Position Limits for Derivatives

COMMODITY FUTURES TRADING COMMISSION 17 CFR Parts 1, 15, 17, 19, 37, 38, 140, 150 and 151 RIN 3038–AD99 Position Limits for Derivatives AGENCY: Commodity Futures Trading Commission. ACTION: Reproposal. SUMMARY: The Commodity Futures Trading Commission (‘‘Commission’’ or ‘‘CFTC’’) is reproposing rules to amend
part 150 of the Commission’s
regulations concerning speculative position limits to conform to the Wall Street Transparency and Accountability Act of 2010 (‘‘Dodd-Frank Act’’) amendments to the Commodity Exchange Act (‘‘CEA’’ or ‘‘Act’’). The reproposal would establish speculative position limits for 25 exempt and agricultural commodity futures and option contracts, and physical commodity swaps that are ‘‘economically equivalent’’ to such contracts (as such term is used in
section 4a(a)(5) of the CEA). In
connection with establishing these limits, the Commission is reproposing to update some relevant definitions; revise the exemptions from speculative position limits, including for bona fide hedging; and extend and update reporting requirements for persons claiming exemption from these limits. The Commission is also reproposing appendices to part 150 that would provide guidance on risk management exemptions for commodity derivative contracts in excluded commodities permitted under the revised definition of bona fide hedging position; list core referenced futures contracts and commodities that would be substantially the same as a commodity underlying a core referenced futures contract for purposes of the definition of location basis contract; describe and analyze fourteen fact patterns that would satisfy the reproposed definition of bona fide hedging position; and present the reproposed speculative position limit levels in tabular form. In addition, the Commission proposes to update certain of its rules, guidance and acceptable practices for compliance with Designated Contract Market (‘‘DCM’’) core principle 5 and Swap Execution Facility (‘‘SEF’’) core principle 6 in respect of exchange-set speculative position limits and position accountability levels. Furthermore, the Commission is reproposing processes for DCMs and SEFs to recognize certain positions in commodity derivative contracts as non-enumerated bona fide hedges or enumerated anticipatory bona fide hedges, as well as to exempt from position limits certain spread positions, in each case subject to Commission review. Separately, the Commission is reproposing to delay for DCMs and SEFs that lack access to sufficient swap position information the requirement to establish and monitor position limits on swaps. DATES: Comments must be received on or before February 28, 2017. ADDRESSES: You may submit comments, identified by RIN number 3038–AD99, by any of the following methods:

CFTC Web site: http://
comments.cftc.gov;
Mail: Secretary of the Commission,
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street NW., Washington, DC 20581;
Hand delivery/courier: Same as
Mail, above.
Federal eRulemaking Portal: http://
www.regulations.gov. Follow instructions for submitting comments. All comments must be submitted in English, or if not, accompanied by an English translation. Comments will be posted as received to http:// www.cftc.gov. You should submit only information that you wish to make available publicly. If you wish the Commission to consider information that may be exempt from disclosure under the Freedom of Information Act, a petition for confidential treatment of the exempt information may be submitted according to the procedures established in CFTC regulations at 17 CFR part 145. The Commission reserves the right, but shall have no obligation, to review, pre-screen, filter, redact, refuse or remove any or all of your submission from http://www.cftc.gov that it may deem to be inappropriate for publication, such as obscene language. All submissions that have been redacted or removed that contain comments on the merits of the rulemaking will be retained in the public comment file and will be considered as required under the Administrative Procedure Act and other applicable laws, and may be accessible under the Freedom of Information Act. FOR FURTHER INFORMATION CONTACT:
Stephen Sherrod, Senior Economist, (202) 418–5452, ssherrod@cftc.gov, Riva Spear Adriance, Senior Special Counsel, (202) 418–5494, radriance@cftc.gov, Hannah Ropp, Surveillance Analyst, 202–418–5228, hropp@cftc.gov, or Steven Benton, Industry Economist, (202) 418–5617, sbenton@cftc.gov, Division of Market Oversight; or Lee Ann Duffy, Assistant General Counsel, 202–418–6763, lduffy@cftc.gov, Office of General Counsel, in each case at the Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street NW., Washington, DC 20581. SUPPLEMENTARY INFORMATION:
Table of Contents
I. Background
A. Introduction
B. The Commission Construes CEA Section 4a(a) To Mandate That the Commission Impose Position Limits
C. Necessity Finding
II. Proposed Compliance Date
III. Reproposed Rules
A. § 150.1—Definitions
B. § 150.2—Position limits
C. § 150.3—Exemptions
D. § 150.5—Exchange-set speculative position limits and Parts 37 and 38 E. Part 19—Reports by persons holding bona fide hedging positions pursuant to § 150.1 of this chapter and by merchants and dealers in cotton F. § 150.7—Reporting requirements for anticipatory hedging positions G. § 150.9—Process for recognition of positions as non-enumerated bona fide hedging positions H. § 150.10—Process for designated contract market or swap execution facility exemption from position limits for certain spread positions
I. § 150.11—Process for recognition of
positions as bona fide hedging positions for unfilled anticipated requirements, unsold anticipated production, anticipated royalties, anticipated services contract payments or receipts, or anticipatory cross-commodity hedge positions J. Miscellaneous regulatory amendments

Proposed § 150.6—Ongoing
responsibility of DCMs and SEFs
Proposed § 150.8—Severability
Part 15—Reports—General provisions
Part 17—Reports by reporting markets,
futures commission merchants, clearing members, and foreign brokers
Part 151—Position limits for futures and
swaps, Commission Regulation 1.47 and Commission Regulation 1.48—Removal
IV. Related Matters
A. Cost-Benefit Considerations B. Paperwork Reduction Act
C. Regulatory Flexibility Act
V. Appendices
A. Appendix A—Review of Economic Studies B. Appendix B—List of Comment Letters Cited in this Rulemaking
I. Background
A. Introduction
The Commission has long established and enforced speculative position limits for futures and options contracts on various agricultural commodities as authorized by the Commodity Exchange

1 7 U.S.C. 1 et seq.
2See 17 CFR part 150. Part 150 of the Commission’s regulations establishes federal position limits (that is, position limits established by the Commission, as opposed to exchange-set limits) on certain enumerated agricultural contracts; the listed commodities are referred to as enumerated agricultural commodities. The position limits on these agricultural contracts are referred to as ‘‘legacy’’ limits because these contracts on agricultural commodities have been subject to federal position limits for decades. See also Position Limits for Derivatives, 78 FR 75680 at 75723, n. 370 and accompanying text (Dec. 12, 2013) (‘‘December 2013 Position Limits Proposal’’). 3See 17 CFR 150.2. 4See 17 CFR 150.3. 5See 17 CFR 150.4. 6See generally December 2013 Positions Limits Proposal. In the December 2013 Position Limits Proposal, the Commission proposed to amend its position limits to also encompass 28 exempt and agricultural commodity futures and options contracts and the physical commodity swaps that are economically equivalent to such contracts. 7The Commission previously had issued proposed and final rules in 2011 to implement the provisions of the Dodd-Frank Act regarding position limits and the bona fide hedge definition. Position Limits for Derivatives, 76 FR 4752 (Jan. 26, 2011); Position Limits for Futures and Swaps, 76 FR 71626 (Nov. 18, 2011). A September 28, 2012 order of the U.S. District Court for the District of Columbia vacated the November 18, 2011 rule, with the exception of the rule’s amendments to 17 CFR
150.2. International Swaps and Derivatives
Association v. United States Commodity Futures Trading Commission, 887 F. Supp. 2d 259 (D.D.C. 2012). See generally the materials and links on the Commission’s Web site at http://www.cftc.gov/ LawRegulation/DoddFrankAct/Rulemakings/DF_ 26_PosLimits/index.htm. The Commission issued the December 2013 Position Limits Proposal, among other reasons, to respond to the District Court’s decision in ISDA v. CFTC. See generally the materials and links on the Commission’s Web site at http://www.cftc.gov/LawRegulation/ DoddFrankAct/Rulemakings/ PositionLimitsforDerivatives/index.htm. 8See CEA section 4a(a)(5), 7 U.S.C. 6a(a)(5) (providing that the Commission establish limits on economically equivalent contracts); CEA section 4a(a)(6), 7 U.S.C. 6a(a)(6) (directing the Commission to establish aggregate position limits on futures, options, economically equivalent swaps, and certain foreign board of trade contracts in agricultural and exempt commodities (collectively, ‘‘referenced contracts’’)). See December 2013 Position Limits Proposal, 78 FR at 75825. Under the December 2013 Position Limits Proposal, ‘‘referenced contracts’’ would have been defined as futures, options, economically equivalent swaps, and certain foreign board of trade contracts, in physical commodities, and been subject to the proposed federal position limits. The Commission proposed that federal position limits would apply to referenced contracts, whether futures or swaps, regardless of where the futures or swaps positions were established. See December 2013 Positions Limits Proposal, at 78 FR 75826 (proposed § 150.2). 9See December 2013 Position Limits Proposal, 78 FR at 75754–8. Consistent with DCM Core Principle 5 and SEF Core Principle 6, the Commission proposed at § 150.5(a)(1) that for any commodity derivative contract that is subject to a speculative position limit under § 150.2, a DCM or SEF that is a trading facility shall set a speculative position limit no higher than the level specified in § 150.2. 10See December 2013 Position Limits Proposal, 78 FR at 75706–11, 75713–18. 11See December 2013 Position Limits Proposal, 78 FR at 75718. 12See December 2013 Position Limits Proposal, 78 FR at 75735–6. CEA section 4a(a)(1), 7 U.S.C. 6a(a)(1), permits the Commission to exempt transactions normally known to the trade as ‘‘spreads’’ from federal position limits. 13Position Limits for Derivatives: Certain Exemptions and Guidance, 81 FR 38458 (June 13,
2016) (‘‘2016 Supplemental Position Limits
Proposal’’).
Act (‘‘CEA’’).1 The part 150 position limits regime 2 generally includes three components: (1) The level of the limits, which set a threshold that restricts the number of speculative positions that a person may hold in the spot-month, individual month, and all months combined,3 (2) exemptions for positions that constitute bona fide hedging transactions and certain other types of transactions,4 and (3) rules to determine which accounts and positions a person must aggregate for the purpose of determining compliance with the position limit levels.5 In late 2013, the CFTC proposed to amend its part 150 regulations governing speculative position limits.6 These proposed amendments were intended to conform the requirements of
part 150 to particular changes to the
CEA introduced by the Wall Street Transparency and Accountability Act of 2010 (’’Dodd-Frank Act’’).7 The proposed amendments included the adoption of federal position limits for 28 exempt and agricultural commodity futures and option contracts and swaps that are ‘‘economically equivalent’’ to such contracts.8 In addition, the Commission proposed to require that DCMs and SEFs that are trading facilities (collectively, ‘‘exchanges’’) establish exchange-set limits on such futures, options and swaps contracts.9 Further, the Commission proposed to (i) revise the definition of bona fide hedging position (which includes a general definition with requirements applicable to all hedges, as well as an enumerated list of bona fide hedges),10 (ii) revise the process for market participants to request recognition of certain types of positions as bona fide hedges, including anticipatory hedges and hedges not specifically enumerated in the proposed bona fide hedging definition; 11 and (iii) revise the exemptions from position limits for transactions normally known to the trade as spreads.12 On June 13, 2016, the Commission published a supplemental proposal to its December 2013 Position Limits rulemaking.13 The supplemental proposal included revisions and additions to regulations and guidance proposed in 2013 concerning speculative position limits in response to comments received on that proposal, and alternative processes for DCMs and SEFs to recognize certain positions in commodity derivative contracts as nonenumerated bona fide hedges or enumerated anticipatory bona fide hedges, as well as to exempt from federal position limits certain spread positions, in each case subject to Commission review. In this regard, under the 2016 Supplemental Position Limits Proposal, certain of the regulations proposed in 2013 regarding exemptions from federal position limits and exchange-set position limits would be amended to take into account the alternative processes. In connection with those proposed changes, the Commission proposed to further amend certain relevant definitions, including to clearly define the general definition of bona fide hedging for physical commodities under the standards in CEA section 4a(c). Separately, the Commission proposed to delay for DCMs and SEFs that lack access to sufficient swap position information the requirement to establish and monitor position limits on swaps at this time. After review of the comments responding to both the December 2013 Position Limits Proposal and the 2016 Supplemental Position Limits Proposal, the Commission, in consideration of those comments, is now issuing a reproposal (‘‘Reproposal’’). The Commission invites comments on all aspects of this Reproposal. B. The Commission Preliminarily Construes CEA Section 4a(a) To Mandate That the Commission Impose Position Limits

