[Federal Register Volume 77, Number 104 (Wednesday, May 30, 2012)]
[Proposed Rules]
[Pages 31767-31783]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-12526]


=======================================================================
-----------------------------------------------------------------------

COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 151

RIN 3038-AD82


Aggregation, Position Limits for Futures and Swaps

AGENCY: Commodity Futures Trading Commission.

[[Page 31768]]


ACTION: Notice of proposed rulemaking.

-----------------------------------------------------------------------

SUMMARY: On November 18, 2011, the Commodity Futures Trading Commission 
(``Commission'' or ``CFTC'') published in the Federal Register a final 
rule and interim final rule, which establish a 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 response to a petition for exemptive relief under 
the Commodity Exchange Act and certain comments to the Commission's 
interim final rule for spot-month limits for cash-settled contracts, 
this notice proposes certain modifications to the Commission's policy 
for aggregation under the position limits regime in CFTC regulations.

DATES: Comments must be received on or before June 29, 2012.

ADDRESSES: You may submit comments, identified by RIN number3038-AD82, 
by any of the following methods:
     Agency Web Site: http://www.cftc.gov.
     Mail: David A. Stawick, 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 
www.cftc.gov. You should submit only information that you wish to make 
available publicly. If you wish the Commission to consider information 
that is exempt from disclosure under the Freedom of Information Act, a 
petition for confidential treatment of the exempt information may be 
submitted according to the procedure established in CFTC regulation 
145.9 (17 CFR 145.9).
    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 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, at (202) 418-5452, [email protected]; 
Neal Kumar, Counsel, Office of General Counsel, at (202) 418-5353, 
[email protected], Riva Spear Adriance, Senior Special Counsel, Division 
of Market Oversight, at (202) 418-5494, [email protected], Commodity 
Futures Trading Commission, Three Lafayette Centre, 1155 21st Street 
NW., Washington, DC 20581.

SUPPLEMENTARY INFORMATION:

I. Background

A. Introduction

    On July 21, 2010, President Obama signed the Dodd-Frank Wall Street 
Reform and Consumer Protection Act (``Dodd-Frank Act'').\1\ Title VII 
of the Dodd-Frank Act \2\ amended the Commodity Exchange Act (``CEA'') 
\3\ 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.
---------------------------------------------------------------------------

    \1\ See Dodd-Frank Wall Street Reform and Consumer Protection 
Act, Public Law 111-203, 124 Stat. 1376 (2010). The text of the 
Dodd-Frank Act may be accessed at http://www.cftc.gov/LawRegulation/DoddFrankAct/index.htm.
    \2\ Pursuant to section 701 of the Dodd-Frank Act, Title VII may 
be cited as the ``Wall Street Transparency and Accountability Act of 
2010.''
    \3\ 7 U.S.C. 1 et seq.
---------------------------------------------------------------------------

    As amended by the Dodd-Frank Act, sections 4a(a)(2) and 4a(a)(5) of 
the CEA mandate that the Commission 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. This mandate directed the Commission 
to establish position limits on the expedited timeframe of 180 days 
from the date of enactment for exempt commodities and 270 days from the 
date of enactment for agricultural commodities. In response to the 
Congressional mandate, the Commission proposed and ultimately adopted 
final rules in part 151 regarding position limits for 28 physical 
commodity futures and option contracts (``Core Referenced Futures 
Contracts'') and physical commodity swaps that are economically 
equivalent to such contracts (collectively with Core Referenced Futures 
Contracts referred to as ``Referenced Contracts'').\4\
---------------------------------------------------------------------------

    \4\ See Position Limits for Futures and Swaps, 76 FR 71626, Nov. 
18, 2011.
---------------------------------------------------------------------------

    The regulations in the part 151 position limits regime, consistent 
with the Commission's historical approach to position limits,\5\ 
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,\6\ (2) an exemption for positions that constitute bona fide 
hedging transactions,\7\ and (3) rules to determine which accounts and 
positions a person must aggregate for the purpose of determining 
compliance with the position limit levels.\8\
---------------------------------------------------------------------------

    \5\ See 17 CFR 150 (1999). Prior to the Dodd-Frank Act 
rulemaking, the Commission administered position limits under 
Commission regulation 150, which established federal position limits 
on certain enumerated agricultural contracts. The position limits on 
these agricultural contracts are referred to as ``legacy'' limits, 
and the listed commodities are referred to as ``enumerated'' 
agricultural commodities.
    \6\ See 17 CFR 151.4.
    \7\ See 17 CFR 151.5. See also CEA section 4a(c)(1) & (2).
    \8\ See 17 CFR 151.7.
---------------------------------------------------------------------------

    The Commission published Part 151 in the Federal Register in 
November of 2011, but determined to phase in compliance with the new 
position limits regime.\9\ Specifically, 60 days after the Commission 
publishes a joint final rulemaking with the Securities and Exchange 
Commission (``SEC'') further defining the term ``swap'' in the Federal 
Register,\10\ the rules require market participants to comply with 
spot-month limits for the 28 physical commodities as well as non-spot 
month limits for the enumerated agricultural contracts. The Commission 
also established the spot-month position limit levels for cash-settled 
contracts on an interim final basis and solicited comments on the 
appropriateness of such levels.\11\ Finally, for the remaining non-spot 
month limits (i.e., all commodities other than the enumerated 
agricultural commodities), the rules require compliance on the first 
calendar day of the third calendar month following a

[[Page 31769]]

Commission order providing the numerical level of the non-spot month 
limits based upon a formula provided in part 151.\12\
---------------------------------------------------------------------------

    \9\ See 76 FR at 71632; and 151.4(d).
    \10\ Id. See also Further Definition of ``Swap,'' ``Security-
Based Swap,'' and ``Security Based Swap Agreement''; Mixed Swaps; 
Security-Based Swap Agreement Recordkeeping, 76 FR 29818, May 23, 
2011 (notice of proposed rulemaking).
    \11\ See 76 FR 71637.
    \12\ See 151.4(d)(3).
---------------------------------------------------------------------------

    As noted above, one of the three major components to the 
Commission's position limits regime is determining which accounts and 
positions a person must aggregate.\13\ The final rule in regulation 
151.7 largely adopted the Commission's existing aggregation policy 
under regulation 150.4. The aggregation provisions generally require 
that unless a particular exemption applies, a person must aggregate all 
positions for which that person controls the trading decisions with all 
the 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.\14\
---------------------------------------------------------------------------

    \13\ The proposed rules in this release deal solely with the 
aggregation of accounts.
    \14\ See 17 CFR 151.7(a) & (b). In addition, the Commission 
included a new aggregation provision for persons with positions in 
accounts with identical trading strategies. This provision applies 
even if a person does not control trading and has a less than 10 
percent interest in an account. See 17 CFR 151.7(d).
---------------------------------------------------------------------------

    Regulation 151.7 retained the scope of exemptions from aggregation 
that were contained in regulation 150.4, including the ownership 
interests of limited partners in pooled accounts,\15\ discretionary 
accounts and customer trading programs of futures commission merchants 
(``FCM''),\16\ and eligible entities with independent account 
controllers that manage customer positions (``IAC'' or ``IAC 
exemption'').\17\ Further, the Commission provided two additional 
exemptions for underwriters of securities,\18\ and where the sharing of 
information between persons would cause either person to violate 
federal law or regulations adopted thereunder.\19\ With the exception 
of the exemption for underwriters, market participants were required to 
file a notice with the Commission demonstrating compliance with the 
conditions applicable to each exemption.\20\
---------------------------------------------------------------------------

    \15\ 17 CFR 151.7(c).
    \16\ 17 CFR 151.7(e).
    \17\ 17 CFR 151.7(f).
    \18\ 17 CFR 151.7(g).
    \19\ See 17 CFR 151.7(i).
    \20\ See 17 CFR 151.7(h). The exemption for federal law 
information sharing restrictions in regulation 151.7(i), also 
requires that market participants submit an opinion of counsel that 
the sharing of information would cause a violation of federal law.
---------------------------------------------------------------------------

B. Aggregation Petition and Interim Final Rule Comments

    On January 19th, 2012 the Commission received a petition for 
interim relief from, among other things, part 151's provision for 
aggregation of positions across accounts (hereinafter aggregation 
petition'') \21\ under CEA section 4a(a)(7) for purposes of part 
151.\22\ The Commission has also received letters that generally 
support the aggregation petition.\23\ In addition, several commenters 
opined on the aggregation rules in connection with the Commission's 
request for comment on the interim final rule for spot-month position 
limits on cash-settled contracts.\24\ As further discussed below, the 
aggregation petition and certain interim final rule commenters argue 
that the Commission should clarify the exemption provided in regulation 
151.7(i) where the sharing of information would cause a violation of 
federal law and expand the exemption to include circumstances in which 
state or foreign law would prohibit the sharing of information 
necessary to comply with the aggregation standard. In addition, the 
aggregation petition and commenters request that the Commission create 
an aggregation exemption for owned non-financial entities.\25\ In this 
connection, some commenters argue that the Commission should only 
aggregate on the basis of control and not ownership. Finally, one 
commenter requests that the Commission expand the exemption provided in 
151.7(g) for the ownership interests of broker-dealers connected with 
specific market-making activity.
---------------------------------------------------------------------------

    \21\ 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'') wish 
to present one voice with respect to the petition. A copy of the 
aggregation petition can be found on the Commission's Web site at 
www.cftc.gov/stellent/groups/public/@rulesandproducts/documents/ifdocs/wgap011912.pdf.
    \22\ CEA section 4a(a)(7) specifically provides: ``The 
Commission, by rule, regulation, or order, may exempt, conditionally 
or unconditionally, any person or class of persons, any swap or 
class of swaps, any contract of sale of a commodity for future 
delivery or class of such contracts, any option or class of options, 
or any transaction or class of transactions from any requirement it 
may establish under this section with respect to position limits.'' 
7 U.S.C. 6a(a)(7).
    \23\ See Commodity Markets Council (``CMC'') on March 9, 2012; 
Edison Electric Institute and the American Gas Association on March 
1, 2012; and the Futures Industry Association (``FIA'') on March 26, 
2012.
    \24\ See FIA on January 17, 2012 (``CL-FIA''); Atmos Energy 
Holdings (``ATMOS'') on January 17, 2012 (``CL-Atmos''); Edison 
Electric Institute (``EEI'') on January 17, 2012 (``CL-EEI''); and 
American Gas Association (``AGA'') on January 17, 2012 (``CL-AGA'').
    \25\ The Commission initially proposed but did not adopt an 
exemption that would have permitted persons with an ownership or 
equity interest in a non-financial entity not to aggregate the 
positions or accounts of the non-financial entity provided the 
person filed an application demonstrating compliance with certain 
conditions. See Position Limits for Derivatives, 76 FR 4752, 4762-
63, Jan. 26, 2011. The Commission determined not to adopt this 
proposed exemption, but instead generally retained the Commission's 
existing aggregation policy. See 76 FR 71626.
---------------------------------------------------------------------------

