with a Regulation 150.2-enumerated 
contract listed on another DCM, including a futures contract that is 
cash-settled based on the settlement prices for a futures contract that 
is already enumerated.
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    \1\ Regulation 150.2 imposes three types of position limits for 
each specified contract: A spot month limit, a single-month limit, 
and an all-months-combined limit. The Commission most recently 
adopted amendments to levels for Federal speculative position limits 
in 2005 (see 70 FR 24705 May 11, 2005).
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B. Regulatory Framework

    Speculative position limits have been a tool for the regulation of 
the U.S. futures markets since the adoption of the Commodity Exchange 
Act of 1936. Section 4a(a) of the Commodity Exchange Act (Act), 7 
U.S.C. 6a(a), states that:

    Excessive speculation in any commodity under contracts of sale 
of such commodity for future delivery made on or subject to the 
rules of contract markets or derivatives transaction execution 
facilities causing sudden or unreasonable fluctuations or 
unwarranted changes in the price of such commodity, is an undue and 
unnecessary burden on interstate commerce in such commodity.

    Accordingly, section 4a(a) provides the Commission with the 
authority to:

    Fix such limits on the amounts of trading which may be done or 
positions which may be held by any person under contracts of sale of 
such commodity for future delivery on or subject to the rules of any 
contract market or derivatives transaction execution facility as the 
Commission finds are necessary to diminish, eliminate, or prevent 
such burden.

    This longstanding statutory framework providing for Federal 
speculative position limits was supplemented with the passage of the 
Futures Trading Act of 1982, which acknowledged the role of exchanges 
in setting their own speculative position limits. The 1982 legislation 
also provided, under section 4a(e) of the Act, that limits set by 
exchanges and approved by the Commission were subject to Commission 
enforcement.
    Finally, the Commodity Futures Modernization Act of 2000 (``CFMA'') 
established designation criteria and core principles with which a DCM 
must comply to receive and maintain designation. Among these, Core 
Principle 5 in section 5(d) of the Act states:

    Position Limitations or Accountability--To reduce the potential 
threat of market manipulation or congestion, especially during 
trading in the delivery month, the board of trade shall adopt 
position limitations or position accountability for speculators, 
where necessary and appropriate.

    As outlined above, the regulatory structure is administered under a 
two-pronged framework. Under the first prong, the Commission 
establishes and enforces speculative position limits for futures 
contracts on a limited group of agricultural commodities. These Federal 
speculative position limits are enumerated in Commission regulation 
150.2, and apply to the following futures and option markets: CBT Corn, 
Oats, Soybeans, Wheat, Soybean Oil, and Soybean Meal; MGE Hard Red 
Spring Wheat; NYBOT Cotton No. 2; and KCBT Hard Winter Wheat. Under the 
second prong, individual DCMs establish and enforce their own 
speculative position limits or position accountability provisions, 
subject to Commission oversight and separate authority to enforce 
exchange-set speculative position limits approved by the Commission. 
Thus, responsibility for enforcement of speculative position limits is 
shared by the Commission and the DCMs.\2\
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    \2\ Provisions regarding the establishment of exchange-set 
speculative position limits were originally set forth in CFTC 
regulation 1.61. In 1999, the Commission simplified and reorganized 
its rules by relocating the substance of regulation 1.61's 
requirements to part 150 of the Commission's rules, thereby 
incorporating within part 150 provisions for both Federal 
speculative position limits and exchange-set speculative position 
limits (see 64 FR 24038, May 5, 1999). Section 4a(e) of the Act 
provides that a violation of a speculative position limit set by a 
Commission-approved exchange rule is also a violation of the Act. 
Thus, the Commission can enforce directly violations of exchange-set 
speculative position limits as well as those provided under 
Commission rules.
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II. Commission Speculative Position Limit Levels

    The Commission is proposing several revisions to the Federal 
speculative position limit levels found in regulation 150.2 based upon 
its experience in administering these limits and the open interest 
formula found in Commission Regulation 150.5. Under the proposed 
revisions, spot month limits would remain unchanged from the current 
levels, but every single-month and all-months-combined position limit, 
except for CBT Oats, would be increased based upon open interest data 
for the most recent calendar year (2006). For all-months-combined 
levels, the Commission proposes to amend the limits set forth in 
Regulation 150.2 to the maximum levels permitted under the open 
interest formula, and to adjust the single month limits to reflect the 
existing ratio of single month to all-months-combined levels. With 
respect to the single month limits, a strict application of the open 
interest formula contained in regulation 150.5 would have resulted in 
somewhat lower single month limits for some commodities and higher 
limits for others than those proposed below. However, the Commission 
believes that maintaining the existing ratios between single-month and 
all-months-combined speculative position limit levels is of benefit to 
the marketplace, and thus the Commission is proposing to establish 
single-month limits that are consistent with that