Introduction
a. The History of Position Limits and the 2011 Position Limits Rule As part of the Dodd-Frank Act, Congress amended the CEA’s position limits provision, which since 1936 has authorized the Commission (and its predecessor) to impose limits on speculative positions to prevent the harms caused by excessive speculation. Prior to the Dodd-Frank Act, CEA
section 4a(a) stated that for the purpose
of diminishing, eliminating or preventing specified burdens on interstate commerce, the Commission shall, from time to time, after due notice and an opportunity for hearing, by rule, regulation, or order, proclaim and fix such limits on the amounts of trading which may be done or positions which may be held by any person under contracts of sale of such commodity for future delivery on or subject to the rules of any contract market as the Commission finds are necessary to

14 7 U.S.C. 6a(a) (2006).
15CEA section 4a(a)(2); 7 U.S.C. 6a(a)(2). The Commission notes that it uses the defined term ‘‘bona fide hedging position’’ throughout part 150, rather than ‘‘bona fide hedge positions’’ found in CEA section 4a(a)(2). CEA section 4a(c)(1) uses the term ‘‘bona fide hedging transactions or positions’’ and CEA section 4a(c)(2) uses the term ‘‘bona fide hedging transaction or position.’’ The Commission interprets all of these terms to mean the same. It should be noted that the Commission previously imposed transaction volume limits on ‘‘the amounts of trading which may be done’’ as authorized by CEA section 4a(a)(1), but removed those transaction volume limits. Elimination of Daily Speculative Trading Limits, 44 FR 7124, 7127 (Feb. 6, 1979). 16Position Limits for Futures and Swaps, 76 FR 71626 (Nov. 18, 2011). As finalized, part 151 replaced part 150. 17 Id. at 71665; see also id at 716629–30. 18 Id. at 71632–33 (transition), 71668–70 (spotmonth limit), 71671 (non-spot month limit). 19 Id. at 71643–51. 20 Id. at 71651–55. A central feature of any position limits regime is determining which positions to attribute to a particular trader. The CEA requires the Commission to attribute to a person all positions that the person holds or trades, as well as positions held or traded by anyone else that such person directly or indirectly controls. 7 U.S.C. 6a(a)(1). This is referred to as account aggregation. In addition to account aggregation, Congress required the Commission to set limits on all derivative positions in the same underlying commodity that a trader may hold or control across all derivative exchanges. 7 U.S.C. 6a(a)(6). The Commission refers to this as position aggregation. 21Position Limits for Futures and Swaps, 76 FR at 71626–628. 22 International Swaps and Derivatives Ass’n v. United States Commodity Futures Trading Comm’n, 887 F. Supp. 2d 259 (D.D.C. 2012). 23 Id. at 270. 24 Id. at 281. 25 887 F. Supp. 2d at 274–76. 26 887 F. Supp. 2d at 279–80. 27 Id. at 280–82, quoting Peter Pan Bus Lines, Inc.
v. Fed. Motor Carrier Safety Admin., 471 F.3d 1350,
1354 (D.C. Cir. 2006).
28 887 F. Supp. 2d at 282.
29 Id. at n.7, quoting PDK Labs. Inc. v. DEA, 362 F.3d 786, 797 (D.C. Cir. 2004). diminish, eliminate, or prevent such burden.14 In the Dodd-Frank Act, Congress renumbered a modified version of CEA
section 4a(a) as section 4a(a)(1) and
added, among other provisions, CEA
section 4a(a)(2), captioned
‘‘Establishment of Limitations,’’ which provides that in accordance with the standards set forth in CEA section 4a(a)(1), the Commission shall establish limits on the amount of positions, as appropriate, other than bona fide hedge positions, that may be held by any person. CEA section 4a(a)(2) further provides that for exempt commodities (energy and metals), the limits required under CEA section 4a(a)(2) shall be established within 180 days after the date of the enactment of CEA section 4a(a)(2); for agricultural commodities, the limits required under CEA section 4a(a)(2) shall be established within 270 days after the date of the enactment of CEA section 4a(a)(2).15 These and other changes to CEA
section 4a(a) are described in more
detail below.
Pursuant to these amendments, the Commission adopted a position limits rule in 2011 (‘‘2011 Position Limits Rule’’) in a new part 151.16 In the 2011 Position Limits Rule, the Commission imposed, in new part 151, speculative limits in the spot-month and non-spotmonths on 28 physical commodity derivatives ‘‘of particular significance to interstate commerce.’’ 17 Under the 2011 Position Limits Rule, part 151 used formulas for calculating limit levels that are similar to the formulas used to calculate previous Commission- and exchange-set position limits.18 The 2011 Position Limits Rule contained provisions in part 151 that implemented the statutory exemption for bona fide hedging.19 It also provided account aggregation standards to determine which positions to attribute to a particular market participant.20 Because it interpreted the Dodd-Frank Act as mandating position limits, the Commission did not make an independent threshold determination that position limits are necessary to accomplish the purposes set forth in the statute. The Commission explained:
Congress directed the Commission to impose position limits and to do so expeditiously.
Section 4a(a)(2)(B) states that the limits for
physical commodity futures and options contracts ‘‘shall’’ be established within the specified timeframes, and section 4a(a)(2)(5) states that the limits for economically equivalent swaps ‘‘shall’’ be established concurrently with the limits required by
section 4a(a)(2). The congressional directive
that the Commission set position limits is further reflected in the repeated references to the limits ‘‘required’’ under section 4a(a)(2)(A).21 ISDA and SIFMA sued the Commission to vacate part 151 on the basis (among others) that, in their view, CEA section 4a(a) clearly required the Commission to make an antecedent necessity finding. b. The District Court Opinion As set forth in the Commission’s December 2013 Position Limits Proposal,22 the district court in ISDA v. CFTC found that, on one hand, CEA
section 4a(a)(1) ‘‘unambiguously
requires that, prior to imposing position limits, the Commission find that position limits are necessary to ‘diminish, eliminate, or prevent’ the burden described in [CEA section 4a(a)(1)].’’ 23 On the other hand, the court found that the Dodd-Frank Act amendments to CEA section 4a(a) rendered section 4a(a)(1) ambiguous with respect to whether such findings are required for the position limits described in CEA section 4a(a)(2)— futures contracts, options, and certain swaps on agricultural and exempt commodities.24 The court’s determination in ISDA v. CFTC that CEA sections 4a(a)(1) and (2), read together, are ambiguous focused on the opening phrase of subsection (A)— ‘‘[i]n accordance with the standards set forth in [CEA section 4a(a)(1)].’’ The court held that the term ‘‘standards’’ in CEA section 4a(a)(2) was ambiguous as to whether it referred to the requirement in CEA section 4a(a)(1) that the Commission impose position limits only ‘‘as [it] finds are necessary to diminish, eliminate, or prevent’’ an unnecessary burden on interstate commerce.25 If not, ‘‘standards’’ would refer to the aggregation and flexibility standards stated in CEA section 4a(a)(1) by which position limits are to be implemented. Accordingly, the court rejected both (1) the Commission’s contention that CEA
section 4a(a) as a whole unambiguously
mandated the imposition of position limits without the Commission finding independently that they are necessary; and (2) the plaintiffs’ contention that CEA section 4a(a) unambiguously required the Commission to make such findings before the imposition of position limits.26 The court stated that because the Commission had incorrectly found CEA section 4a(a) unambiguous, it could not defer to any interpretation by the Commission to resolve the
section’s ambiguity. As the court
observed, the D.C. Circuit has held that ‘‘ ‘deference to an agency’s interpretation of a statute is not appropriate when the agency wrongly believes that interpretation is compelled by Congress.’ ’’ 27 The court further held that, pursuant to the law of the D.C. Circuit, it was required to remand the matter to the Commission so that it could ‘‘fill in the gaps and resolve the ambiguities.’’ 28 The court instructed that the Commission must apply its experience and expertise and cautioned that, in resolving the ambiguity in CEA
section 4a(a), ‘‘ ‘it is incumbent upon the
agency not to rest simply on its parsing of the statutory language.’ ’’ 29 The Commission does not rest simply on parsing the statutory language, but any interpretation necessarily begins with the text, which is described in the next
section.
2. The Statutory Framework for Position
Limits
Before the Dodd-Frank Act, what was then CEA section 4a(a) authorized the