1. Exemption for Federal Law Restriction
    As noted above, section 151.7(i) provides an exemption from 
aggregation where the sharing of information between persons would 
cause either person to violate federal law. The aggregation petition 
seeks to clarify that the exemption would apply to potential violations 
of federal law,\26\ and also seeks to expand the exemption to apply to 
local, state, foreign and international law.\27\ According to the 
aggregation petition, the standard in the rule could be read as limited 
to per se violations of the law, but not cover ``indicia of improper 
market activity.'' \28\ Further, market participants may not be able to 
rely on the exemption where they take certain action to avoid the 
``potential'' of a violation. Moreover, the Working Groups argue that 
the filing of an opinion of counsel to claim the exemption may act as a 
disincentive for market participants to avail themselves of the 
exemption because an adverse opinion would harm the applicant.
---------------------------------------------------------------------------

    \26\ Aggregation petition at 18.
    \27\ Id. at 24.
    \28\ Id. at 17.
---------------------------------------------------------------------------

    Similar to the petition, certain commenters to the interim final 
rule argue that the requirement that the sharing of information ``would 
cause'' a violation of federal law sets the bar too high to claim the 
exemption.\29\ In this connection, commenters opine that such a high 
standard makes it too difficult to obtain an opinion of counsel to 
reach the necessary conclusion.\30\ Therefore, several commenters argue 
that the Commission should clarify that the standard to claim the 
exemption is that the sharing of information presents either party with 
a reasonable risk of violating federal law.\31\ Commenters also believe 
that the Commission should expand this exemption to cover potential 
violations of state and foreign law.\32\ Finally, one commenter 
suggests

[[Page 31770]]

that the Commission should remove the requirement to file an opinion of 
counsel to claim the exemption, which the commenter believes is 
burdensome.\33\
---------------------------------------------------------------------------

    \29\ See CL-FIA at 16-17; CL-Atmos at 5-6; and CL-EEI at 17-18.
    \30\ CL-EEI at 17-18; and CL-Atmos at 5-6.
    \31\ CL-FIA at 16-17; CL-EEI at 17-18; and CL-Atmos at 5-6.
    \32\ CL-AGA at 2; CL-FIA at 16-17; CL-EEI at 17-18; and CL-Atmos 
5-6.
    \33\ CL-AGA at 5.
---------------------------------------------------------------------------

2. The Owned Non-Financial Entity Exemption and Aggregation Based on 
Ownership Generally
    As noted above, the proposed rules for part 151 proposed that a 
person with a 10 percent or greater ownership or equity interest in a 
non-financial entity need not aggregate the positions of the non-
financial entity with his own positions, if the person filed an 
application with the Commission demonstrating compliance with certain 
conditions. This exemption was not part of the Commission's previously 
existing aggregation policy for position limits on the enumerated 
agricultural contracts in part 150. Ultimately, the Commission 
determined to largely retain its existing aggregation policy with 
limited additional exemptions, and did not adopt the proposed owned 
non-financial entity exemption.
    According to the aggregation petition, the Commission's failure to 
include an exemption for a person's ownership interest in a non-
financial entity will result in ``serious adverse consequences'' to the 
Working Groups participants, and represents a ``drastic departure from 
current market practices.'' \34\ In light of these consequences, the 
aggregation petition includes a draft owned non-financial entity 
exemption for the Commission to incorporate into its aggregation 
policy. The draft exemption is similar, but not identical to, the owned 
non-financial entity exemption that the Commission proposed but did not 
adopt as part of its final rule.\35\
---------------------------------------------------------------------------

    \34\ See Aggregation petition, pg. 5-16.
    \35\ Id. at Exhibit A.
---------------------------------------------------------------------------

    The aggregation petition suggests that without an owned non-
financial entity exemption, the rules would force information sharing 
and the coordination of trading between entities, which would be 
contrary to existing best practices for antitrust compliance.\36\ Given 
the conflict with such practices, the Working Groups argue that 
compliance with the position limits rules may create liability under 
the antitrust laws. The Working Groups also argue that the aggregation 
rules, as adopted by the Commission, are contrary to certain industry 
best practices that ``go beyond the letter of the law or applicable 
regulations in order to ensure that activities of unregulated entities 
are kept separate from activities of regulated entities to the greatest 
extent possible.'' \37\
---------------------------------------------------------------------------

    \36\ Id. at 7. The Working Groups cite to best practices issued 
by the Federal Trade Commission and the U.S. Department of Justice 
regarding antitrust guidelines (``Antitrust Guidelines for 
Collaboration Among Competitors''). Available at www.ftc.gov/os/2000/04/ftcdojguidelines.pdf.
    \37\ Id. at pg. 9.
---------------------------------------------------------------------------

    The aggregation petition also opines that the information sharing 
between persons necessary to comply with the position limits would 
impose significant costs that would impact the physical and derivatives 
markets.\38\ According to the Working Groups, entities with complex 
corporate structure arrangements that include established information 
barriers to ensure compliance with other regulatory requirements will 
face significant costs to monitor positions on an intra-day basis, 
notwithstanding the current lack of control over such trading.\39\ In 
this case, the Working Groups claim that aggregation will significantly 
impact holding companies and firms that invest in commercial firms, 
particularly in the context of ``passive investment.'' Such firms will 
have to monitor the commercial firm for compliance with position limits 
and ``insert itself into the management of the firm.'' \40\ In 
addition, according to the Working Groups, the aggregation of futures, 
cleared swaps and bilateral swaps across entities on a real time basis 
requires technology that does not yet exist.\41\ The aggregation 
petition also points to concerns surrounding allocation and reporting 
of positions, sharing of information on physical inventories, and 
information sharing for the unwinding of accounts.\42\
---------------------------------------------------------------------------

    \38\ Id. at 10-16.
    \39\ Similarly, according to the aggregation petition, the 
aggregation requirements impose significant compliance burdens where 
ownership interests may involve international companies, or where a 
corporate structure includes multiple levels of companies between a 
parent company and a child company with an account or position.
    \40\ Id. at 11.
    \41\ Id.
    \42\ Id. at 12-14.
---------------------------------------------------------------------------

    The Working Groups assert that the position limit rules represent a 
``drastic departure from the status quo.'' \43\ According to the 
aggregation petition, the Commission's position limits previously only 
applied to agricultural commodity futures and options on futures, and 
DCM position limits applied to futures on energy and metals 
commodities.\44\ However, the Commission's new position limits rules 
will apply to swaps for the first time. Further, the Working Groups 
contend that DCMs previously provided ``aggregation exemptions that 
provided the flexibility necessary for commercial enterprises to manage 
their position limit obligations across entities without undue 
burden.'' \45\ In addition, the aggregation of accounts across 
commercial firms could lead to decreased liquidity and competition in 
the energy derivatives market.
---------------------------------------------------------------------------

    \43\ Id. at 14.
    \44\ The Commission notes that although the aggregation petition 
describes the final position limit rules, including the aggregation 
requirements, as a ``drastic departure from the status quo,'' and 
seeks to differentiate between Commission and DCM rules regarding 
treatment of owned positions for purposes of aggregation, many 
current and past DCM rules require aggregation of the positions a 
person either owns or controls. See Board of Trade of the City of 
Chicago, Inc. (``CBOT'') Rule 559.D; Chicago Mercantile Exchange, 
Inc. (``CME'') Rule 559.D; New York Mercantile Exchange, Inc. 
(``NYMEX'') Rule 559.D; ICE Futures U.S., Inc. (``ICE US'') Rule 
6.12; Board of Trade of Kansas City, Missouri, Inc. (``KCBT'') Rule 
2008.00; and Minneapolis Grain Exchange, Inc. (``MGE'') Rule 7310. 
See also NYMEX Rule 9.35, MGEX Rule 7310 and CBOT Rule 425.05 as 
examples of older rules requiring aggregation of the positions a 
person either owns or controls, which were in effect over the last 
10 years. Furthermore, acceptable practices adopted by the 
Commission in August, 2001, provided DCMs with a safe harbor for 
position limit rules that aggregated positions a person owns or 
controls. See 66 FR 42256, 42280, August 10, 2001, Appendix B to 
Part 38, Core Principle 5. See also http://www.cftc.gov/files/foia/fedreg01/foi010810a.pdf.
    \45\ Id. at 15.
---------------------------------------------------------------------------

    In light of these changes, the Working Groups believe that the 
Commission should provide relief in the form of an owned non-financial 
entity exemption. The aggregation petition includes a draft owned non-
financial entity exemption that follows the Commission's prior proposed 
exemption with some modifications.\46\
---------------------------------------------------------------------------

    \46\ Id. at Exhibit A.
---------------------------------------------------------------------------

    Similar to the aggregation petition, commenters to the interim 
final rule request that the Commission adopt an owned non-financial 
entity exemption.\47\ FIA and EEI argue that without such an exemption, 
market participants would have to aggregate all positions held by any 
entity in which it has a ten percent ownership interest, even if such 
interest is passive without control over trading. According to FIA, 
such a consequence would ``have an unnecessary and profoundly negative 
impact on users of Referenced Contracts, and their affiliates with no 
corresponding benefit to the stability or integrity of the market.'' 
\48\ EEI also argues that the owned non-financial entity exemption 
would provide commercial firms the same aggregation relief as eligible 
entities that rely on the independent account controller exemption.\49\
---------------------------------------------------------------------------