[[Page 65485]]

approach.\3\ The open interest formula does not justify an increase in 
the CBT Oats single month or all-months-combined limits, and the 
Commission does not propose any change in their levels at this time.
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    \3\ The Commission used this more flexible approach when it last 
revised the Federal speculative position limits in 2005 (See 70 FR 
24705, May 11, 2005).
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    In addition, with respect to the MGE and KCBT Wheat contracts, the 
Commission proposes to maintain parity with the levels proposed for CBT 
Wheat rather than establish different limits based on the open interest 
formula for each contract. The Commission first adopted this parity 
approach in an action to revise position limits in 1993.\4\ At that 
time the Commission concluded that the breadth and liquidity of the 
cash markets underlying the KCBT and MGE Wheat contracts justified 
setting these limits at parity with little risk of regulatory harm from 
such action.\5\ The Commission continues to believe that the breadth 
and liquidity of underlying cash markets, as well as continued growth 
in open interest, for the KCBT and MGE Wheat contracts support 
maintenance of these speculative position limit levels at parity with 
one another.\6\
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    \4\ See 58 FR 17973 (April 7, 1993).
    \5\ Id. at 17979.
    \6\ The Commission maintained parity between the CBT, MGE, and 
KCBT wheat contracts when it last revised the Federal speculative 
position limits in May, 2005.
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    Finally, the Commission is also proposing to aggregate traders' 
positions for purposes of ascertaining compliance with Federal 
speculative position limits when a DCM lists for trading a futures 
contract that shares substantially identical terms with a Regulation 
150.2-enumerated contract listed on another DCM, including a futures 
contract that is cash-settled based on the settlement prices for a 
futures contract that is already enumerated. In this regard, when the 
Commission last amended regulation 150.2, it clarified its practice of 
aggregating traders' positions when a single DCM lists for trading two 
or more contracts with substantially identical terms based on the same 
underlying commodity characteristics, such as the CBT Corn and Mini-
Corn futures contracts.\7\ At the time it adopted those clarifying 
amendments, the Commission noted, ``that should a DCM list a contract 
that shared substantially identical terms with a Regulation 150.2-
enumerated contract listed on another DCM, the Commission could 
consider at that time whether to amend regulation 150.2 to likewise 
apply Federal limits to the newly-listed contract.'' Since then, the 
New York Mercantile Exchange (NYMEX) has listed for trading a Cotton 
futures contract that is cash-settled based on the settlement price for 
the NYBOT Cotton No. 2 futures contract. The Commission believes that 
aggregation of traders' positions in such circumstances is necessary to 
protect the integrity of the existing limits by removing the ability of 
a trader to flout the limits by taking a position in the non-encumbered 
market.
    Based on the criteria noted above, the Commission is proposing the 
following changes to the Federal speculative position limits (additions 
are underlined, and deletions are struck through).
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    \7\ 70 FR 24705, (May 11, 2005).
    [GRAPHIC] [TIFF OMITTED] TP21NO07.021
    

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III. Related Matters

A. Cost Benefit Analysis

    Section 15(a) of the Act requires the Commission to consider the 
costs and benefits of its action before issuing a new regulation under 
the Act. By its terms, section 15(a) does not require the Commission to 
quantify the costs and benefits of a new regulation or to determine 
whether the benefits of the proposed regulation outweigh its costs. 
Rather, section 15(a) requires the Commission to ``consider the costs 
and benefits'' of the subject rule.
    Section 15(a) further specifies that the costs and benefits of the 
proposed rule shall be evaluated in light of five broad areas of market 
and public concern: (1) Protection of market participants and the 
public; (2) efficiency, competitiveness, and financial integrity of 
futures markets; (3) price discovery; (4) sound risk management 
practices; and (5) other public interest considerations. The Commission 
may, in its discretion, give greater weight to any one of the five 
enumerated areas of concern and may, in its discretion, determine that, 
notwithstanding its costs, a particular rule is necessary or 
appropriate to protect the public interest or to effectuate any of the 
provisions or to accomplish any of the purposes of the Act.
    The proposed rule amendments impose limited additional costs in 
terms of reporting requirements, particularly since entities trading in 
or holding large positions, which either approach or meet the 
speculative limits of the rules herein, already file large trader 
reports with the Commission. Moreover, the amendments proposed herein 
would increase Federal speculative position limits for some commodities 
and, to that extent, reduce the compliance costs associated with these 
speculative position limits. The countervailing benefits to any 
additional costs are that the continued inclusion of appropriate 
speculative limits will help to ensure the maintenance of competitive 
and efficient markets, protect the price discovery and risk shifting 
functions of those markets, and protect market participants and the 
public interest.

B. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq., 
requires federal agencies, in proposing rules, to consider the impact 
of those rules on small businesses. The Commission believes that the 
proposed rule amendments to raise Commission speculative position 
limits would only impact large traders. The Commission has previously 
determined that large traders are not small entities for purposes of 
the RFA.\8\ Therefore, the Acting Chairman, on behalf of the 
Commission, hereby certifies, pursuant to 5 U.S.C. 605(b), that the 
action taken herein will not have a significant economic impact on a 
substantial number of small entities. The Commission also notes in this 
regard that the proposed rules will raise speculative limit levels and 
thereby reduce the regulatory burden on all affected entities.
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    \8\ 47 FR 18618 (April 30, 1982).
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C. Paperwork Reduction Act

    When publishing proposed rules, the Paperwork Reduction Act of 1995 
(44 U.S.C. 3507(d)) imposes certain requirements on federal agencies 
(including the Commission) in connection with their conducting or 
sponsoring any collection of information as defined by the Paperwork 
Reduction Act. In compliance with the Paperwork Reduction Act, the 
Commission, through this rule proposal, solicits public comment to: (1) 
Evaluate whether the proposed collection of information is necessary 
for the proper performance of the functions of the agency, including 
the validity of the methodology and assumptions used; (2) evaluate the 
accuracy of the agency's estimate of the burden of the proposed 
collection of information including the validity of the methodology and 
assumptions used; (3) enhance the quality, utility and clarity of the 
information to be collected; and (4) minimize the burden of the 
collection of information on those who are to respond through the use 
of appropriate automated, electronic, mechanical, or other 
technological collection techniques or other forms of information 
technology, e.g., permitting electronic submission of responses.
    The Commission has submitted the proposed rule and its associated 
information collection requirements to the Office of Management and 
Budget. The proposed rule is part of two approved information 
collections. The burdens associated with these rules are as follows:

Collection Number

[3038-0009]

    Average burden hours per response: 3.
    Number of respondents: 2946.
    Frequency of response: On occasion.

Collection Number

[3038-0013]

    Average burden hours per response: 3.
    Number of respondents: 9.
    Frequency of response: On occasion.

List of Subjects in 17 CFR Part 150

    Agricultural commodities, Bona fide hedge positions, Position 
limits, Spread exemptions.

    In consideration of the foregoing, pursuant to the authority 
contained in the Commodity Exchange Act, the Commission hereby proposes 
to amend part 150 of chapter I of title 17 of the Code of Federal 
Regulations as follows:

PART 150--LIMITS ON POSITIONS

    1. The authority citation for part 150 is revised to read as 
follows:

    Authority: 7 U.S.C. 6a, 6c, and 12a(5), as amended by the 
Commodity Futures Modernization Act of 2000, Appendix E of Pub. L. 
106-554, 114 Stat. 2763 (2000).

    2. Section 150.2 is revised to read as follows:


Sec.  150.2  Position limits.

    No person may hold or control positions, separately or in 
combination, net long or net short, for the purchase or sale of a 
commodity for future delivery or, on a futures-equivalent basis, 
options thereon, in excess of the following:

                     Speculative Position Limits \1\
                           [In contract units]
------------------------------------------------------------------------
                                                   Single
             Contract               Spot month     month      All months
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                         Chicago Board of Trade
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Corn and Mini-Corn \2\...........          600       26,000       42,400
Oats.............................          600        1,400        2,000

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Soybeans and Mini-Soybeans \2\...          600        8,600       13,300
Wheat and Mini-Wheat \2\.........          600       11,100       14,500
Soybean Oil......................          540        6,600        8,600
Soybean Meal.....................          720        5,500        7,100
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                       Minneapolis Grain Exchange
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Hard Red Spring Wheat............          600       11,100       14,500
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                         New York Board of Trade
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Cotton No. 2.....................          300        5,300        7,300
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                       Kansas City Board of Trade
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Hard Winter Wheat................          600       11,100       14,500
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\1\ For purposes of compliance with these limits, positions in a futures
  contract that shares substantially identical terms with a contract
  market enumerated herein, including a futures contract that is cash-
  settled based on the settlement price of an enumerated contract
  market, shall be aggregated with positions in the enumerated contract
  market.
\2\ For purposes of compliance with these limits, positions in the
  regular-sized and mini-sized contracts shall be aggregated.


    Issued by the Commission this November 15, 2007, in Washington, 
DC.
David Stawick,
Secretary of the Commission.
 [FR Doc. E7-22681 Filed 11-20-07; 8:45 am]
BILLING CODE 6351-01-P