30Under the heading of ‘‘Burden on interstate commerce; trading or position limits,’’ 7 U.S.C. 6a(a) (2006) provided that excessive speculation in any commodity under contracts of sale of such commodity for future delivery made on or subject to the rules of contract markets or derivatives transaction execution facilities, or on electronic trading facilities with respect to a significant price discovery contract causing sudden or unreasonable fluctuations or unwarranted changes in the price of such commodity, is an undue and unnecessary burden on interstate commerce in such commodity. Title 7 U.S.C. 6a(a) (2006) further provided that for the purpose of diminishing, eliminating, or preventing such burden, the Commission shall, from time to time, after due notice and opportunity for hearing, by rule, regulation, or order, proclaim and fix such limits on the amounts of trading which may be done or positions which may be held by any person under contracts of sale of such commodity for future delivery on or subject to the rules of any contract market or derivatives transaction execution facility, or on an electronic trading facility with respect to a significant price discovery contract, as the Commission finds are necessary to diminish, eliminate, or prevent such burden. Additionally, 7 U.S.C. 6a(a) (2006) stated that 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. Title 7 U.S.C. 6a(a) (2006) further stated that nothing in that section shall be construed to prohibit the Commission from fixing different trading or position limits for different commodities, markets, futures, or delivery months, or for different number of days remaining until the last day of trading in a contract, or different trading limits for buying and selling operations, or different limits for the purposes of paragraphs (1) and (2) of subsection (b) of this section, or from exempting transactions normally known to the trade as ‘‘spreads’’ or ‘‘straddles’’ or ‘‘arbitrage’’ or from fixing limits applying to such transactions or positions different from limits fixed for other transactions or positions. Moreover, 7 U.S.C. 6a(a) (2006) defined the word ‘‘arbitrage’’ in domestic markets to mean the same as a ‘‘spread’’ or ‘‘straddle.’’ It also authorized the Commission to define the term ‘‘international arbitrage.’’ 7 U.S.C. 6a(a) (2006). 31There were four other subsections of CEA
section 4a: CEA section 4a(b), which made it
unlawful for a person to hold positions in excess of Commission-set limits; CEA section 4a(c), which exempted positions held under an exemption for bona fide hedges, CEA section 4a(d), which exempted positions held by or on behalf of the United States, and CEA section 4a(e), which authorized exchanges to set limits so long as they were not higher than Commission-set limits and made it unlawful for any person to hold limits in excess of exchange-set limits. (Exchange-set limits are also addressed elsewhere in the CEA. E.g., 7 U.S.C. 7(d)(5)). 32 15 U.S.C. 8307(a). Some parts of pre DoddFrank CEA sections 4a(a) and 4a(b)–(e) were also amended by the Dodd-Frank Act. CEA section 4a(a) is now CEA section 4a(a)(1) and was modified primarily to add swaps, CEA section 4a(b) updates the names of applicable exchanges, and CEA
section 4a(c) requires the Commission to
promulgate a rule in accordance with a narrowed definition of bona fide hedging position as an exemption from position limits. 7 U.S.C. 6a(a)(1), 6a(b)–(e). 33 7 U.S.C. 6a(a)(2)(B)(i) and (ii). 34 7 U.S.C. 6a(a)(3)–(7). 35 15 U.S.C. 8307(a). 36 December 2013 Position Limits Proposal, 78 FR at 75685. Commission to set limits on futures for any exchange-traded contract for future delivery of any commodity ‘‘as the Commission finds are necessary to diminish, eliminate, or prevent [the] burden’’ of ‘‘[e]xcessive speculation’’ ‘‘causing sudden or unreasonable fluctuations or unwarranted changes in the price of such commodity.’’ 7 U.S.C. 6a(a) (2009 Supp.).30 CEA section 4a(a) also required the Commission to follow certain criteria for aggregating limits once it made that determination. And the Commission was authorized to impose limits flexibly, depending on the commodity, delivery month, and other factors.31 The 2010 Dodd-Frank Act amendments to CEA section 4a(a) significantly expanded and altered it. The entirety of pre-Dodd-Frank CEA
section 4a(a) became CEA section
4a(a)(1). Congress added six new subsections to CEA section 4a(a)— sections 4a(a)(2) through (7). And, outside of section 4a(a), Congress imposed a requirement that the Commission study the new limits it imposed and provide Congress with a report on their effects within one year of their imposition.32 The primary change at issue here was the addition of new CEA section 4a(a)(2), which addresses position limits on a specific class of commodity contracts, ‘‘physical commodities other than excluded commodities’’:
CEA section 4a(a)(2)(A) provides that in accordance with the standards set forth in CEA section 4a(a)(1), with respect to physical commodities other than excluded commodities, the Commission shall establish limits on the amount of positions, as appropriate, other than bona fide hedge positions, that may be held by any person with respect to contracts of sale for future delivery or with respect to options on the contracts. CEA section 4a(a)(2)(B), in turn, provides that the limits ‘‘required’’ under CEA section 4a(a)(2)(A) ‘‘shall be established within 180 days after the date of enactment of this paragraph’’ for ‘‘agricultural commodities’’ (such as wheat or corn) and ‘‘within 270 days after the date of the enactment of this paragraph’’ for ‘‘exempt commodities’’ (which include energy-related commodities like oil, as well as metals).33 The other new subsections of CEA
section 4a(a) delineate the types of
physical commodity derivatives to which the new limits apply, set forth criteria for the Commission to consider in determining the levels of the required limits, require the Commission to aggregate the limits across exchanges for equivalent derivatives, require the Commission to impose limits on swaps that are economically equivalent to the physical commodity futures and options subject to CEA section 4a(a)(2), and permit the Commission to grant exemptions from the position limits it must impose under the provision:

Section 4a(a)(3) guides the
Commission in setting appropriate limit levels by providing that the Commission shall consider whether the limit levels:
(i) Diminish, eliminate, or prevent excessive speculation; (ii) deter and prevent market manipulation, squeezes, and corners; (iii) ensure sufficient market liquidity for bona fide hedgers; and (iv) ensure that the price discovery function of the underlying market is not disrupted;
Section 4a(a)(4) sets forth criteria
for determining which swaps perform a significant price discovery function for purposes of the position limits provisions;
Section 4a(a)(5) requires the
Commission to concurrently impose appropriate limit levels on physical commodity swaps that are economically equivalent to the futures and options for which limits are required;
Section 4a(a)(6) requires the
Commission to apply the required position limits on an aggregate basis to contracts based on the same underlying commodity across all exchanges; and
Section a(a)(7) authorizes the
Commission to grant exemptions from the position limits it imposes.34 In a separate Dodd-Frank Act provision, Congress required that the Commission, in consultation with exchanges, ‘‘shall conduct a study of the effects (if any) of the position limits imposed’’ under CEA
section 4a(a)(2), that ‘‘[w]ithin twelve
months after the imposition of position limits’’ the Commission ‘‘shall’’ submit a report of the results of the study to Congress, and that Congress ‘‘shall’’ hold hearings within 30 days of receipt of the report regarding its findings.35

The Commission’s Experience With
Position Limits
As explained in the December 2013 Position Limits Proposal, position limits have a long history as a tool to prevent unwarranted price movement and volatility, including but not limited to price swings caused by market manipulation.36 Physical commodities underlying futures contracts are, by definition, in finite supply, and so it is

37Frank M. Surface, The Grain Trade During the World War, at 224 (Macmilliam 1928). 38 Grain Futures Act of 1922, ch. 369 at section 3, 342 Stat. 998, 999 (1922), codified at 7 U.S.C. 5 (1925–26). 39See Speculative Position Limits—Exemptions From Commission Rule 1.61; Chicago Mercantile Exchange Proposed Amendments to Rules 3902.D, 5001.E, 3010.F, 3012.F, 3013.F, 3015.F, 4604, and Deletion of Rules 3902.F, 5001.G, 3010.H., 3012.M, 3013.H, and 3015.H, 56 FR 51687 (Oct. 15, 1991) (providing notice of proposed exchange rule changes; request for comments). The Government, either through Congress, CEC or the Commission, has maintained position limits on various agricultural commodities since 1917. 40 December 2013 Position Limits Proposal, 78 FR at 75681–85; Significant Price Discovery Contracts on Exempt Commercial Markets, 74 FR 12178 (March 23, 2009). 41 December 2013 Position Limits Proposal, 78 FR at 75682–83 (citing 887 F. Supp. 2d at 273). 42 887 F. Supp. 2d at 269. 43See In the Matter of Limits on Position and Daily Trading in Wheat, Corn, Oats, Barley, Rye, and Flaxseed, for Future Delivery Findings of Fact, Conclusions, and Order, 3 FR 3145, Dec. 24, 1938. 44See 2 FR 2460, Nov. 12, 1937. 45See Limitation on Buying or Selling of Cotton Notice of Hearing, 4 FR 3903, Sep. 14, 1939; Part 150—Orders of the Commodity Exchange Commission Findings of Fact, Conclusions, and Order In the Matter of Limits on Position and Daily Trading in Cotton for Future Delivery, 5 FR 3198, Aug. 28, 1940. 46See Handling of Anti-Hog-Cholera Serum and Hog-Cholera Virus; Notice of Proposed Rule Making 16 FR 321, Jan. 12, 1951; Limits on Position and Daily Trading in Eggs for Future Delivery, 16 FR 8106, Aug. 16, 1951; see also Limits on Positions and Daily Trading in Cottonseed Oil, Soybean Oil, and Lard for Future Delivery, 17 FR 6055, Jul. 4, 1952 (providing notice of a hearing regarding proposed position limits for cottonseed oil, soybean oil, and lard); Limits on Position and Daily Trading in Cottonseed Oil for Future Delivery, 18 FR 443, Jan. 22, 1953 (giving orders setting limits for cottonseed oil, soybean oil, and lard); Limits on Position and Daily Trading in Onions for Future Delivery; Notice of Hearing, 21 FR 1838, Mar. 24, 1956 (conveying notice of a hearing regarding proposed position limits for onions), Limits on Position and Daily Trading in Onions for Future Delivery, 21 FR 5575, Jul. 25, 1956 (providing order setting position limits for onions). 47Although the Commission did not meet these deadlines in its first position limits rulemaking, it completed the task (in which the Commission received and addressed more than 15,000 comments) as expeditiously as possible under the circumstances. possible to amass or dissipate an extremely large position in such a way as to interfere with the normal forces of supply and demand. Speculators (who have no commercial use for the underlying commodity) are considered differently from hedgers (who use commodity
derivatives to hedge commercial risk). Speculators have been considered a greater source of risk because their trading is unconnected with underlying commercial activity, whereas a hedger’s trading is calibrated to other business needs. In various statutory enactments, Congress has recognized both the utility of position limits and the need to treat speculators differently from hedgers. Congress began regulating commodity derivatives in 1917, when Congress enacted emergency legislation to stabilize the U.S. grain markets during the First World War by suspending wheat futures and securing ‘‘a voluntary limitation’’ of 500,000 bushels on trading in corn futures.37 In 1922 Congress enacted the Grain Futures Act, in which it noted that ‘‘sudden or unreasonable fluctuations in the prices of commodity futures . . . frequently occur as a result of speculation, manipulation, or control . . . .’’ 38 In 1936, Congress strengthened the government’s authority by providing for limits on speculative trading in commodity derivatives when it enacted the CEA. The CEA authorized the CFTC’s predecessor, the Commodity Exchange Commission (CEC), to establish limits on speculative trading. Since that time, the Commission has been establishing or authorizing position limits for the past 80 years. As discussed in the December 2013 Position Limits Proposal and prior rulemakings, this history includes setting position limits beginning in 1938; overseeing exchange-set limits beginning in the 1960s; promulgating a rule in 1981, later directly ratified by Congress, mandating that exchanges set limits for all commodity futures for which there were no limits; allowing exchanges, in the 1990s, to set position accountability levels for certain financial contracts, such as futures and options on foreign currencies and other financial instruments with high degrees of stability; 39 and later expanding exchange limits or accountability requirements to significant price discovery contracts traded on exempt commercial markets.40 As addressed in the December 2013 Position Limits Proposal, two aspects of the Commission’s experience are particularly important to the Commission’s interpretation of the Dodd-Frank Act amendments to CEA
section 4a. The first is the Commission’s
experience with the time required to make necessity findings before setting limits, which relates to the time limits contained in CEA section 4a(a)(2)(B). The second is the Commission’s experience in rulemaking requiring exchanges to set limits in accordance with certain ‘‘standards,’’ the term the district court found ambiguous. a. Time to Establish Position Limits Based on its experience administering position limits, the Commission preliminarily concludes (as stated preliminarily in the December 2013 Position Limits Proposal) that Congress could not have contemplated that, as a prerequisite to imposing limits, the Commission would first make antecedent commodity-by-commodity necessity determinations in the 180–270 day time frame within which CEA
section 4a(a)(2)(B) states that limits
‘‘required under subparagraph [4a(a)(2(A)] shall be established.’’ 41 As described in the December 2013 Position Limits Proposal, for 45 years after passage of the CEA, the Commission’s predecessor agency made findings of necessity in its rulemakings establishing position limits.42 During that period, the Commission had jurisdiction over only a limited number of agricultural commodities. In orders issued by the Commodity Exchange Commission between 1940 and 1956 establishing position limits, the CEC stated that the limits it was imposing in each were necessary. Each of those orders involved no more than a small number of commodities. But it took the CEC many months to make those findings. For example, in 1938, the CEC imposed position limits on six grain products.43 Proceedings leading up to the establishment of the limits commenced more than 13 months earlier, when the CEC issued a notice of hearing regarding the limits.44 Similarly, in September 1939, the CEC issued a Notice of Hearing with respect to position limits for cotton, but it was not until August 1940 that the CEC finally promulgated such limits.45 And the CEC began the process of imposing limits on soybeans and eggs in January 1951, but did not complete the process until more than seven months later.46 In the Commission’s experience (including the experience of its predecessor agency), it generally took many months to make a necessity finding with respect to one commodity. The process of making the sort of necessity findings that plaintiffs in ISDA
v. SIFMA urged with respect to all
agricultural commodities and all exempt commodities (and that some commenters urge) would be far more lengthy than the time allowed by CEA
section 4a(a)(3), i.e., 180 or 270 days
from enactment of the Dodd-Frank Act.47 Because of the stringent time limits in CEA section 4a(a)(2)(B), the Commission concludes that Congress did not intend for the Commission to delay the imposition of limits until it first made antecedent, contract-bycontract necessity findings.