    \47\ CL-FIA at 17-18; and CL-EEI at 16-17.
    \48\ CL-FIA at 18. See also CL-EEI at 16-17.
    \49\ CL-EEI at 16.
---------------------------------------------------------------------------

    Several commenters also address the requirement that persons 
aggregate

[[Page 31771]]

based upon ownership of positions generally. These commenters recommend 
that the Commission only aggregate based on control, and not aggregate 
positions based upon an ownership interest in a position or 
account.\50\ According to these commenters, aggregation through an 
ownership interest, absent control of trading decisions, will impose 
significant burdens for entities to aggregate on an intra-day basis, 
may harm liquidity, and does not address the potential concerns about 
coordinated trading. Similar to the comments regarding the owned non-
financial entity exemption, commenters submit that aggregating 
positions based solely on ownership creates substantial compliance 
burdens within the context of a complex corporate structure. In this 
connection, EEI suggests that the Commission not require an entity to 
aggregate owned positions if an entity could show the independence of 
trading decisions of the owned entity.\51\
---------------------------------------------------------------------------

    \50\ See e.g., CL-FIA at 15; CL-EEI at 1-2, 14-15; CL-Atmos at 
3-5; and CL-AGA at 1-3.
    \51\ See e.g., CL-EEI at 14-15.
---------------------------------------------------------------------------

3. Exemption for Underwriters
    As noted above, Commission rule 151.7(g) includes an exemption from 
the ownership criteria for aggregation if the ownership 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.

FIA submits that the Commission should clarify and expand this 
exemption to include an ownership interest based on the acquisition or 
disposition of securities acquired in connection with the trading or 
market-making activities of a broker-dealer registered with the SEC, or 
a comparable broker-dealer.\52\ FIA believes that aggregation based 
upon a 10 percent ownership interest should not be required if the 
broker-dealer acquires the interest--(1) In anticipation of demand, (2) 
as part of its normal market-making activity, or (3) as a result of a 
routine life cycle event, such as a stock distribution. Such ownership 
interests, according to FIA, do not present the same concerns about 
sharing transaction or position information that may facilitate 
coordinated trading.\53\
---------------------------------------------------------------------------

    \52\ CL-FIA at 6, 16.
    \53\ CL-FIA at 16.
---------------------------------------------------------------------------

    In response to the issues raised in the aggregation petition and 
comments to the interim final rule, the Commission has determined to 
propose modifications to certain position limits aggregation 
provisions.

II. Proposed Rules

A. Proposed Rules for Information Sharing Restriction

    The Commission is proposing to clarify that the scope of the 
exemption in regulation 151.7(i) includes a reasonable risk of a 
violation of federal law. The Commission intended to cover such risks 
in the final rule and is therefore proposing to amend regulation 
151.7(i) to make clear that the exemption includes circumstances in 
which the sharing of information would create a reasonable risk of a 
violation of federal law or regulations adopted thereunder.
    The proposed rules retain the requirement that market participants 
file an opinion of counsel to rely on the exemption in regulation 
151.7(i). The opinion 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 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. The Commission also notes 
that the proposed clarification should address the concerns of 
commenters that obtaining an opinion of counsel could be difficult if 
the Commission read the existing standard to include only per se 
violations.
    With regard to comments that the exemption should permit persons to 
rely upon ``best practices'' or other ``guidelines,'' the Commission 
notes that the proposed exemption applies to situations where the 
sharing of information creates a reasonable risk of violating federal 
law or regulations adopted thereunder. Whether a reasonable risk exists 
will 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. Notwithstanding the 
Commission's facts and circumstances review of potentially conflicting 
federal law or regulations, the exemption in regulation 151.7(i) is 
effective upon filing of the notice in 151.7(h) and opinion of counsel. 
These provisions authorize 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. As the Commission gains 
further experience with the exemption for federal law information 
sharing restriction in regulation 151.7(i), the Commission anticipates 
providing further guidance to market participants.
1. Proposed Rules for Information Sharing Restriction--Foreign Law
    For the same reasons the Commission adopted the exemption for 
federal information sharing restrictions, the Commission proposes 
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 is also proposing 
an exemption where the sharing of information creates a reasonable risk 
of violating the law of a foreign jurisdiction. However, the Commission 
remains 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, this proposed rule, consistent with the exemption for 
federal law information sharing restriction, includes the requirement 
to file an opinion of counsel specifically identifying the restriction 
of law and facts particular to the market participant claiming the 
exemption.\54\
---------------------------------------------------------------------------

    \54\ The Commission notes that the proposed expansion of this 
exemption includes a proposed technical change to regulation 
151.7(i). The proposed technical change specifies that the 
``notice'' filing referenced in current regulation 151.7(i) is a 
reference to the notice filing requirements set forth in regulation 
151.7(h). In addition, the Commission has proposed a technical 
change to the FCM exemption in current regulation 151.7(e). Proposed 
regulation 151.7(e)(4) is designed for ease of reference for market 
participants to follow the filing requirements in regulation 
151.7(h), which requires persons claiming the FCM exemption in 
regulation 151.7(e) to file pursuant to regulation 151.7(h). 
Finally, the Commission is also proposing a technical change to the 
form and manner of filing for an aggregation exemption in regulation 
151.10(b)(4). Specifically, this proposed change makes clear that a 
notice filing for an aggregation exemption is effective upon filing.
---------------------------------------------------------------------------

    The Commission notes that the aggregation petition references 
information sharing restrictions that arise from ``international'' law. 
The proposed rules include relief from aggregation for information 
sharing that could create a reasonable risk of violating the law of a 
foreign jurisdiction. The Commission seeks comment as to whether this 
proposal adequately addresses the concerns of market participants 
outlined in the interim final rule comments and the

[[Page 31772]]

aggregation petition, and as to whether those concerns are valid. The 
Commission specifically requests comment on the types of 
``international'' law, if any, which could create information sharing 
restrictions other than the law of a foreign jurisdiction. Should the 
regulation 151.7(i) exemption include ``international'' law or is it 
sufficient to refer to the ``law of a foreign jurisdiction''? 
Alternatively, the Commission is considering a case-by-case approach 
through petitions submitted pursuant to CEA section 4a(a)(7). Should 
the Commission adopt such a case-by-case approach?
2. Proposed Rules for Information Sharing Restriction--State Law
    After consideration of the aggregation petition and the interim 
final rule comments the Commission is also proposing to establish an 
exemption for situations where information sharing restrictions could 
trigger state law violations. In addition, similar to the clarification 
for the exemption for federal law information sharing restriction, the 
Commission is also proposing that the state law information sharing 
restriction apply to situations where the sharing of information 
creates a reasonable risk of violating the state law. However, as noted 
above, the Commission remains concerned about the potential for evasion 
within the context of this exemption. In this regard, this proposed 
rule, consistent with the federal law information sharing restriction, 
includes 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 Commission solicits comments as to the appropriateness of 
extending the information sharing exemption to state law. Should the 
Commission provide for such an exemption? Alternatively, the Commission 
is considering a case-by-case approach through petitions submitted 
pursuant to CEA section 4a(a)(7). Should the Commission adopt such a 
case-by-case approach and otherwise rely upon the preemption of state 
law in administering its aggregation policy?
    The Commission notes 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.'' \55\ That provision applies 
to intra-state transactions and resembles regulations of the Federal 
Energy Regulatory Commission.\56\ In this regard, should the Commission 
limit application of the proposed exemption for state law information 
sharing restrictions to laws that have a comparable provision at the 
federal level? What criteria should the Commission use in identifying 
state laws that a person may rely upon for an exemption from 
aggregation?
---------------------------------------------------------------------------

    \55\ Aggregation petition at 24.
    \56\ See e.g. 18 CFR 1c.1 & 1c.2.
---------------------------------------------------------------------------

    The Commission also solicits 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 notes that the aggregation petition seeks to 
extend the exemption to information sharing restrictions that arise 
from ``local'' law.\57\ However, neither the aggregation petition nor 
interim final rule commenters have provided examples, and the 
Commission is concerned that an exemption for local law would be 
difficult to implement due to the number of laws and/or regulations 
that would need to be considered and the vast numbers of localities 
that might issue such laws and/or regulations.
---------------------------------------------------------------------------

    \57\ Aggregation petition at 24.
---------------------------------------------------------------------------

    The Commission solicits comment as to the appropriateness of 
extending the information sharing exemption to ``local'' law. 
Commenters are 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. What criteria could 
the Commission use in identifying local laws that a person may rely 
upon for an exemption from aggregation? Should the Commission 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?

B. Proposed Rules--Ownership of Positions Generally

    The Commission continues to consider ownership an appropriate 
measure for aggregation. 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.\58\
---------------------------------------------------------------------------

    \58\ 7 U.S.C. 6a.