48Establishment of Speculative Position Limits, 46 FR 50938, 50944–45, Oct. 16, 1981. The rule adopted in 1981 tracked, in significant part, the language of CEA section 4a(1). Compare 17 CFR 1.61(a)(1) (1982) with 7 U.S.C. 6a(1) (1976). 49Establishment of Speculative Position Limits, 46 FR at 50945. 50 Id. at 50939; see also id. at 50938 (‘‘to ensure that each futures and options contract traded on a designated contract market will be subject to speculative position limits’’). 51Compare id. at 50941–42, 50945 with 7 U.S.C. 6a(a)(2)(A). 52Establishment of Speculative Position Limits, 46 FR 50941–42, 50945. 53 Id. at 50941–42 (preamble), 50945 (text of § 1.61(a)(2)). 54The Commission believes it likely that, given the prophylactic purposes articulated in current CEA section 4a(a)(1)(A), a similar view of position limits underpins CEA section 4a(a)(2)(A). 55Establishment of Speculative Position Limits. 46 FR at 50942. 56 Id. at 50945 (§ 1.61(a)). Compare 7 U.S.C. 6a(1) (1976). 57As discussed in further detail regarding congressional investigations, below, it is especially reasonable to infer that Congress had in fact made such a determination based on the congressional investigations that preceded these Dodd-Frank Act amendments. The fact that the Commission already had the clear authority to impose limits when it deemed them necessary bolsters this inference, because there was no need for these Dodd-Frank Act amendments to the position limits statute unless Congress, based on its own determination of necessity, sought to direct the Commission to impose limits. 58The relevant broader legislative history is discussed in depth, below. 59H.R. 977, 11th Cong. (2009). 60 7 U.S.C. 6. 61Compare H.R. 977, 11th Cong. (2009) with Establishment of Speculative Position Limits, 46 FR at 50944. 62H.Rept. 111–385, at 15, 19 (Dec. 19, 2009). 63See Union Carbide Corp. & Subsidiaries v. Comm’r of Internal Revenue, 697 F.3d 104, 109 (2d Cir. 2012) (explaining that when an agency must resolve a statutory ambiguity, to do so ‘‘with the aid of reliable legislative history is rational and prudent’’ (quoting Robert A. Katzman, Madison Lecture: Statutes, 87 N.Y.U. L. Rev. 637, 659 (2012)). 64S. Rep. No. 97–384, at 44 (1982). b. Prior Rulemaking Requiring Exchanges to Set Limits The CFTC’s preliminary interpretation of the statute is also based in part on its promulgation of a rule in 1981 requiring exchanges to impose limits on all contracts that did not already have limits. In that rulemaking, the Commission, acting expressly pursuant to, inter alia, what was then CEA section 4a(1) (predecessor to CEA
section 4a(a)(1)), adopted what was then
17 CFR 1.61.48 This rule required exchanges to set speculative position limits ‘‘for each separate type of contract for which delivery months are listed to trade’’ on any DCM, including ‘‘contracts for future delivery of any commodity subject to the rules of such contract market.’’ 49 The Commission explained that this action would ‘‘close the existing regulatory gap whereby some but not all contract markets [we]re subject to a specified speculative position limit.’’ 50 Like the Dodd-Frank Act, the 1981 final rule established (and the rule release described) that such limits ‘‘shall’’ be established according to what the Commission termed ‘‘standards.’’ 51 As used in the 1981 final rule and release, ‘‘standards’’ meant the criteria for determining how the required limits would be set.52 ‘‘Standards’’ did not include the antecedent ‘‘necessity’’ determination of whether to order limits at all. The Commission had already made the antecedent judgment in the rule that ‘‘speculative limits are appropriate for all contract markets irrespective of the characteristics of the underlying market.’’ 53 The Commission further concluded that, with respect to any particular market, the ‘‘existence of historical trading data’’ showing excessive speculation or other burdens on that market is not ‘‘an essential prerequisite to the establishment of a speculative limit.’’ 54 The Commission thus directed the exchanges to set limits for all futures contracts ‘‘pursuant to the . . . standards of rule 1.61,’’ without requiring that the exchanges first make a finding of necessity.55 And rule 1.61 incorporated the ‘‘standards’’ from thenCEA-section 4a(1)—an ‘‘Aggregation Standard’’ (46 FR at 50943) for applying the limits to positions both held and controlled by a trader, and a flexibility standard allowing the exchanges to set ‘‘different and separate position limits for different types of futures contracts, or for different delivery months, or from exempting positions which are normally known in the trade as ‘spreads, straddles or arbitrage’ or from fixing limits which apply to such positions which are different from limits fixed for other positions.’’ 56 Because the Commission had already made the antecedent necessity findings, it imposed tight deadlines for the exchanges to establish the limits. It is, accordingly, reasonable to believe that Congress would have structured CEA
section 4a(a) similarly, by first making
the antecedent necessity determination on its own,57 then directing the Commission to impose the limits without making an independent determination of necessity, and then using the term ‘‘standards’’ just as the Commission did in 1981 to refer to aggregation and flexibility rather than necessity for the required limits. Indeed, legislative history shows reason to believe that Congress’ choice of the word ‘‘standards’’ to refer to aggregation and flexibility alone was purposeful and intended it to mean the same thing it did in the Commission’s 1981 rule.58 The language that ultimately became section 737 of the Dodd-Frank Act, amending CEA section 4a(a), originated in substantially final form in H.R. 977, introduced by Representative Peterson, who was then Chairman of the House Agriculture Committee and who would ultimately be a member of the Dodd-Frank Act conference committee.59 In important respects, the language of H.R. 977 resembles the language the Commission used in 1981, suggesting that the regulation’s text may have influenced the statutory text. Like the Commission’s 1981 rule, H.R. 977 states that there ‘‘shall’’ be position limits in accordance with the ‘‘standards’’ identified in CEA section 4a(a).60 This language was included in CEA section 4a(a)(2) as adopted. Also like the 1981 rule, H.R. 977 established (and the Dodd-Frank Act ultimately adopted) a ‘‘good faith’’ exception for positions acquired prior to the effective date of the mandated limits.61 The committee report accompanying H.R. 977 described it as ‘‘Mandat[ing] the CFTC to set speculative position limits’’ and the
section-by-section analysis stated that
the legislation ‘‘requires the CFTC to set appropriate position limits for all physical commodities other than excluded commodities.’’ 62 This closely resembles the omnibus prophylactic approach the Commission took in 1981, when the Commission required the establishment of position limits on all futures contracts according to ‘‘standards’’ it borrowed from CEA
section 4a(1). The Commission views
the history and interplay of the 1981 rule and Dodd-Frank Act section 737 as further evidence that Congress intended to follow much the same approach as the Commission did in 1981, mandating position limits as to all physical commodities.63 There is further evidence based on the 1981 rulemaking that Congress would have found the across-the-board prophylactic approach attractive. In 1983, when enacting the Futures Trading Act of 19982, Public Law 97– 444, 96 Stat. 2294 (1983), Congress was aware that the Commission had ‘‘promulgated a final rule requiring exchanges to submit speculative position limit proposals for Commission approval for all futures contracts traded as of that date.’’ 64 Presented with competing industry and Commission proposals to amend the position limits statute, Congress elected to amend the

65 Id.
66A list is provided below in Section V,
Appendix B, of the full names, abbreviations, dates
and comment letter numbers for all comment letters cited in this rulemaking. The Commission notes that many commenters submitted more than one comment letter. Additionally, all comment letters that pertain to the December 2013 Position Limits Proposal and the 2016 Supplemental Position Limits Proposal, including non-substantive comment letters, are contained in the rulemaking comment file and are available through the Commission’s Web site at http://comments.cftc.gov/ PublicComments/CommentList.aspx?id=1708. A search can be done online for a particular comment letters by inserting the specific comment letter number in the address in place of the hash tags in the following web address: http:// comments.cftc.gov/PublicComments/ ViewComment.aspx?id=#####&SearchText. 67One commenter questioned whether the Commission’s experience was even relevant. This commenter asserted that the statute clearly and unambiguously does not mandate imposition of position limits, and therefore no consideration or deference to the Commission’s experience is appropriate. CL–ISDA/SIFMA–59611 at 7. But the district court disagreed and directed the Commission to employ its experience in resolving the ambiguities in the statute. 887 F. Supp. 2d at 270, 280–82. In any event, for the reasons discussed, the Commission’s reading is, at a minimum, reasonable. 68E.g., CL–CME–59718 at 2; see also CL–ISDA/ SIFMA–59611 at 3, 27–32, App. A at 11, App. B at 6 (arguing for alternatives to limits outside the spot month). 69CL–CME–59718 at 18. 70CL–CMOC–60400 at 3; and CL-Public Citizen60390 at 2–3. 71E.g., CL–A4A–59714 at 3. 72CL–CME–59718 at 7; and CL–ISDA/SIFMA– 59611 at 9, n. 32 (asserting that deadlines are no excuse for the Commission to be ‘‘arbitrary’’ or ‘‘sloppy.’’). 73CL–CME–59718 at 7. 74 Id. at 9–10. 75CL–AMG–59709 at 4, n. 8; and CL–CME–59718 at 15–16. 76Establishment of Speculative Position Limits, 46 FR at 50940–41 (Oct. 16, 1981). CEA ‘‘to clarify and strengthen the Commission’s authority in this area,’’ including authorizing the Commission to prosecute violations of exchange-set limits as if they were violations of the CEA.65 Thus, by granting the Commission explicit authority to enforce the Commission-mandated exchange-set limits, Congress in effect ratified the 1981 rule, finding it reasonable to impose position limits on an across-the board basis, rather than following a commodity-by-commodity determination. This contributes to the Commission’s judgment that Congress reasonably could have followed a similar approach here and, for the reasons given elsewhere, likely did.
c. Comments 66
i. Commission’s Experience: No
commenter disputed the depth or breadth of the Commission’s experience and expertise with position limits.67 Most, if not all, commenters, many of them exchanges, traders, and other market participants who have been subject to a long-standing federal and exchange-set limit regime, implicitly or explicitly agreed that at least spotmonth position limits continue to be essential to prevent manipulation and excessive volatility and thus serve the public interest.68 One commenter acknowledged that only the Commission can impose and monitor limits across exchanges.69 Another opined that only the Commission could impose limits without any conflicts of interest due to the exchanges’ imperative to maximize trading volume in order to maximize profit.70
ii. Time to Establish Limits: No
commenters disputed the fact that it took many months for the Commission to make a necessity determination before establishing limits. Some commenters agreed with the determinations the Commission preliminarily drew from its experience.71 Several commenters asserted that the Commission’s reliance on the timelines to support its view ignores other qualifying language in the statute, such as the terms ‘‘necessary’’ and ‘‘appropriate.’’ 72 The Commission disagrees, because its interpretation of the statute considers the relevant provisions as an integrated whole, which is required in interpreting any statute. Under this approach, it is appropriate to give consideration to the import of the tight statutory deadlines in light of the Commission’s experience that it could not possibly comply with if it had to make necessity findings as it has in the past. These comments fail to take these considerations into account. The Commission addresses the language relied upon by these commenters, infra, in its discussion of the text of the statute. CME also contended that the 180- and 270-day time limits were a difficulty manufactured by the December 2013 Position Limits Proposal itself. According to CME, the Commission could instead expedite the process for setting limits by utilizing its exchanges and others to determine whether position limits are necessary and appropriate for a particular commodity and, if so, the appropriate types and levels of limits and related exemptions.73 While this is a plausible approach to generating necessity findings, the Commission views it unlikely that Congress had this approach in mind. The provisions at issue make no mention of exchange-set limits or necessity findings. CME also gave no reason to believe that commodity-by-commodity necessity findings could be made by the exchanges within the prescribed 180/ 270 day limits.
iii. 1981 Rulemaking: Some
commenters disagreed with the Commission’s consideration of the 1981 Rule. CME commented that the 1981 Rule is inapposite because there the Commission was requiring DCMs to impose position limits based on an ‘‘antecedent judgment’’ that limits were necessary and appropriate; a necessity finding was not required there.74 The Commission believes that CME’s observation is consistent with its interpretation. In the 1981 rule, the Commission made an antecedent judgment on an across-the-board basis that position limits were necessary, and the exchanges then set them according to specific standards. Here, Congress has made the antecedent judgment on an across-the-board basis that position limits are necessary for physical commodities (i.e., commodities other than excluded commodities), and ordered the Commission to set them according to the same types of standards referenced in the 1981 rule. This supports, rather than undermines, the Commission’s interpretation that the ‘‘standards’’ in CEA section 4a(a)(1), referred to in CEA section 4a(a)(2) as added by the Dodd-Frank Act, are the flexibility and aggregation standards, much as they were in the 1981 rulemaking interpreting CEA section 4a(a)(1). Several commenters contended that the Commission’s reliance on the 1981 rulemaking ignores that the CFTC then imposed limits only after a factintensive inquiry into the characteristics of individual contracts markets to determine the limits most appropriate for individual contract markets.75 However, the Commission has taken those inquiries into account. The Commission believes these inquiries are significant because while the Commission performed such investigation for some markets, it did not do so for all markets ultimately within the scope of the rule. The 1981 Rule directed exchanges to impose limits on all futures contracts for which exchanges had not already imposed limits. For example, citing a then-recent disruption in the silver market, the Commission directed that position limits be imposed prophylactically for all futures and options contracts.76 It further directed the exchanges to consider the characteristics of particular contracts and markets in determining how to set limits (the standards, limit

77 Id.
78 Id.
79CL–ISDA/SIFMA–59611 at 9.
80CFTC v. Schor, 478 U.S. 833, 846 (1986). 81E.g., CL–ISDA/SIFMA–59611 at 9; and CL– AMG–59709 at 4, n.8. 82Union Carbide Corp. & Subsidiaries v. Comm’r of Internal Revenue, 697 F.3d 104, 109 (2d Cir.
2012) (explaining that when an agency must resolve
a statutory ambiguity, to do so ‘‘with the aid of reliable legislative history is rational and prudent’’ (quoting Robert A. Katzman, Madison Lecture:
Statutes, 87 N.Y.U. L. Rev. 637, 659 (2012)). 83 December 2013 Position Limits Proposal, 78 FR at 75682, 75684–85. 84 Id. at 75682. 85Federal Speculative Position Limits for Referenced Energy Contracts and Associated Regulations, 75 FR 4144, 4147 (Jan. 26, 2010); Revision of Federal Speculative Position Limits and Associated Rules, 64 FR 24038, 24048–49 (May 5, 1999). 86Commodity Futures Modernization Act of 2000, Public Law 106–554, 114 Stat. 2763 (Dec. 21, 2000). 87 7 U.S.C. 7(d)(3) (2009). 88The Role of Market Speculation in Rising Oil and Gas Prices: A Need to Put the Cop Back on the Beat, Staff Report, Permanent Subcommittee on Investigations of the Senate Committee on Homeland Security and Governmental Affairs, U.S. Senate, S. Prt. No. 109–65 at 1 (June 27, 2006). 89 Id. at 12; see also Excessive Speculation in the Natural Gas Market, Staff Report, Permanent Subcommittee on Investigations of the Senate Committee on Homeland Security and Governmental Affairs, U.S. Senate at 1 (June 25, 2007), available at http://www.levin.senate.gov/ imo/media/doc/supporting/2007/ PSI.Amaranth.062507.pdf (last visited Mar. 18,
2013) (‘‘Gas Report’’).
90 Gas Report at 1–2.
91 156 Cong. Record S. 4064 (daily ed. May 20, 2010). 92S. Rep. 111–176, at 29 (2010). levels and so on) but not whether to do so.77 It specifically rejected commenters’ concerns that position limits would not be beneficial for all contracts, finding, after ‘‘considerable years of Federal and contract market regulatory experience,’’ that ‘‘the capacity of any contract market . . . is not unlimited,’’ and there was no need to evaluate the particulars of whether any contract would benefit from position limits.78 The Dodd-Frank Act amendments unfolded in an analogous fashion. Prior to the Dodd-Frank Act, Congress conducted studies of some, but not all, markets in physical commodities. This history suggests that Congress extrapolated from the conclusions reached in those studies to determine that position limits were necessary for all physical commodities other than excluded commodities. ISDA and SIFMA asserted that the Commission’s reliance on the 1981 rulemaking is unavailing because (1) it cannot alter the Commission’s statutory burdens with respect to imposing position limits; and (2) it was never adopted by Congress.79 The first of these comments begs the question, i.e., what is ‘‘the statutory burden’’ intended in the text of CEA sections 4a(a)(1) and (2), read as a whole and considered in context to resolve the ambiguity found by the district court. As to the second comment, the Commission does not contend that Congress adopted the 1981 rule. Rather, it is relevant because the language the district court found ambiguous in the Dodd-Frank Act amendments to CEA section 4a(a) resembles the language of the 1981 rule, and some of the context is parallel. The relevance of this rulemaking is supported by the fact that Congress did ratify it the following year, when it amended the CEA by granting the Commission the authority to enforce the position limits set by the exchanges, reinforcing that as a historical matter Congress had approved an omnibus prophylactic approach as reasonable. That Congress had approved of such an approach before and then used language in the Dodd-Frank Act that closely resembles the very language the Commission used when it mandated that omnibus approach is another factor that weighs on the side of interpreting the statutory ambiguity to find a mandate to impose physical commodity positon limits.80 Finally, several commenters asserted that the Commission cannot consider the 1981 rulemaking because the Commission later allowed exchanges to set position accountability levels in lieu of limits for some commodities and contracts.81 Those later exemptions do not, however, alter the language or import of the 1981 rule, which directed the exchanges to impose limits in accordance with ‘‘standards’’ that did not include a necessity finding. The 1981 rulemaking is the last time the Commission definitively addressed and identified the ‘‘standards’’ in CEA
section 4a(a)(1) for imposing across-theboard, prophylactic position limits in a
manner akin to the Dodd-Frank Act amendments. That other approaches intervened is not inconsistent with the inference that Congress was influenced by the 1981 rulemaking in the DoddFrank Act amendments.
4. Legislative History of the Dodd-Frank
Act Amendments to Position Limits Statute As discussed in the 2016 Supplemental Position Limits Proposal, the Commission has also considered the legislative history of the Dodd-Frank Act amendments.82 That history contains further indication that Congress intended to mandate the imposition of limits for physical commodity derivatives without requiring the Commission to make antecedent necessity findings, and did not intend the term ‘‘standards’’ to include such a finding.83 The Commission’s preliminary interpretation of CEA section 4a(a)(2) is based in part on congressional concerns that arose, and congressional actions taken, before the passage of the DoddFrank Act amendments.84 During the 1990s, the Commission began permitting exchanges to experiment with an alternative to position limits— position accountability, which allowed a trader to hold large positions subject to reporting requirements and gave the exchange the right to order the trader to hold or reduce its position.85 Then, in the Commodity Futures Modernization Act of 2000 (‘‘CFMA’’),86 Congress expressly authorized the use of position accountability as an alternative means to limit speculative positions.87 Following this experiment with position accountability, Congress became concerned about fluctuations in commodity prices. In the late 1990s and 2000s, Congress conducted several investigations that concluded that excessive speculation accounted for significant volatility and price increases in physical commodity markets. For example, a congressional investigation determined that prices of crude oil had risen precipitously and that ‘‘[t]he traditional forces of supply and demand cannot fully account for these increases.’’ 88 The investigation found evidence suggesting that speculation was responsible for an increase of as much as $20–25 per barrel of crude oil, which was then at $70.89 Subsequently, Congress found similar price volatility stemming from excessive speculation in the natural gas market.90 These investigations appear to have informed the drafting of the Dodd-Frank Act. During hearings prior to the passage of the Dodd-Frank Act, Senator Carl Levin, then-Chair of the Senate Permanent Subcommittee on Investigations that had conducted them, urged passage to ensure ‘‘a cop on the beat in all commodity markets where U.S. commodities are traded . . . that can enforce the law to prevent excessive speculation and market manipulation.’’ 91 In addition, Congress viewed the nearly $600 trillion littleregulated swaps market as a ‘‘major contributor to the financial crisis’’ because excessive risk taking, hidden leverage, and under collateralization in that market created a systemic risk of harm to the entire financial system.92 As Senator Cantwell and others explained, it was imperative that the CFTC have the ability to regulate swaps through