Congress incorporated this provision into Section 4a as part of the CEA 
Amendments of 1968 (``1968 Act'').\59\ The legislative history to the 
1968 Act indicates that Congress added this language to expressly 
incorporate prior administrative determinations of the Commodity 
Exchange Authority (predecessor to the Commission).\60\ Prior to the 
1968 Act, administrative determinations as well as regulations of the 
Commodity Exchange Authority announced standards that included control 
of trading and the ownership of positions.\61\
---------------------------------------------------------------------------

    \59\ Public Law 90-258, 82 Stat. 26 (1968).
    \60\ See S. Rep No. 947, 90th Cong., 2 Sess. 5 (1968). This 
senate report provides:
    Certain longstanding administrative interpretations would be 
incorporated in the act. As an example, the present act authorizes 
the 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.
    \61\ 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).
    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 aggregation 
provisions into part 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 incorporates the aggregation 
provisions in part 151.7 along with the remaining position limit 
provisions in part 151. See 76 FR 71626, Nov. 18, 2011.
---------------------------------------------------------------------------

    In light of the language in section 4a, the legislative history and 
regulatory developments, the Commission has

[[Page 31773]]

historically viewed, and continues to view, section 4a as requiring 
aggregation on the basis of either ownership or control.\62\ The 
Commission also believes that aggregation of positions across accounts 
based upon ownership is a necessary part of the Commission's position 
limit regime.\63\ An ownership standard establishes a bright-line test 
that provides certainty to market participants and the Commission.\64\
---------------------------------------------------------------------------

    \62\ See e.g., Exemptions from Speculative Position Limits for 
Positions which have a Common Owner but which are Independently 
Controlled and for Certain Spread Positions, 53 FR 41563, 41564, 
Oct. 24, 1988); and Exemption from Speculative Position Limits for 
Positions which have a Common Owner but which are Independently 
Controlled and for Certain Spread Positions, 55 FR 30926, July 30, 
1990.
    \63\ 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.
    \64\ See also 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.''); and 53 FR 13290, 13293 (1988).
---------------------------------------------------------------------------

    Absent aggregation on the basis of ownership, the Commission would 
have to apply a control test in all cases, which poses significant 
administrative challenges to individually assess control across all 
market participants. Further, if the statute only required aggregation 
based on control, market participants may be able to use an ownership 
interest to circumvent aggregation in circumstances where an ownership 
interest is used to directly or indirectly influence control over the 
account or position. The Commission also notes that the ownership prong 
attributes a position to the beneficial owner of multiple accounts that 
amount to an unduly large position, which position limits are intended 
to prevent. Therefore, the proposed rules would continue to require 
aggregation based upon either ownership or control.
    Regarding a threshold level to aggregate on the basis of ownership, 
the Commission 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 traditionally viewed an ownership interest below 10 
percent as not warranting aggregation.\65\ Commenters suggest 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. 
Commenters argue that under these conditions, such passive investments 
would present a reduced concern for 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.
---------------------------------------------------------------------------

    \65\ 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, 44 FR 33839, 33843, Jun. 13, 1979. Note, 
however, rule 151.7(d) will separately require aggregation of 
investments in accounts with identical trading strategies.
---------------------------------------------------------------------------

    While prior Commission rulemakings have generally restricted 
exemptions to the ownership criteria to limited partners of commodity 
pools and independent account controllers managing customer funds for 
an eligible entity, the Commission has considered a broader passive 
investment exemption.\66\ Further, the Commission indicated in the part 
151 final rule that the development of aggregation exemptions could 
occur over time.\67\ This incremental approach to account aggregation 
standards reflects the Commission's historical practice.\68\ Consistent 
with that practice, the Commission has considered the additional 
information provided and the concerns raised by the aggregation 
petition and interim final rule commenters, and believes it appropriate 
to propose certain relief from the ownership criteria of 
aggregation.\69\
---------------------------------------------------------------------------

    \66\ 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?''
    \67\ See 76 FR 71626, 71654.
    \68\ 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).
    \69\ The Commission notes that ownership and control are 
considered separately for the aggregation of accounts. As such, if 
the Commission were to adopt the proposed exemption outlined below, 
and a market participant qualified for the exemption, such person 
would nonetheless have to aggregate those same accounts or positions 
identified in the exemption if such person otherwise controlled 
trading, acted pursuant to an express or implied agreement or held 
positions in accounts with identical trading strategies.
---------------------------------------------------------------------------

1. Disaggregation Relief for Owned Entities
    Proposed rule 151.7(b) continues the Commission's longstanding rule 
that persons with an ownership or 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. Persons with a 10 
percent or greater ownership interest would still generally be required 
to aggregate the account or positions. However, proposed rule 
151.7(b)(1) establishes 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 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 notice 
filing would be effective upon submission to the Commission, but the 
Commission may subsequently 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 circumstances described in the filing.
    The proposed criteria to claim relief under 151.7(b)(1) address the 
Commission's concerns that an

[[Page 31774]]

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. Essentially, the proposed 
rules amending the ownership criteria for aggregation across accounts 
establish a rebuttable presumption that persons with an ownership or 
equity interest of 10 percent or greater must aggregate, but such 
persons may file for disaggregation relief if their ownership interest 
does not exceed 50 percent and they can demonstrate independence by 
meeting the criteria described below.\70\
---------------------------------------------------------------------------

    \70\ The Commission notes that the conditions for independence 
apply to the person filing the notice as well as the owned entity. 
In addition, for purposes of complying with the proposed conditions, 
such ``person'' shall include any entity that such person must 
aggregate pursuant to regulation 151.7. For example, if company A 
files a notice under proposed regulation 151.7(b)(1) 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 under 151.7. In this 
connection, if company A controls the trading of company C, then 
there must be independence between company B and company C for 
purposes of company A's 151.7(b)(1) notice filing.
---------------------------------------------------------------------------

    Proposed rule 151.7(b)(1)(i)(A) conditions aggregation relief for 
the ownership interest in another entity on a demonstration that a 
person filing for disaggregation relief and the owned entity do not 
have knowledge of the trading decisions of the other. The Commission 
believes that where an entity has an ownership interest in another 
entity and neither entity share 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. For 
purposes of this provision, 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 would 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.
    Proposed rule 151.7(b)(1)(i)(B) conditions aggregation relief on a 
demonstration that such person seeking disaggregation relief and the 
owned entity trade pursuant to separately developed and independent 
trading systems. Further, proposed rule 151.7(b)(1)(i)(C) conditions 
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 must include document routing and other 
procedures or security arrangements, including separate physical 
locations, which would maintain the independence of their activities. 
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.\71\ 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. Similar to the IAC exemption, the proposed owned entity 
exemption in proposed rule 151.1(b)(1) would permit disaggregation if 
there is independence of trading between two entities. Thus the 
Commission proposes to include the above conditions, which are already 
applicable in the IAC context, and which should also strengthen the 
independence between the two entities for the owned entity exemption.
---------------------------------------------------------------------------

    \71\ See 17 CFR 151.7(f).
---------------------------------------------------------------------------

    Proposed rule 151.7(b)(1)(i)(D) conditions aggregation relief on a 
demonstration that such 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 
is concerned that shared employees with knowledge of trading decisions 
undermine the independence of trading between entities. 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 aggregation petition, 
the Working Groups submit that entities should be permitted to share 
``attorneys, accountants, risk managers, compliance and other mid- and 
back-office personnel.'' \72\ At this time, the Commission questions, 
and seeks comment regarding, whether the sharing of such persons 
compromises independence because it would provide each entity with 
knowledge of the other's trading decisions.\73\
---------------------------------------------------------------------------

    \72\ Aggregation petition at Exhibit A.
    \73\ The Commission notes that the proposed condition barring 
the sharing of employees that control the owned entity's trading 
decisions would include a prohibition on sharing of employees 
described in the aggregation petition (attorneys, accountants, risk 
managers, compliance and other mid-and back-office personnel), to 
the extent such employees are aware of the trading decisions of the 
person or the owned entity.
---------------------------------------------------------------------------

    Proposed rule 151.7(b)(1)(i)(E) conditions 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 addresses 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.\74\ The Commission has not 
proposed a condition that the risk management system be separately 
developed from the risk management system of the owned entity, and the 
Commission seeks comment as to whether risk management systems that do 
not communicate trade information can maintain independence of trading 
between entities.\75\
---------------------------------------------------------------------------

    \74\ This condition is similar to a condition proposed in the 
aggregation petition.
    \75\ The Commission remains concerned 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.
---------------------------------------------------------------------------

    Proposed rule 151.7(b)(1)(ii) conditions aggregation relief on a 
demonstration that such person does not have greater than a 50 percent 
ownership or equity interest in the owned entity. 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. 
This proposal would provide administrative certainty and would address 
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

[[Page 31775]]

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 
significantly large and potentially unduly large overall position in a 
particular commodity, which position limits are intended to 
prevent.\76\
---------------------------------------------------------------------------

    \76\ The Commission notes that aggregation based on ownership 
looks to a person's equity interest regardless of voting control. By 
way of comparison, with a greater than 50 percent interest in voting 
shares, such person generally is required to consolidate the owned 
entity for purposes of the Generally Accepted Accounting Principles 
(``GAAP''). 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. The Commission believes that 
aggregation based upon an ownership or equity interest of greater 
than 50 percent, regardless of voting interest, is appropriate to 
address the heightened risk of direct or indirect influence over the 
owned entity. Further, unless a particular exemption applies, a 
person with a 50 percent or greater voting interest in an owned 
entity would likely be required to aggregate the positions of the 
owned entity on the basis of control.
---------------------------------------------------------------------------

    The proposed owned entity exemption and the clarification and 
expansion of the violation of law exemption address concerns raised in 
the aggregation petition and interim final rule comments. First, the 
clarification and extension of the violation of law exemption responds 
to concerns that market participants could face increased liability 
under state, federal and foreign law. While the aggregation petition 
and other commenters argue that an owned non-financial entity exemption 
would reduce the risk of liability under antitrust and other laws, the 
proposed clarification and expansion would allow market participants to 
avail themselves of the violation of law exemption in those 
circumstances where the sharing of information creates a reasonable 
risk of violating the above mentioned bodies of law.
    The proposed owned entity exemption applies to both financial and 
non-financial entities that have passive ownership interests. Market 
participants that qualify for the exemption can 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 seeks 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 exemption. In addition, the Commission specifically 
requests comment as to whether the proposed relief should be limited to 
ownership interests in non-financial entities.
    While the owned non-financial entity exemption mentioned in the 
aggregation petition would permit disaggregation even if the owned 
entity is a wholly owned company, the Commission is 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. Small ownership interests of less 
than 10 percent do not warrant aggregation. A 10 percent or greater 
ownership interest has served as a useful measure for aggregation, but 
the Commission has determined relief may be warranted for passive 
investments. However, for the reasons discussed above, an ownership 
interest greater than 50 percent requires aggregation because ownership 
at that level serves as a useful benchmark for the increased risk of 
direct or indirect influence over the trading of an owned entity. 
Because the circumstances facilitating control can be difficult to 
monitor, a facts and circumstances review would be difficult to 
administer by both market participants and the Commission. In addition, 
a person with a greater than 50 percent ownership interest in multiple 
accounts may have the ability to hold a significantly large and 
potentially unduly large overall position in a particular commodity, 
which position limits are intended to prevent. Therefore, the 
Commission proposes limiting the availability of the exemption to those 
having an ownership interest no greater than 50 percent because such a 
bright-line rule would provide clarity to market participants and a 
useful tool for the Commission to simplify aggregation where there is 
an increased and substantial risk of coordinated trading.\77\
---------------------------------------------------------------------------

    \77\ The Commission reminds market participants that proposed 
regulation 151.7(b)(1) does not affect the applicability of a 
separate exemption from aggregation (e.g., the independent account 
controller exemption).
---------------------------------------------------------------------------

    With regard to filing requirements for the exemption in regulation 
151.7(b) (1), the Commission notes that market participants would be 
required to file in accordance with regulation 151.7(h).\78\ As such, 
market participants must file a notice with the Commission with a 
description of how they adhere to the criteria in regulation 
151.7(b)(1) and a certification that the conditions are met. This 
certification, as well as any other certification made under regulation 
151.7(h), must come from a senior officer of the market participant 
with knowledge as to the contents of the notice.\79\ Therefore, the 
Commission is proposing to clarify in regulation 151.7(h)(1)(ii) that 
such certification come from a senior officer. 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.\80\
---------------------------------------------------------------------------

    \78\ Where the provisions of regulation 151.7 require a person 
to file a notice, entities cannot rely upon an exemption unless such 
entity has properly filed a notice in accordance with regulation 
151.7(h).
    \79\ See 17 CFR 151.7(h)(1)(ii). Market participants should 
update the certification if the individual certifying compliance no 
longer works for the company.
    \80\ In this regard, the Commission clarifies 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 Sec.  Sec.  6(c)(2) and 9(a)(3).
---------------------------------------------------------------------------

    With regard to the type of material necessary to file a notice to 
claim an exemption under 151.7(b)(1), the Commission notes that each 
submission must be specific to the facts of the particular entity. The 
person claiming the exemption must provide specific facts that 
demonstrate compliance with each condition of relief. Such a 
demonstration should likely include an organizational chart including 
the ownership and control structure of the involved entities, a 
description of the risk management system, a description of the 
information-sharing 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.\81\
---------------------------------------------------------------------------

    \81\ The Commission notes that this list is 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. As 
noted earlier, the Commission may demand additional information 
regarding the exemption within its discretion.
---------------------------------------------------------------------------

    The Commission specifically requests comments as to the 
appropriateness of the owned entity exemption as well as the conditions 
applicable to the exemption. Should the Commission add additional 
criteria? If so, what criteria and why? Should the Commission require 
market participants to submit additional information to claim the 
exemption? If so, what information and why? With regard to the owned 
entity exemption, should the Commission alter the scope of the 
exemption? If so, how should it be altered and why? Further,

[[Page 31776]]

at what percent of ownership interest should a market participant no 
longer be able to claim the exemption proposed in regulation 
151.7(b)(1), if any? Are there specific circumstances in which a higher 
percentage of ownership than 50 percent would be appropriate to claim 
the exemption in regulation 151.7(b)(1) notwithstanding the concerns 
described above regarding coordinated trading, direct or indirect 
influence, and significantly large and potentially unduly large overall 
positions in a particular commodity? In addition, the Commission 
welcomes comment on the owned non-financial entity exemption set forth 
in appendix A of the aggregation petition as an alternative to the 
owned entity exemption proposed herein.
2. Higher Tier Entities
    In connection with the Working Groups' request for the Commission 
to include an owned non-financial entity exemption, the Working Groups 
also request that the Commission provide relief from the filing 
requirements for claiming the exemption. Specifically, the aggregation 
petition argues that if an entity files a notice and claims the owned 
non-financial entity exemption, then ``every higher-tier company (a 
company that holds an interest in the company that submitted the 
notice) need not aggregate the referenced contracts of the owned non-
financial entities identified in the notice.'' \82\ Thus, the 
Commission is proposing rules that provide relief to such ``higher-tier 
entities'' within the context of a corporate structure.\83\
---------------------------------------------------------------------------

    \82\ Aggregation petition at 23.
    \83\ For purposes of the discussion below, ``higher-tier'' 
entities include entities with a 10 percent or greater ownership 
interest in an owned entity.
---------------------------------------------------------------------------

    Proposed rule 151.7(j) provides that higher-tier entities may rely 
upon a notice for exemption filed by the owned entity, and such 
reliance would only go to the accounts or positions specifically 
identified in the notice. For example, if company A has a 30 percent 
interest in company B, and company B has filed an exemption notice for 
the accounts and positions of company C, then company A may rely upon 
company B's exemption notice for the accounts and positions of company 
C. Should company A wish to disaggregate the accounts or positions of 
company B, company A would have to file a separate notice for an 
exemption.
    The proposed rules also provide 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. Although higher-tier entities need not 
submit a separate notice to rely upon the notice filed by an owned 
entity, the Commission notes that it may, upon call, request that a 
higher-tier entity submit information to the Commission, including the 
possibility of an on-site visit, demonstrating compliance with the 
applicable conditions.
    The Commission believes that these proposed rules, if adopted, 
should significantly reduce the filing requirements for aggregation 
exemptions. Further, the Commission does not anticipate that the 
reduction in filing will impact the Commission's ability to effectively 
survey the proper application of exemptions from aggregation. The 
initial filing of an owned entity exemption notice should provide the 
Commission with sufficient information regarding the appropriateness of 
the exemption, while repetitive filings of higher-tier entities would 
not be expected to provide additional substantive information. However, 
the Commission again notes that higher-tier entities would still be 
required to comply with the substantive conditions of the exemption 
specified in the owned entity's notice filing.

C. Underwriting

    As noted above, Commission regulation 151.7(g) includes an 
exemption from aggregation where an ownership interest is in an unsold 
allotment of securities. FIA requests that the Commission expand the 
exemption to include situations where securities are owned in 
anticipation of demand as part of normal market-making activity, or as 
a result of a routine life cycle event, such as a stock distribution.
    The Commission believes that the ownership interest of a broker-
dealer registered with the SEC, or similarly registered with a foreign 
regulatory authority,\84\ 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 
currently found in regulation 151.7(g). In both circumstances, the 
ownership interest is likely transitory and not to hold for investment 
purposes. Accordingly, the Commission is proposing an aggregation 
exemption in regulation 151.7(g) for such activity.\85\
---------------------------------------------------------------------------

    \84\ See 15 U.S.C. 78o.
    \85\ The Commission specifically notes 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 purposes.
---------------------------------------------------------------------------

    However, the Commission notes that this exemption would not apply 
where a broker-dealer acquires more than a 50 percent ownership 
interest in another entity because this would not be consistent with 
holding such a transitory interest for the purpose of market making and 
runs a higher risk of coordinated trading.\86\ Therefore, a broker-
dealer that acquires more than 50 percent ownership interest in another 
entity must aggregate that entity, in the absence of another 
aggregation exemption.
---------------------------------------------------------------------------

    \86\ With regard to FIA's request that the exemption include a 
broker-dealer's ownership of securities in anticipation of demand or 
as part of routine life cycle events, the proposed rules would cover 
such activity if the activity was in the normal course of the 
person's business as a dealer.
---------------------------------------------------------------------------

    The Commission requests 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.

D. Independent Account Controller for Eligible Entities

    As noted above in section I.A of this release, section 151.7(f) 
provides an eligible entity with an exemption for the eligible entity's 
customer accounts that are managed and controlled by independent 
account controllers. In the part 151 rulemaking, the Commission adopted 
the same definitions of eligible entity and independent account 
controller found in the Commission's prior position limit regulations 
in regulation 150.1. The definition of eligible entity includes ``the 
limited partner or shareholder in a commodity pool the operator of 
which is exempt from registration under Sec.  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 only extends 
to ``a general partner of a commodity pool the operator of which is 
exempt from registration under Sec.  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.\87\
---------------------------------------------------------------------------

    \87\ See 63 FR 38532.
---------------------------------------------------------------------------

    The Commission understands that today, not all regulation 4.13 
commodity pools are formed as partnerships. For example, regulation

[[Page 31777]]

4.13 pools may be formed as limited liability companies and have 
managing members, not general partners.
    The Commission is proposing to expand the definition of independent 
account controller to include the managing member of a limited 
liability company. As such, regulation 4.13 commodity pools established 
as limited liability companies would be accorded the same treatment as 
such pools formed as limited partnerships. The limitation of the 
exemption to general partners was based upon a market structure that, 
historically, did not generally include regulation 4.13 commodity pools 
established as limited liability companies. In light of market 
developments since the Commission expanded IACs to include regulation 
4.13 pools as eligible entities, it may not be appropriate for there to 
be a distinction between limited partnerships and limited liability 
companies in this regard. As such, the Commission is proposing to amend 
the definitions of eligible entity and independent account controller 
in part 151.1 to specifically provide for regulation 4.13 commodity 
pools established as limited liability companies.
    The Commission intends to coordinate the disposition of the 
petition with the implementation of position limits under part 151. To 
do so, among other things, the Commission has directed staff to 
promptly review comment letters as soon as practicable following close 
of the comment period. Further, in order to provide an orderly 
transition to the compliance dates specified in part 151.4, the 
Commission intends to finalize consideration of the petition prior to 
the first compliance date of part 151.