93See, e.g., 156 Cong. Rec. S 2676–78, S 2698– 99, S 3606–07, S 3966, S 5919 (daily ed. April 27, May 12, 19, July 15, 2010 (providing statements of Senators Cantwell, Feinstein, Lincoln)). 94 156 Cong. Rec. H5245 (daily ed. June 30, 2010) (emphasis added). 95 December 2013 Position Limits Proposal, 78 FR at 75684–85. 96 Initially, the House used the word ‘‘may’’ to permit the Commission to impose aggregate positions on contracts based upon the same underlying commodity. See H.R. 4173, 11th Cong. 3113(a)(2) (providing the version introduced in the House, Dec. 2, 2009) (‘‘Introduced Bill’’); see also Brief of Senator Levin et al as Amicus Curiae at 10– 11, ISDA v. CFTC, no. 12–5362 (D.C. Cir. Apr. 22, 2013), Document No. 1432046 (hereafter ‘‘Levine Br.’’). 97Levin Br. at 11 (citing H.R. 4173, 111th Cong. 3113(a)(5)(2), (7) (as passed by the House Dec. 11,
2009) (‘‘Engrossed Bill’’)).
98 Id. at 12. (citing Engrossed Bill at 3113(a)(5)(3)). 99 15 U.S.C. 8307; Engrossed Bill at 3005(a). 100See Levin Br. at 13–17; see also DVD: October 21, 2009 Business Meeting (House Agriculture Committee 2009), ISDA v. CFTC, Dkt. 37–2 Exh. B (Apr. 13, 2012) at 59:55–1:02:18. 101Levin Br. at 23 (citing H.R. Rep. No. 111–373 at 11 (2009)). 102Levin Br. at 17–18. 103CL–CMOC–59720 at 2; CL–Sen. Levin–59637 at 2–5; and CL–A4A–59686 at 2–3. 104CL–IECA–59964 at 2; CL–A4A–59686 at 2; and CL–Public Citizen–59648 at 2–3. 105CL–CMOC–59720 at 2. 106CL–Sen. Levin–59637 at 3–4. 107 Id. 108 Id. at 2. 109CL–Public Citizen–59648 at 2–3, and CL– A4A–59686 at 1–2. 110CL–CME–59718 at 8. CME also asserted that the Congressional investigation into excessive speculation in natural gas futures focused more on the fact that position accountability rules for exchange-traded natural gas futures were not in place for ‘‘look-alike’’ natural gas swaps traded ‘‘over the counter,’’ permitting regulatory arbitrage. 111CL–Citadel–59717 at 3. ‘‘position limits,’’ ‘‘exchange trading,’’ and ‘‘public transparency’’ to avoid a recurrence of the instability that rippled through the entire financial system in
2008.93 And in the House of
Representatives, Representative Collin Peterson, then-Chairman of the House Committee on Agriculture and author of an amendment strengthening the position limits provision as discussed below, reminded his colleagues that his committee’s own ‘‘in-depth review of derivative markets began when we experienced significant price volatility in energy futures markets due to excessive speculation—first with natural gas and then with crude oil. We all remember when we had $147 oil. . . . This conference report [now] includes the tools we authorized and the direction to the CFTC to mitigate outrageous price spikes we saw 2 years ago.’’ 94 Congress’s focus in its investigations on excessive speculation involving physical commodities is reflected in the scope of the Dodd-Frank Act’s position limits amendment: It applies only to physical commodities. The evolution of the position limits provision in the bills before Congress from permissive to mandatory supports a preliminary determination that Congress intended to do something more than continue the long-standing statutory regime giving the Commission discretionary authority to impose limits.95 As initially introduced, the House bill that became the Dodd-Frank Act provided the Commission with discretionary authority to issue position limits, stating that the Commission ‘‘may’’ impose them.96 However, the House replaced the word ‘‘may’’ with the word ‘‘shall,’’ suggesting a specific judgment that the limits should be mandatory, not discretionary. The House also added other language militating in favor of interpreting CEA
section 4a(a)(2) as a mandate. In two
new subsections, it set the tight deadlines described above.97 After changing ‘‘may’’ to ‘‘shall,’’ the House further amended the bill to refer in one instance to the limits for agricultural and exempt commodities as ‘‘required.’’ 98 And only after the language had changed from permissive to mandatory, the House added the requirement that the Commission conduct studies on the ‘‘effects (if any) of position limits imposed’’ 99 to determine if the required position limits were harming U.S. markets.100 Underscoring its intent to amend the bill to include a mandate, the House Report accompanying the House Bill stated that it ‘‘required’’ the Commission to impose limits.101 The Conference Committee adopted the House bill’s amended provisions on position limits and then strengthened them even further by referring to the position limits as ‘‘required’’ an additional three times, bringing the total to four times in the final legislation the number of references in statutory text to position limits as ‘‘required.’’ 102 a. Comments A number of commenters generally supported or opposed the Commission’s consideration of Congressional investigations and the textual strengthening of the Dodd-Frank bill. The Commission addresses specific comments below.
i. Congressional Investigations:
Several commenters agreed that the Congressional investigations, hearings and reports support the view that Congress decided to mandate position limits.103 They pointed out that Congress’s investigations followed amendments in 2000 to the CEA as part of the CFMA that exempted swaps and energy derivatives from position limits and expressly authorized exchanges to impose position accountability levels in lieu of limits.104 According to the Commodity Markets Oversight Coalition (‘‘CMOC’’), ‘‘witnesses confirmed [at those hearings] that the erosion of the position limits regime was a leading cause in market instability and wild price swings.’’ 105 Senator Levin, who presided over the investigations, commented that those investigations, conducted from 2002 onwards, ‘‘into how our commodity markets function, focusing in particular on the role of excessive speculation on commodity prices’’ ‘‘have demonstrated that the failure to impose and enforce effective position limits have led to greater speculation and increased price volatility in U.S. commodity markets.’’ 106 According to Senator Levin, the investigations ‘‘provide[d] strong support for the Dodd-Frank decision to require the Commission to impose position limits on all types of commodity futures, swaps, and options.’’ 107 Senator Levin also stated that the harms of excessive speculation continue to be felt in the absence of the mandated limits. He cited recent actions by federal regulators to stop manipulation in energy markets, and opined that the continuing problems in the absence of the mandated limits only reinforce the reasonableness of the Commission’s view that Congress intended to mandate position limits as a prophylactic measure.108 Senator Levin’s point was echoed by Public Citizen, a consumer advocacy organization, and Airlines for America, a trade association for the U.S. scheduled airline industry.109 Other commenters disagreed with the Commission’s preliminary determination that the Congressional investigations indicate that Congress intended to mandate limits. CME asserted that the investigations do not in themselves demonstrate that Congress required the CFTC to impose position limits as recommended even if those investigations suggest that excessive speculation poses a burden on interstate commerce in certain physical commodity markets.110 Citadel questioned whether the cited reports could be ‘‘broadly indicative of Congressional intent,’’ or could ‘‘redefine statutory language that has existed for nearly eight decades.’’ 111 But the Commission is not relying solely on these reports. The question, rather, is whether these Congressional

112CL–Public Citizen–59648 at 2. 113CL–CME–59718 at 2, 5–12 (maintaining statutory language requires necessity finding); and CL–MFA–59606 at 9 (citing S. Rept. 111–176 (Apr. 30, 2010, which states ‘‘[t]his section authorizes the CFTC to establish aggregate position limits. . . .’’). 114E.g., CEA sections 4a(a)(2)(A) (providing that the Commission ‘‘shall’’ set the limits); 4a(a)(2)(B) (referring twice to the ‘‘limits required’’ and directing that they ‘‘shall’’ be established by a time certain); 4a(a)(3)(referring to the limits ‘‘required’’ under subparagraph (A)); 4a(a)(5)(stating that the Commission ‘‘shall’’ concurrently establish limits on economically equivalent contracts). 115 7 U.S.C. 6a(a)(2(B). 116 15 U.S.C. 8307. investigations and findings of excessive speculation and price volatility in energy markets, conducted and issued when the Commission was authorized but not required by law to impose limits, may be one indication, among others, that Congress sought to do something more with the Dodd-Frank Act amendments than to maintain the statutory status quo for futures on physical commodities. In the Commission’s preliminary view, it is more plausible, based on these investigations, that Congress sought to do something more—to require that the Commission impose limits for the covered commodities without having to first find that they are necessary to prevent excessive speculation. Contrary to Citadel’s comment, the Commission is not relying on the investigations and reports to redefine statutory language that has existed for nearly eight decades. Rather, the Commission believes that the investigations favor the conclusion that Congress added CEA section 4a(a)(2) to the pre-existing language in order to strengthen the long-standing position limits regime for a category of commodity derivatives—physical commodities—that Congress’s investigations revealed to be vulnerable to substantial price fluctuations.
ii. Evolution of the Dodd-Frank Bill:
Several commenters agreed with the Commission’s preliminary determination that the strengthening of the position limits language in the Dodd-Frank bill evinces Congress’ intent to mandate limits.112 CME and MFA disagreed; while they do not directly address this point, they believed that the strengthening of the language in the Dodd-Frank bills does not indicate that Congress intended to de-couple the enacted directive to impose position limits from the necessity finding of CEA section 4a(a)(1).113 The Commission, however, preliminarily considers this the most plausible interpretation. The evolution of the bill from one stating the Commission ‘‘may’’ impose position limits to include statements that the Commission ‘‘shall’’ impose them, that they are ‘‘required,’’ and that the Commission shall study their effects indicates intentional progressive refinement from a bill that would continue the status quo for futures to one that added special nondiscretionary requirements for a category of commodities. This legislative evolution also supports the conclusion ‘‘standards’’ does not include an antecedent necessity finding.
5. The Commission Preliminarily
Interprets the Text of CEA Section 4a(a) as an Integrated Whole, In Light of Its Experience and Expertise. In the December 2013 Position Limits Proposal, the Commission discussed how its interpretation of the text of CEA
section 4a(a), considered as an
integrated whole, is consistent with and supports its conclusions based on experience and expertise. As discussed, the ambiguity is the meaning of CEA
section 4a(a)(2)’s statement that the
Commission ‘‘shall’’ establish limits on physical commodities other than excluded commodities ‘‘[i]n accordance with the standards’’ set forth in CEA
section 4a(a)(1). If ‘‘standards’’ includes
a necessity finding, then a necessity finding is required before limits can be imposed on agricultural and exempt commodities. If not, the Commission must impose limits for that subset of commodity derivatives. In the December 2013 Position Limits Proposal, the Commission resolved the ambiguity by preliminarily determining that the reference in CEA section 4a(a)(2) to the ‘‘standards’’ in pre-Dodd-Frank section 4a(a)(1) refers to the criteria in CEA
section 4a(a)(1) for how the required
limits are to be set and not the antecedent finding whether limits are even necessary. The Commission explained that, in its preliminary view, ‘‘standards’’ refers to, in CEA section 4a(a)(1), only the following two provisions. First, the limits must account for situations in which one person controls another or two persons act in concert, by aggregating those positions as if the trading were done by one person acting alone (aggregation). The second ‘‘standard’’ in CEA section 4a(a)(1) states that the limits may be different for different commodities, markets, delivery months, etc. (flexibility). The Commission reasoned that this construction of ‘‘standards’’ seemed most consistent with the Commission’s experience and history administering position limits. It also seemed most consistent with the text of CEA section 4a(a)(2), the rest of CEA section 4a(a), and the Act as a whole. The Dodd-Frank Act amendments to CEA section 4a(a) largely re-shape CEA section 4a(a) by adding a new, detailed, and comprehensive section 4a(a)(2) that applies only to a subset of the derivatives regulated by the Commission—physical commodities like wheat, oil, and gold—and not intangible commodities like interest rates. Amended CEA section 4a(a) repeatedly uses the word ‘‘shall’’ and refers to the new limits as ‘‘required,’’ differentiating it from the text that existed before the Dodd-Frank Act.114 Never before in the Commission’s experience had Congress set deadlines on action for position limits by a date certain, much less the short time provided in CEA section 4a(a)(2)(B).115 Nor, in the Commission’s experience, had Congress required a report by a given date or committed itself to hold hearings on the report within 30 days thereafter.116 The Commission preliminarily concluded that, considered as a whole in light of this experience, these provisions evince a Congressional mandate that the Commission impose limits on physical commodities, that it do so quickly, that it impose limit levels in accordance with certain requirements, and that it study the effectiveness of the limits after imposing them and then report to Congress. By the same token, the Commission preliminarily determined that interpreting CEA section 4a(a)(2) as it proposed to do would not render superfluous the necessity finding requirement in CEA section 4a(a) because that section still applies to the non-physical (excluded) commodity derivatives that are not subject to CEA
section 4a(a)(2). Nor would it nullify
other parts of CEA section 4a(a), as those are unaffected by this reading. The Commission received a number of comments on its discussion of the interplay between the statute’s text and the Commission’s experience and expertise. The Commission has considered them carefully, but is not thus far persuaded. The Commission preliminarily believes that it is a reasonable interpretation of the text of the statute considered as an integrated whole and viewed through the lens of the Commission’s experience and expertise, that Congress mandated that the Commission establish position limits for physical commodities. It is also reasonable to construe the reference to ‘‘standards’’ as an instruction to the Commission to apply the flexibility and aggregation standards set forth in CEA
section 4a(a)(1), just as the Commission
instructed the exchanges to impose