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 an order.\88\ 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.
---------------------------------------------------------------------------

    \88\ 7 U.S.C. 19(a).
---------------------------------------------------------------------------

    The proposed rules provide the public with an opportunity to 
comment on concerns raised in the aggregation petition and in comments 
on the interim final rule. The petitioner and the commenters seek 
clarification of certain provisions of the Commission's aggregation 
policy, and seek to alter or expand exemptions from aggregation to 
include circumstances where there may be a low risk of coordinated 
trading. The Commission requests comment on all aspects of its 
consideration of costs and benefits, including identification and 
assessment of any costs and benefits not discussed herein. In addition, 
the Commission requests 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.
1. Aggregation Petition and Other Comments
    As discussed in section I.B. of this release, the Commission 
received a petition seeking relief from certain aggregation provisions 
in the final rules, as well as several comments regarding aggregation 
in response to the interim final rule on cash-settled contract limits. 
Among other things, the aggregation petition requests that the 
Commission provide an aggregation exemption for owned non-financial 
entities similar to an exemption that the Commission proposed but did 
not adopt in its final rules.\89\
---------------------------------------------------------------------------

    \89\ As part of the proposed rules for part 151, the Commission 
proposed that persons with an ownership or equity interest in a non-
financial entity need not aggregate the positions or accounts of the 
non-financial entity provided the person filed an application 
demonstrating compliance with certain conditions. See Position 
Limits for Derivatives, 76 FR 4752, 4762-63, Jan. 26, 2011.
---------------------------------------------------------------------------

    The aggregation petition states that compliance with the final 
rules' aggregation requirements would require information sharing and 
coordination of trading that is contrary to current best practices.\90\ 
The aggregation petition contends that the aggregation rules may impede 
investment in commercial firms, impair liquidity and competition in 
energy derivatives markets, or cause firms to exit the market 
altogether.\91\ Further, the aggregation petition states that the 
aggregation rules necessitate the development and implementation of 
extensive and expensive information technology systems that can track 
positions across numerous affiliates, even if those affiliates 
currently trade independently of each other.\92\ The aggregation 
petition also submits that companies with an ownership position in a 
joint venture would have to divest their interest to avoid operational 
difficulties associated with aggregating positions.\93\ The petitioner 
contends that these asserted costs could be mitigated if the Commission 
were to adopt a variant of the owned non-financial entity 
exemption,\94\ clarify that the violation of law exemption applies to 
situations in which there is a ``reasonable risk'' of violating the 
applicable law, expand the violation of law exemption to include 
possible violations of local, state, foreign, and international 
law,\95\ and adopt provisions relieving ``higher-tier'' entities of the 
filing requirement, as discussed above.\96\
---------------------------------------------------------------------------

    \90\ See Aggregation Petition at 19.
    \91\ Id. at 10-16.
    \92\ Id. at 11.
    \93\ Id. at 15.
    \94\ Id. at Exhibit A.
    \95\ Id. at 16-18.
    \96\ Id. at 23.
---------------------------------------------------------------------------

    Several commenters to the Commission's interim final rule also 
suggest that the Commission adopt a version of the ``owned non-
financial entity'' exemption; these commenters argue that even above 10 
percent ownership, where there is no common control, there is no risk 
of coordinated trading and, therefore, no need for aggregation of 
positions.\97\ These commenters recommend that the Commission aggregate 
based on control, and not based on an ownership interest in a position 
or account.\98\ Commenters contend that aggregation of accounts in 
passive investments, where the owned entity is independently managed 
and controlled, will be costly and have a negative impact on markets 
and market participants.\99\ Commenters also claim that many businesses 
establish information barriers between affiliates, and that the final 
rules would require the destruction of those barriers in order to 
ensure compliance.\100\
---------------------------------------------------------------------------

    \97\ See CL-FIA at 15; CL-Atmos at 4-5; and CL-EEI at 14-15.
    \98\ See e.g. CL-FIA at 15; CL-EEI at 1-2, 14-15; CL-Atmos at 3-
5; and CL-AGA at 1-3.
    \99\ See CL-FIA at 18 and CL-EEI at 16-17.
    \100\ See CL-FIA at 15; CL-EEI at 14-15; and CL-Atmos at 3.
---------------------------------------------------------------------------

    As with the petitioners, commenters to the interim final rule also 
assert that the aggregation provisions impose significant operational 
challenges for entities and end-users in particular, requiring them to 
develop and maintain costly internal infrastructure mechanisms to 
ensure compliance.\101\ FIA estimates that for a large conglomerate, 
costs to comply with the final rule's aggregation procedures could be 
high. In particular, FIA estimates that each entity could spend as much 
as $500,000 to $1,000,000 to identify all entities subject to

[[Page 31778]]

aggregation and to establish protocols for reporting all commonly owned 
and controlled positions in Referenced Contracts; as much as $1,000,000 
to $1,500,000 to establish new information technology systems for 
consolidating and tracking aggregated position information; and 
approximately $100,000 for each entity subject to aggregation to report 
position information to its affiliates and/or controlling 
entities.\102\
---------------------------------------------------------------------------

    \101\ See CL-EEI at 14-15; and CL-Atmos at 1-2.
    \102\ See CL-FIA at 19-20.
---------------------------------------------------------------------------

    With regard to the exemption for federal law information sharing 
restriction in regulation 151.7(i), several commenters also suggest 
that the Commission extend the exemption to include state and foreign 
jurisdictions.\103\ One commenter wrote that the provision in 
regulation 151.7(i) that requires an opinion of counsel to obtain such 
an exemption was too burdensome and should be revised.\104\
---------------------------------------------------------------------------

    \103\ See CL-EEI at 17-18; CL-AGA at 1-2; CL-FIA at 6; and CL-
Atmos at 5.
    \104\ See CL-AGA at 5.
---------------------------------------------------------------------------

    One commenter also suggests that the Commission extend the 
underwriting exemption in regulation 151.7(g) to include situations 
where a broker-dealer acquires positions for legitimate dealing 
reasons, such as in anticipation of increased demand, as part of its 
normal market-making activity, or as a result of a routine life-cycle 
event.\105\
---------------------------------------------------------------------------

    \105\ See CL-FIA at 16.
---------------------------------------------------------------------------

2. Summary of the Commission's Proposal
    Exemption for Violation of Laws. In the final part 151 rules, the 
Commission included an exemption from aggregation for those entities 
for whom sharing the requisite information would violate federal law. 
The Commission seeks to clarify that it always intended the exemption 
to apply in those circumstances in which the sharing of information 
presents a ``reasonable risk'' of violating the applicable law(s).
    As explained above, one commenter urged the Commission to drop the 
requirement that, to obtain the violation-of-laws exemption an entity 
must submit an opinion of counsel (as discussed in section II.C). Such 
an opinion allows the Commission to review the facts and circumstances 
supporting the claimed exemption, and thus the proposed rules would 
retain the requirement to submit an opinion of counsel.
    In light of the aggregation petition and comments on the interim 
final rule, the Commission is including in this proposal an expansion 
of the violation-of-law exemption to include state law and the law of 
foreign jurisdictions. The existing rule allows entities who believe 
that the aggregation provisions would require them to violate state or 
foreign laws to seek an exemption on a case-by-case basis. The 
Commission seeks comment as to the scope of the proposed exemption.
    Proposed Owned Entity Exemption. Proposed rule 151.7(b)(1) provides 
that any person with an ownership or equity interest in an entity 
(financial or non-financial) of 10 percent or greater may disaggregate 
the owned entity's positions upon demonstrating compliance with each of 
several specified indicia of independence.\106\ The proposed indicia 
are 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. In addition, such 
person's ownership or equity interest in the owned entity cannot exceed 
50 percent.
---------------------------------------------------------------------------

    \106\ As discussed in section II.D.1, at over 50 percent 
ownership, the proposed ownership standard would mandate aggregation 
in order to give effect to the statutory requirement that positions 
``held'' by a person must be aggregated, and because of a person's 
ability to influence management and the concomitant heightened 
concerns about coordinated trading. The owned entity exemption does 
not impact the availability of the IAC, FCM, and federal, state, or 
foreign law information sharing restriction exemptions as found in 
regulation 151.7(h). However, as proposed, this exemption from the 
ownership criteria would not apply to investments in accounts with 
identical trading strategies.
---------------------------------------------------------------------------

    The aggregation petition and several of the other commenters urge 
that the Commission should permit market participants to disaggregate 
accounts in situations where ownership of an account is passive, as 
they contend there is a less of a concern regarding coordinated 
trading.\107\ The aggregation petition and other commenters suggest 
that the Commission add an owned non-financial entity exemption, which 
they contend would incorporate such situations as well as alleviate 
potential negative impacts to liquidity and competition in both 
physical and derivatives markets.
---------------------------------------------------------------------------

    \107\ They further contend that a lack of an owned non-financial 
entity exemption could increase liability for antitrust and other 
federal law and regulations. This concern is addressed by the 
proposed clarification discussed above, which provides that market 
participants may avail themselves of the violation of law exemption 
if the sharing of information creates a reasonable risk of a 
violation.
---------------------------------------------------------------------------

    The Commission is proposing to permit disaggregation of entities 
where a person has no greater than a 50 percent interest in the entity 
and meets certain other conditions. The proposed owned-entity exemption 
would apply to a person's passive investments in either financial or 
non-financial entities. Those who qualify under this proposal would 
have to demonstrate that they meet all of its conditions. The 
Commission seeks comment as to whether the concerns suggested by the 
aggregation petition and other commenters are valid, whether this 
proposal meets those concerns, and whether the 50 percent limit and 
other conditions are appropriate.
    Expansion of the Underwriter Exemption. The Commission is also 
proposing to expand the exemption for the underwriting of securities 
that was adopted as regulation 151.7(g) to include ownership interests 
acquired through the market-making activities of an affiliated broker 
dealer. This proposal would 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,\108\ so long as 
there is no other ownership interests or indicia of control or 
concerted action. The Commission intends for this proposal to apply to 
ownership interests that are likely transitory and not for investment 
purposes, and seeks comment as to whether such interests are at a low 
risk for the coordination of trading or whether this exemption could 
lead to evasion of applicable position limits.\109\
---------------------------------------------------------------------------

    \108\ See 15 U.S.C. 78o.
    \109\ The Commission specifically notes 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 purposes.
---------------------------------------------------------------------------

    Proposed ``Higher-Tier'' Entity Filing Relief. The Commission also 
is proposing to extend filing relief to ``higher-tier'' entities. As 
such, proposed regulation 151.7(j) provides that higher-tier entities 
may rely on exemption notices filed by owned entities. Commenters claim 
that such an exemption would reduce the burden of filing exemption 
notices by eliminating redundancies. The Commission seeks comment as to 
whether this proposal will in fact reduce the filing burden for 
claiming an exemption, and whether the proposal would affect the 
Commission's

[[Page 31779]]

ability to oversee how exemptions are applied in the market.
    Independent Account Controller Exemption. As discussed above, the 
IAC exemption in regulation 151.7(f) previously included commodity 
pools exempt from registration under Sec.  4.13 that are structured as 
limited partnerships. The Commission is proposing to allow commodity 
pools structured as limited liability companies to rely on the IAC 
exemption. The Commission seeks comment as to whether there is any 
relevant distinction between limited partnerships and limited liability 
companies for purposes of this exemption.
3. Consideration of Costs and Benefits
    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.\110\
---------------------------------------------------------------------------

    \110\ The Commission's general policy on aggregation is derived 
from CEA Section 4a(a)(1), which directs the Commission to aggregate 
based on separate considerations of ownership, control, or persons 
acting pursuant to an express or implied agreement.
---------------------------------------------------------------------------

    The Commission seeks comment as to whether compliance with this 
proposal will reduce the costs market participants will incur to comply 
with the aggregation requirements of the final rules. In particular, 
how would the cost of filing a notice for disaggregation relief compare 
with the cost of developing systems necessary to aggregate the 
positions of owned entities under the current version of part 151? Note 
that, in the preamble to part 151, the Commission estimated that the 
filing of a Notice of Disaggregation would create certain costs for 
market participants.\111\ In particular, the Commission approximated 
that the aggregation-related reporting requirements would affect 
``ninety entities, resulting in a total burden, across all these 
entities, of 225,000 annual labor hours and $5.9 million in annualized 
capital, start-up, total operating, and maintenance costs.'' \112\ The 
Commission has estimated the additional burden that may result from the 
proposed rules as part of its Paperwork Reduction Act calculations, and 
requests comment on those estimations.\113\ The Commission also seeks 
comment as to how many entities would be able to take advantage of the 
proposed exemption. Alternatively, how many entities would be able to 
take advantage of the owned non-financial entity exemption described in 
the aggregation petition?
---------------------------------------------------------------------------

    \111\ The costs of filing the Notice included costs of filing an 
opinion of counsel as well as the other necessary information under 
Sec.  151.7(h).
    \112\ 76 FR 71626 at 71683.
    \113\ See section III.C.2 of this release.
---------------------------------------------------------------------------

    Because costs associated with the aggregation of positions are 
highly variable and entity-specific, the Commission requests that 
commenters submit data from which the Commission can consider and 
quantify the costs of the proposed rules.
    In assessing benefits, it is important for the Commission to 
determine whether the proposed rules will enhance the Commission's 
ability to monitor compliance with position limits by focusing the 
Commission's resources on those entities most at risk of coordinated 
trading through multiple accounts. The Commission seeks comment as to 
whether the proposed amendments to the Commission's aggregation policy 
will result in lower costs for market participants without compromising 
the core purposes of the position limits regime.
4. Section 15(a) Considerations
    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. In 
the final rule, the Commission implemented a policy for the aggregation 
of accounts that largely tracked its longstanding standards of 
aggregation, which were designed to prevent evasion of those position 
limits. The proposed rules would amend this policy to introduce and 
expand certain exemptions. The Commission intends for the proposed 
rules to preserve the important protections of the existing aggregation 
policy, but at a lower cost for market participants. The Commission 
requests comment on its consideration of the costs and benefits of the 
proposed rules in relation to each of the Section 15(a) factors 
discussed herein.
a. Protection of Market Participants and the Public
    The Commission wants to ensure that the exemptions proposed in 
these rules will not lessen the protection of market participants and 
the public that the aggregation policy in the Final Rule provides. 
Given that the account aggregation standards are necessary to implement 
an effective position limit regime, it is important that the clarified 
and expanded exemptions of the proposed rules be sufficiently tailored 
to exempt from aggregation only those accounts that do pose a low risk 
of coordinated trading. The Commission believes that clarifying the 
scope of the violation of law exemption to include the risk of 
violating the applicable law more accurately informs market 
participants as to the standard for claiming the exemption. The 
proposed owned-entity exemption maintains the Commission's historical 
presumption threshold of 10 percent ownership or equity interest and 
makes that presumption rebuttable only where several conditions 
indicative of independence are met. This exemption focuses on the 
conditions that impact trading independence. The Commission intends 
that any exemption it adopts would allow the Commission to direct its 
resources to monitoring those entities with a higher risk of 
coordinated trading and thus at a higher risk of circumventing position 
limits, without reducing the protection of market participants and the 
public that the Commission's aggregation policy affords.
    Similarly, the Commission intends for the ``higher-tier'' entity 
exemption, and the expansion of the underwriting and IAC exemptions, to 
reduce costs for market participants without a compromise to the 
integrity or effectiveness of the Commission's aggregation policy.
    The Commission welcomes comment regarding whether the proposed 
rules would impact protection of market participants and the public.
b. Efficiency, Competitiveness, and Financial Integrity of Futures 
Markets
    The Commission wants to ensure that the exemptions proposed in 
these rules would fully preserve account aggregation as a tool to 
uphold the integrity of the part 151 position limit regime, which helps 
maintain the overall competitiveness and integrity of derivatives 
markets. The Commission seeks comment regarding whether the proposed 
rules would impact the efficiency, competitiveness, and/or financial 
integrity of futures markets.
c. Price Discovery
    Similarly, the Commission wants to ensure that the exemptions 
proposed in these rules do not adversely impact the price discovery 
process, which the part 151 position limit regime (including the 
account aggregation provisions in

[[Page 31780]]

Sec.  151.7) is designed to protect. The Commission welcomes comment as 
to whether the proposed rules would impact price discovery.
d. Sound Risk Management
    The Commission wants to ensure that the exemptions proposed in 
these rules will not lessen the effectiveness of the sound risk 
management practices that the Final Rule promotes. The Commission 
welcomes comment as to whether the proposed rules would impact sound 
risk management practices.
e. Other Public Interest Considerations
    The Commission has not identified any other public interest 
considerations related to the costs and benefits of the proposed rules. 
The Commission welcomes comment as to whether there are additional 
public interest considerations the Commissions should consider.

B. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA'') requires that agencies 
consider the impact of their regulations on small businesses.\114\ The 
requirements related to the proposed amendments fall mainly on DCMs, 
swap execution facilities (``SEF'') that are trading facilities, FCMs, 
foreign brokers, and large traders. The Commission has previously 
determined that DCMs, FCMs, foreign brokers and large traders are not 
``small entities'' for the purposes of the RFA.\115\ Further, in the 
Commission's position limits rule,\116\ the Commission determined that 
SEFs, which includes SEFs that are trading facilities, are not ``small 
entities'' for purposes of the RFA.
---------------------------------------------------------------------------

    \114\ 44 U.S.C. 601 et seq.
    \115\ See Policy Statement and Establishment of Definitions of 
``Small Entities'' for Purposes of the Regulatory Flexibility Act, 
47 FR 18618, Apr. 30 1982. See also Special Calls, 72 FR 34417, Jun. 
22, 2007 (foreign broker determination).
    \116\ 76 FR 71626, Nov. 18, 2011.
---------------------------------------------------------------------------

    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.

C. Paperwork Reduction Act

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.\117\ 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. Certain provisions of the proposed regulations would result in 
new collection of information requirements within the meaning of the 
PRA. The Commission seeks to supplement the control number assigned by 
the Office of Management and Budget (``OMB'') for part 151--Position 
Limits for Futures and Swaps (OMB control number 3038-0077). Therefore 
the Commission is submitting this proposal to OMB for review in 
accordance with 44 U.S.C. 3507(d) and 5 CFR 1320.11.
---------------------------------------------------------------------------

    \117\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

    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. In response to that 
petition, the Commission is proposing to clarify certain aspects of the 
aggregation standards, and to expand the scope of certain exemptions 
from aggregation. If adopted, responses to this collection of 
information would be mandatory to the extent persons wish to rely upon 
the exemptions contained within the proposed amendments to Commission 
regulation 151.7. 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 CEA strictly prohibits the 
Commission, unless specifically authorized by the CEA, 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.\118\ The Commission also is required to 
protect certain information contained in a government system of records 
pursuant to the Privacy Act of 1974.\119\
---------------------------------------------------------------------------

    \118\ 7 U.S.C. 12(a)(1).
    \119\ 5 U.S.C. 552a.
---------------------------------------------------------------------------

    Proposed rule 151.7(b)(1) establishes 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 151.7(h). The notice filing would need to demonstrate 
compliance with certain conditions set forth in regulations 
151.7(b)(1)(i)-(vii). 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 amend regulation 151.7(i), which provides 
an exemption from aggregation where the sharing of information between 
persons would cause either person to violate federal law. The proposed 
amendments clarify that the exemption would apply to a situation where 
the sharing of information creates a reasonable risk of a violation of 
federal law or regulations adopted thereunder, and not solely a per se 
violation. For the same reasons the Commission adopted the exemption 
for information sharing restrictions for federal law, the Commission 
expanded the exemption in regulation 151.7(i) to generally extend to 
the state law and the law of a foreign jurisdiction. The proposed rules 
also retain the requirement that market participants file a notice 
demonstrating compliance with the condition and an opinion of counsel 
that the sharing of information could create a reasonable risk of a 
violation of state or federal law or the law of a foreign jurisdiction. 
The opinion 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 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.
    The Commission is also proposing to amend the definitions of 
eligible entity and independent account controller in part 151.1 to 
specifically provide for regulation 4.13 commodity pools established as 
limited liability companies. These proposed amendments will likely 
expand the number of entities that can file for the independent account 
controller aggregation exemption.
    Finally, the proposed rules include relief from notice filings for 
``higher-tier'' entities, which, under proposed regulation 151.7(j), 
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.