117CL–CME–59718 at 11; CL–MFA–59606. at 9; etc. But see, e.g., CL–A4A–59714 at 2–3 (noting that notwithstanding the ‘‘meshing’’ problems, ‘‘it is clear that the Commission’s interpretation is reasonable and fully supported by the context in which the Dodd-Frank Act was passed, its legislative history, and the many other factors identified in the NPRM’’); CL–AFR–59685 at 1; CL– Public Citizen–60390 at 2; CL–Public Citizen–59648 at 2; CL–Sen. Levin–59637 at 4; and CL–CMOC– 59720 at 2–3. 118CL–A4A–59714 at 2–3. 119See, e.g., CL–CME–59718 at 12–13; CL– Citadel–59717 at 3–4; CL–AMG–59709 at 3; CL– MFA–59606 at 9–10; CL–ISDA/SIFMA–59611 at 5– 7; CL–IECAssn–59679 at 3–4; and CL–FIA–59595 at 6–7. 120CL–CME–59718 at 2, 12 (citing Hunter v. FERC, 711 F.3d 155 (D.C. Cir. 2013)). 121See, e.g., CL–ISDA/SIFMA–59611 at 5, 7–8 (citing CEA section 4a(a)(5) as authorizing aggregate position limits ‘‘as appropriate’’ for swaps that are economically equivalent to DCM futures and options and CEA section 4a(a)(3), which directs the Commission to set position limits as appropriate and to the maximum extent practicable, in its discretion: (i) To diminish, eliminate, or prevent excessive speculation; (ii) to deter and prevent market manipulation, squeezes, and corners; (iii) to ensure sufficient market liquidity for bona fide hedgers; and (iv) to ensure that the price discovery function of the underlying market is not disrupted.). 122 887 F.Supp. 2d at 278; December 2013 Position Limits Proposal, 78 FR at 75685, n. 59. 123CEA section 4a(a)(2)(A) provides that the Commission ‘‘shall’’ establish limits; CEA section 4a(a)(2)(B) refers multiple times to the ‘‘required’’ limits in (A) that ‘‘shall’’ be established within 180 or 270 days of enactment of Dodd-Frank; and CEA
section 4a(a)(2)(C) provides that ‘‘[i]n establishing
the limits required’’ the Commission shall ‘‘strive to ensure’’ that trading on foreign boards of trade for commodities that have limits will be subject to ‘‘comparable limits,’’ thereby assuming that limits must be established and requiring that they be set at levels in accordance with particular considerations. CEA section 4a(a)(3) contains ‘‘specific limitations’’ on the ‘‘required’’ limits which are most reasonably understood to be considerations for the Commission for the levels of limits. omnibus limits in 1981. And it is at least reasonable to conclude that Congress, in directing the Commission to impose the ‘‘required’’ limits on extremely tight deadlines, did not intend the Commission to independently make an antecedent finding that any given position limit for physical commodities is ‘‘necessary’’—a finding that would take many months for each individual physical commodity contract. a. Comments Several commenters disputed the Commission’s interpretation, based on its experience and expertise, that CEA
section 4a(a)(2) is a mandate for
prophylactic limits based on their view that the statute unambiguously requires the Commission to promulgate position limits only after making a necessity finding, and only ‘‘as appropriate.’’ 117 But in ISDA v. SIFMA, the district court held that the statute was ambiguous in this respect, and the Commission here is following the court’s direction to apply its experience and expertise to resolve the ambiguity. This is consistent with a commenter’s statement that ‘‘the meshing of the Dodd-Frank Act into the CEA may have created some ambiguity from a technical drafting/wording standpoint.’’ 118 Nevertheless, the Commission addresses these textual arguments to show that its preliminary interpretation is, at a minimum, a permissible one. The commenters that disagreed with the Commission’s preliminary conclusion argued that the Commission:
(i) Erred in determining that the reference to ‘‘standards’’ in CEA section 4a(a)(2) does not include the necessity finding in CEA section 4a(a)(1); (ii) failed to consider other provisions that show Congress intended to require the Commission to make antecedent findings; and (iii) incorrectly determined that its interpretation is the only way to give effect to CEA section 4a(a)(2).
i. Meaning of Standards: Several
commenters asserted that the language:
‘‘[in] accordance with the standards set forth in paragraph (1)’’ in section 4a(a)(2) must include the phrase ‘‘as the Commission finds are necessary to diminish, eliminate, or prevent [the burden on interstate commerce]’’ in CEA section 4a(a)(1).119 They believed that the Commission’s contrary interpretation constitutes an implied repeal of the necessity finding language.120 The Commission disagrees that this constitutes an implied repeal. First, CEA
section 4a(a)(2) applies only to physical
commodities, not other commodities.
Accordingly, the requirement of a necessity finding in section 4a(a)(1) still applies to a broad swath of commodity derivatives. Second, there is no implied repeal even in part, because the Commission is interpreting express language—the term ‘‘standards.’’ The Commission must bring its experience to bear when interpreting the ambiguity in the new provision, and the Commission preliminarily believes that the statute, read in light of the Commission’s experience administering position limits and making necessity findings, is more reasonably read as an express limited exception, for physical commodities futures and economically equivalent swaps, to the preexisting authorization in CEA section 4a(a)(1) for the Commission to impose limits when it finds them necessary.
ii. Other Limiting Language: Some
commenters pointed to a number of terms and provisions that they say support the notion that the Commission must make antecedent findings before imposing any limits under new CEA
section 4a(a)(2).
First, some commenters asserted that the term ‘‘as appropriate’’ in CEA sections 4a(a)(3) (factors that the ‘‘Commission, ‘‘as appropriate’’ must consider when it ‘‘shall set limits’’) and 4a(a)(5)(A) (providing that Commission ‘‘shall’’ ‘‘as appropriate’’ establish limits on swaps that are economically equivalent to physical commodity futures and options) require the Commission to make antecedent findings that the limits required under CEA section 4a(a)(2) are appropriate before it may impose them.121 The district court found these words to be ambiguous. In the court’s view, they could refer to the Commission’s obligation to impose limits (i.e., the Commission shall, ‘‘as appropriate,’’ impose limits), or to the level of the limits the Commission is to impose.122 The Commission preliminarily believes that when these words are considered in the context of CEA
section 4a(a)(2)–(7) as a whole,
including the multiple uses of the new terms ‘‘shall’’ and ‘‘required’’ and the historically unique stringent time limits for imposing the covered limits and post-imposition study requirement, it is more reasonable to interpret these words as referring to the level of limits, i.e., the Commission must set physical commodity limits at an appropriate level, and not to require the Commission to first determine whether the required limits are appropriate before it may even impose them.123 In other words, while Congress made the threshold decision to impose position limits on physical commodity futures and options and economically equivalent swaps, Congress at the same time delegated to the Commission the task of setting the limits at levels that would maximize Congress’ objectives. Some commenters claimed that other parts of CEA section 4a(a)(2) undermine the Commission’s determination. First, CEA section 4a(2)(C) states that the ‘‘[g]oal . . . [i]n establishing the limits required’’ is to ‘‘strive to ensure’’ that trading on foreign boards of trade (‘‘FBOTs’’) for commodities that have limits will be subject to ‘‘comparable limits.’’ It goes on to state that for ‘‘any limits to be imposed’’ the Commission will strive to ensure that they not shift trading overseas. Commenters argue that ‘‘any limits to be imposed’’ under CEA
section 4a(a)(2)(A) implies that limits
might not be imposed under that
section. However, in the context
discussed and in view of the reference in that section to position limits