[[Page 31781]]

2. Reporting Burdens
    Proposed regulation 151.7(b)(1) specifies that qualified persons 
may file a notice claiming exemptive relief from aggregation. Proposed 
regulation 151.7(b)(1)(vii) states that the notice is to be filed in 
accordance with regulation 151.7(h), 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. Persons claiming the exemption 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.
    With regard to the existing filing procedure for claiming 
exemptions from aggregation, in the part 151 final rule the Commission 
estimated that ninety entities would incur a burden of 225,000 annual 
labor hours as well as $5.9 million in annualized capital, start-up, 
total operating, and maintenance costs. This estimate was based on each 
entity submitting one notice of disaggregation per year at a burden of 
2,500 labor hours. 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 proposed regulation 151.7(j), the Commission 
expects that increase to be offset by a reduction in the number of 
filings by ``higher-tier'' entities. Thus, the Commission anticipates a 
small net increase in the number of filings under regulation 151.7 as a 
result of the proposed rules. The Commission believes that this small 
increase will create a small increase in the annual labor burden. 
However, because entities will have already incurred the capital, 
start-up, operating, and maintenance costs to file other exemptive 
notices, the Commission does not anticipate an increase in those costs.
    In light of the Commission providing for these additional 
exemptions, the Commission estimates that 90 entities will each file 
two notices annually under proposed regulation 151.7(b)(1), at an 
average of 20 hours per filing. Thus, the Commission approximates a 
total per-entity burden of 40 labor hours annually. Using the same 
labor cost estimates as in the existing collection (OMB 3038-
0077),\120\ such a burden would cost approximately $3,100 per entity 
for filings under proposed regulation 151.7(b)(1). Under proposed 
regulation 151.7(f), the Commission anticipates that 10 entities will 
annually file one notice each, at an average of 20 hours per filing, 
for a per-entity burden of 20 labor hours annually. Such a burden would 
cost approximately $1,600 per entity. Finally, the Commission 
anticipates that 45 entities will annually file one notice each under 
proposed regulation 151.7(i), at an average of 80 hours per filing, for 
a per-entity burden of 80 hours each. Such a burden would cost 
approximately $6,300 per entity. Monetary estimates have been rounded 
to the nearest hundred.
---------------------------------------------------------------------------

    \120\ The Commission staff's estimates concerning the wage rates 
are based on salary information for the securities industry compiled 
by the Securities Industry and Financial Markets Association 
(``SIFMA''). The $78.61 per hour is derived from figures from a 
weighted average of salaries and bonuses across different 
professions from the SIFMA Report on Management & Professional 
Earnings in the Securities Industry 2010, modified to account for an 
1800-hour work-year and multiplied by 1.3 to account for overhead 
and other benefits. The wage rate is a weighted national average of 
salary and bonuses for professionals with the following titles (and 
their relative weight); ``programmer (senior)'' (60% weight), 
``compliance advisor (intermediate)'' (20%), ``systems analyst'' 
(10%), and ``assistant/associate general counsel'' (10%).
---------------------------------------------------------------------------

    In sum, the Commission estimates that 145 entities would submit a 
total of 235 responses per year and incur a total burden of 7,400 labor 
hours at a cost of approximately $582,000 annually in addition to the 
existing burden under Sec.  151.7.
3. 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 [email protected]. 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 
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.

List of Subjects in 17 CFR Part 151

    Position limits, Bona fide hedging, Referenced contracts.

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

PART 151--POSITION LIMITS FOR FUTURES AND SWAPS

    1. The authority citation for part 151 is revised to read as 
follows:

    Authority: 7 U.S.C. 1a, 2, 5, 6, 6a, 6c, 6f, 6g, 6t, 12a, 19, 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. In Sec.  151.1, revise the definition for ``eligible entity'' 
and paragraph (5) of the definition of ``independent account 
controller'' to read as follows:


Sec.  151.1  Definitions.

* * * * *
    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 Sec.  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 Sec.  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:
* * * * *
    Independent Account Controller * * *
    (5) Who is registered as a futures commission merchant, an 
introducing broker, a commodity trading advisor, or

[[Page 31782]]

an associated person of any such registrant, or is a general partner or 
manager of a commodity pool the operator of which is exempt from 
registration under Sec.  4.13 of this chapter.
* * * * *
    3. Revise Sec.  151.7 to read as follows:
    3. In Sec.  151.7:
    a. Revise paragraph (b);
    b. Add paragraph (e)(4);
    c. Revise paragraphs (g), (h), and (i); and
    d. Add paragraph (j).
    The revisions and additions read as follows:


Sec.  151.7  Aggregation of positions.

* * * * *
    (b) Ownership of accounts generally. For the purpose of applying 
the position limits set forth in Sec.  151.4, except for the ownership 
interest of limited partners, shareholders, members of a limited 
liability company, beneficiaries of a trust or similar type of pool 
participant in a commodity pool subject to the provisos set forth in 
paragraph (c) of this section or in accounts or positions in multiple 
pools as set forth in paragraph (d) of this section, any person holding 
positions in more than one account, or holding accounts or positions in 
which the person by power of attorney or otherwise directly or 
indirectly has a 10 percent or greater ownership or equity interest, 
must aggregate all such accounts or positions. However--
    (1) Any person with a 10 percent or greater ownership or equity 
interest in an owned entity, 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;
    (ii) Such person does not have greater than a 50 percent ownership 
or equity interest in the owned entity; and
    (iii) Such person complies with the requirements of paragraph (h) 
of this section.
    (2) [Reserved]
* * * * *
    (e) * * *
    (4) The futures commission merchant or the affiliate has complied 
with the requirements of paragraph (h) of this section.
* * * * *
    (g) Exemption for underwriting. Notwithstanding any of the 
provisions of this section, a person need not aggregate the positions 
or accounts of an owned entity if the ownership 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.
    (1) Further, 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 the ownership interest is based on the ownership of 
securities acquired as part of reasonable activity 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.
    (h) Notice filing for exemption. (1) Persons seeking an aggregation 
exemption under paragraph (b)(1), (c), (e), (f), or (i) 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) Upon call by the Commission, any person claiming an aggregation 
exemption under this section shall provide such information concerning 
the person's claim for 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.
    (3) In the event of a material change to the information provided 
in the notice filed under this paragraph, an updated or amended notice 
shall promptly be filed detailing the material change.
    (4) A notice shall be submitted in the form and manner provided for 
in Sec.  151.10.
    (i) Exemption for law information sharing restriction. 
Notwithstanding any other provision of this section, a person is not 
subject to the aggregation requirements of this section if the sharing 
of information associated with such aggregation creates a reasonable 
risk that either person could violate state or federal law or the law 
of a foreign jurisdiction, or regulations adopted thereunder, and 
provided that such a person does not have actual knowledge of 
information associated with such aggregation. Provided further, that 
such person file a prior notice pursuant to paragraph (h) of this 
section and an opinion of counsel that 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. Provided 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.
    (j) Higher-Tier Entities. If an owned entity has filed a notice 
under paragraph (h) or (i) 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:
    (1) Such person complies with the conditions applicable to the 
exemption specified in the owned entity's notice filing, other than the 
filing requirements; and
    (2) Such person does not otherwise control trading of the accounts 
or positions identified in the owned entity's notice.
    (3) Upon call by the Commission, any person relying on the 
exemption in paragraph (j)(1) of this section 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.
    4. In Sec.  151.10, revise paragraph (b)(4) to read as follows:


Sec.  151.10  Form and manner of reporting.

* * * * *

[[Page 31783]]

    (b) * * *
    (4) A notice of disaggregation is filed pursuant to Sec.  151.7(h), 
in which case the notice shall be effective upon filing.
* * * * *
    5. In Sec.  151.12, revise paragraph (a)(5) and add paragraph 
(a)(6) to read as follows:


Sec.  151.12  Delegation of authority to the Director of the Division 
of Market Oversight.

    (a) * * *
    (5) In Sec.  151.7(j)(1)(iii) to call for additional information 
from a trader claiming the exemption in Sec.  151.7(j)(1).
    (6) In Sec.  150.10 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.
* * * * *

    Issued in Washington, DC, on May 17, 2012 by the Commission.
David A. Stawick,
Secretary of the Commission.

    Note: The following appendix will not appear in the Code of 
Federal Regulations.

Appendix 1--Statement of Commissioner Jill E. Sommers

    I support the Commission's proposed rules that, among other 
things, expand the exemptions relating to information sharing 
restrictions, expand the circumstances under which market 
participants will not be required to aggregate positions, and reduce 
the reporting burdens on higher tier entities. I am pleased that we 
recognize that the final position limits rules issued on November 
18, 2011 set forth an unworkable and overly restrictive approach to 
these issues.
    Essentially, as they relate to ``owned entities,'' the proposed 
rules contain three ``tiers'' for purposes of aggregation. First, if 
the ownership interest is less than 10 percent, one need not 
aggregate positions with those of the owned entity. Second, if the 
ownership interest is between 10 percent and 50 percent, one must 
aggregate positions with those of the owned entity unless it can be 
shown that there is a lack of knowledge of, and control over, the 
trading of the owned entity. Third, if the ownership interest 
exceeds 50 percent, one must always aggregate positions with those 
of the owned entity, even if there is a lack of knowledge of, and 
control over, the trading of the owned entity.
    I question whether a bright-line approach is the correct 
approach, and if it is, whether the line should be drawn at 50 
percent. In the absence of knowledge of, and control over, trading 
of an owned entity, is there a real difference between owning 49 
percent and owning 50 percent? I don't think there is. In justifying 
50 percent as the correct place to draw the line, the preamble to 
the proposed rules states, ``such a bright-line rule would provide 
clarity to market participants and a useful tool for the Commission 
to simplify aggregation.'' Providing clarity and certainty to market 
participants is important. However, if providing clarity and 
certainty results in a one-size-fits-all answer that fails to take 
into account the varying needs of a very diverse group of market 
participants, the clarity and certainty are of little use. Moreover, 
while it is important to establish an aggregation approach that the 
Commission can effectively administer, I hesitate to put too much 
weight on ``simplifying'' the approach if the simplified approach is 
needlessly restrictive.
    In my dissent to the final position limits rules, I expressed 
concern that with regard to the 19 new reference contracts, the 
Commission was taking on ``front-line oversight of the granting and 
monitoring of bona-fide hedging exemptions for the transactions of 
massive, global corporate conglomerates that on a daily basis 
produce, process, handle, store, transport, and use physical 
commodities in their extremely complex logistical operations.'' My 
concerns apply equally to the issue of aggregation. We have limited 
experience as it relates to these new reference contracts, and no 
experience aggregating swaps into the overall calculations. In the 
face of such limited experience, our apparent certainty on where to 
draw lines is troubling.

[FR Doc. 2012-12526 Filed 5-29-12; 8:45 am]
BILLING CODE P