124See, e.g., CL–CME–59718 at 11, 13–17, and CL–FIA–59595 at 5–6. 125See, e.g., CL–AMG–59709 at 3; and CL–CME– 59718 at 13–17. 126CEA section 4a(a)(3), 7 U.S.C. 6a(a)(3). 127CEA section 4a(e), 7 U.S.C. 6a(e). 128CL–CME–59718 at 10 (citing CEA section 4a(e)). 129 7 U.S.C. 7(d)(5). 130CL–CME–59718 at 11 (citing 7 U.S.C. 7(d)(5)). 131CL–CME–59718 at 10; CL–AMG–59709 5–6; CL–FIA–59595 at 12–13; CL–FIA–60392 at 4–6, 8 (asserting that under the Commission’s general rulemaking authority in CEA section 8a(5), 7 U.S.C. 12a(5), ‘‘the Commission has the power to adopt, as
part of an accountability regime, a rule pursuant to
which it or a DCM could direct a market participant to reduce speculative positions above an accountability limit because that authority is ‘reasonably necessary to effectuate’ a position accountability rule,’’ and observing that the Commission previously determined in rulemakings that exchange-set accountability levels represent an alternative means to limit excessive speculation); CL–FIA–60303 at 3–4; CL–DBCS–59569 at 4; CL– MFA–60385 at 7–8, 10–14; and CL–Olam–59658 at 1–2 (declaring that the Commission can and should permit exchanges to administer position accountability levels in lieu of Commission-set limits under CEA section 4a(a)(2)). 132CL–Public Citizen–60390 at 3–4 (noting other concerns with exchange set limits or accountability levels); CL–IECA 60389 at 3–4 (asserting that the Commission should not cede its authority to exchanges); CL–AFR–60953 at 4; CL–A4A–59686 at 2–3; CL–IECA–59671 at 2; and CL–CMOC–59720 at 2. 133CL–ISDA/SIFMA–59611 at 5; and CL–MFA– 59606 at 9–10. The District Court expressed the same concern. 887 F. Supp. 2d at 274–75. ‘‘required,’’ the reference to ‘‘any limits to be imposed’’ refers again to the levels or other standards applied. That is, whatever the contours the Commission chooses for the required limits, they must meet the goal set forth in that
section.
Second, CEA section 4a(a)(3)(B) states certain factors that the Commission must consider in setting limits under CEA section 4a(a)(2).124 The Commission sees no inconsistency with mandatory position limits—the Commission must consider these factors in setting the appropriate levels and other contours. Indeed, CEA section 4a(a)(3)(B) applies by its own terms to ‘‘establishing the limits required in paragraph (2).’’ Moreover, consideration of these factors under CEA section 4a(a)(3) is not mandatory, as some commenters suggest,125 but rather to be made ‘‘in [the Commission’s] discretion.’’ 126 In the Commission’s preliminary view, there is thus nothing in these provisions at odds with the Commission’s interpretation that it is required by CEA section 4a(a)(2)(A) to impose limits on a subset of commodities without making antecedent findings whether they should be imposed, particularly when the language at issue is construed, as it should be, with other terms in CEA
section 4a(a)(2)–(7), discussed above,
that use mandatory language and impose time limits. Some commenters stated that two preDodd Frank Act provisions in CEA
section 4a undermine the Commission’s
interpretation. The first is CEA section 4a(e),which states, ‘‘if the Commission shall have fixed limits . . . for any contract . . . , then the limits’’ imposed by DCMs, SEFs or other trading facilities ‘‘shall not be higher than the limits fixed by Commission.’’ 127 According to a commenter, the ‘‘if/then’’ formulation suggests position limits should not be presupposed for any contract.128 The Commission sees the provision differently. CEA section 4a(a)(2) applies only to a subset of futures contracts— contracts in physical commodities. For other commodities, position limits remain subject to the Commission’s determination of necessity, and the ‘‘if/ then’’ formulation applies and remains logical. There is, accordingly, no inconsistency. The second pre-Dodd Frank Act provision the commenters mentioned is CEA section 5(d)(5); 129 it gives the exchanges discretionary authority to impose position limits on all commodity derivatives ‘‘as is necessary and appropriate.’’ 130 There is, however, no inconsistency. Exchanges retain the discretionary authority to set position limits for the many commodities not covered by CEA section 4a(a)(2), and they retain the discretion to impose position limits for physical commodities, so long as the limits are no higher than federal position limits. Some commenters cited other language in CEA section 5(d)(5) to support their assertion that, notwithstanding the Dodd-Frank Act amendments discussed above requiring the Commission to impose limits, the Commission retains and should exercise its discretion to impose position accountability levels in lieu of limits or delegate that authority exchanges to do so. CEA section 5(d)(5) authorizes exchanges to adopt ‘‘position limitations or position accountability’’ levels in order to reduce the threat of manipulation and congestion. These commenters also pointed out that the Commission has previously endorsed accountability levels for exchanges in lieu of limits.131 Other commenters disagree. They asserted that, given what they interpret as a mandate in CEA
section 4a(a)(2) for the Commission to
impose position limits for physical commodities, it would be inappropriate for the Commission to consider imposing position accountability levels instead for those commodities, or to allow exchanges to do so.132 The Commission agrees with the latter group of commenters and finds the former reading strained. CEA section 4a(a)(2) makes no mention of position accountability levels. Regardless whether pre-Dodd Frank section 5(d)(5) allows exchanges to set accountability levels in lieu of limits where the Commission has not set limits, and regardless whether the Commission has in the past endorsed exchange-set position accountability levels in lieu of limits, CEA section 4a(a)(2) does not mention that tool. If anything, reference to accountability levels elsewhere in the CEA shows that Congress understands that exchanges have used position accountability, but made no reference to it in amended CEA section 4a(a).
iii. Avoiding Surplusage or Nullity:
Several commenters took issue with the Commission’s preliminary determination that its interpretation is necessary in order to avoid rendering CEA section 4a(a)(2)(A) surplusage. These commenters suggested that reading the term ‘‘standards’’ in CEA
section 4a(a)(2)(A) to include the
antecedent necessity finding in CEA
section 4a(a)(1) will not render CEA
section 4a(a)(2) surplusage because if
the Commission finds a position limit is ‘‘necessary’’ and ‘‘appropriate,’’ it now must impose one (as opposed to preDodd-Frank, when the Commission had authority but not a mandate under CEA
section 4a(a) to impose limits).133 The
Commission finds this reading highly unlikely. There is no history of the Commission determining that limits are necessary and appropriate, but then declining to impose them. Nor is it reasonable to expect that the Commission might do so. Indeed, historically necessity findings were made only in connection with establishing limits. Furthermore, if Congress had still wanted to leave it to the Commission to ultimately decide whether a limit was necessary, there is no reason for it to have also set tight deadlines, repeat multiple times that the limits are ‘‘required,’’ and direct the agency to conduct a study after the limits were imposed. In other words, requiring the Commission to make an antecedent necessity finding would render many of the Dodd-Frank Act amendments superfluous. For example, if the Commission determined limits were not necessary then, contrary to CEA section 4a(a)(2), no limits were in fact ‘‘required,’’ no limits needed to be imposed by the deadlines, and no study

134 In this vein, then-Commissioner Mark Wetjen, who was an aide to Senate Majority Leader Harry Reid during the Dodd-Frank legislative process, stated at the Commission’s public meeting to adopt the December 2013 proposal that to read Section 4a(a)(2)(A) to require the same antecedent necessity finding as Section 4a(a)(1) ‘‘does not comport with my understanding of the statute’s intent as informed by my experience working as a Senate aide during consideration of these provisions.’’ Statement of Commissioner Mark Wetjen, Public Meeting of the Commodity Futures Trading Commission (Nov. 5, 2013), http://www.cftc.gov/ PressRoom/SpeechesTestimony/ wetjenstatement110513. 135 December 2013 Position Limits Proposal, 78 FR at 75685. 136 International Swaps and Derivatives Association v. United States Commodity Futures Trading Commission, 887 F. Supp. 2d 259 (D.D.C. 2012). 137 7 U.S.C. 6a(a)(1). 138Establishment of Speculative Position Limits, 46 FR 50938, 50940 (Oct. 16, 1981). 139The Commission’s necessity finding is also supported by the consideration of costs and benefits below. needed to be conducted. But none of these provisions were phrased in conditional terms (e.g., if the Commission finds a limit necessary, then it shall . . . ). Had Congress wanted the Commission to continue to be the decisionmaker regarding the need for limits, it could have expressed that view in countless ways that would not strain the statutory language in this way. CME contended that the Commission’s position—that requiring a necessity finding would essentially give the Commission the same permissive authority it had before the Dodd-Frank Act amendments—is ‘‘short-sighted’’ because other provisions of CEA section 4a(a) ‘‘would still have practical significance.’’ In support of this view, CME stated that new CEA sections 4a(a)(2)(C) and 4(a)(3)(B) have significance even if the Commission is required to make a necessity finding because they ‘‘set forth safeguards that the CFTC must balance when it establishes limits’’ after ‘‘the CFTC finds that such limits are necessary.’’ The Commission preliminarily believes it unlikely that Congress would have intended that. On CME’s reading, the statute would place additional requirements to constrain the Commission’s preexisting authority. Given the background for the amendments, particularly the studies that preceded the Dodd-Frank Act, the Commission sees no reason why Congress would have placed additional constraints, nor any reason it would have placed them with respect to physical commodities but not excluded commodities or others. This comment also does not address the thrust of the Commission’s interpretation, which is that finding a mandate is the only way to read the entirety of the statute harmoniously, including the timing requirements of CEA section 4a(a)(2)(B) and the reporting requirements of
Section 719 of the Dodd-Frank Act,
account for the historical context, and, at the same time, avoid reading CEA
section 4a(a)(2)(A) as the functional
equivalent of CEA section 4a(a)(1).134 CME also cited CEA section 4a(a)(5), which requires position limits for economically equivalent swaps, to make the same point that there are still meaningful provisions in CEA section 4a(a), even with a necessity finding. But CEA section 4a(a)(1) already authorizes the Commission to establish limits on swaps as necessary, and so the authority, which would be discretionary under CME’s reading, to impose limits on economically equivalent swaps would add nothing to the statute and the amendment would be wholly superfluous.
6. Conclusion
Having carefully considered the text, purpose and legislative history of CEA
section 4a(a) as a whole, along with its
own experience and expertise and the comments on its proposed interpretation, the Commission preliminarily believes for the reasons above that Congress—while not expressing itself with ideal clarity— decided that position limits were necessary for a subset of commodities, physical commodities, mandated the Commission to impose them on those commodities in accordance with certain criteria, and required that the Commission do so expeditiously, without first making antecedent findings that they are necessary to prevent excessive speculation. Consistent with this interpretation, Congress also directed the agency to report back to Congress on their effectiveness within one year. In the Commission’s preliminary view, this interpretation, even if not the only possible interpretation, best gives effect to the text and purpose of the DoddFrank Act amendments in the context of the pre-existing position limits provision, while ensuring that neither the amendments nor the pre-existing language is rendered superfluous.
C. Necessity Finding

Necessity
The Commission reiterates its preliminary alternative necessity finding as articulated in the December 2013 Position Limits Proposal: 135 Out of an abundance of caution in light of the district court decision in ISDA v. CFTC,136 and without prejudice to any argument the Commission may advance in any forum, the Commission reproposes, as a separate and independent basis for the Rule, a preliminary finding herein that the speculative position limits in this reproposed Rule are necessary to achieve their statutory purposes. As described in the Proposal, the policy basis and reasoning for the Commission’s necessity finding is illustrated by two major incidents in which market participants amassed massive futures positions in silver and natural gas, respectively, which enabled them to cause sudden and unreasonable fluctuations and unwarranted changes in the prices of those commodities. CEA
section 4a(a)(1) calls for position limits
for the purpose of diminishing, eliminating, or preventing the burden of excessive speculation.137 Although both episodes involved manipulative intent, the Commission believes that such intent is not necessary for an excessively large position to give rise to sudden and unreasonable fluctuations or unwarranted changes in the price of an underlying commodity. This is illustrated, for example, by the fact that when the perpetrators of the silver manipulation lost the ability to control their scheme, i.e., to manipulate the market at will, they were forced to liquidate quickly, which, given the amount of contracts sold in a very short time, caused silver prices to plummet. Any trader who was forced by conditions in the market or their own financial condition to liquidate a very large position could predictably have similar effects on prices, regardless of their motivation for amassing the position in the first place. Moreover, although these two episodes unfolded in contract markets for silver and natural gas, and unfolded at two different times in the past, there is nothing unique about either market at either relevant time that causes the Commission to restrict its preliminary finding of necessity to those markets or to reach a different conclusion based on market conditions today. Put another way, any contract market has a limited ability, closely linked to the market’s size, to absorb the establishment and liquidation of large speculative positions in an orderly manner.138 The silver and natural gas examples illustrate these issues, but the reasoning applies beyond their specific facts. Accordingly, the Commission preliminarily finds it necessary to implement position limits as a prophylactic measure for the 25 core referenced futures contracts.139

140The Commission observed in the December 2013 Position Limits Proposal that the studies discussed therein ‘‘overall show a lack of consensus regarding the impact of speculation on commodity markets and the effectiveness of position limits.’’ 78 FR at 75695. 141 December 2013 Position Limits Proposal, 78 FR at 75695. 142E.g., CL–CCMR–59623 at 4–5; CL–EEI–EPSA– 59602 at 3; CL–FIA–59595 at 7; and CL–IECAssn– 59679 at 3. 143E.g., CL–BG Group–59656 at 3; CL–EEI–EPSA– 59602 at 3; and CL–WGC–59558 at 2. 144CL–Chamber–59684 at 4. 145CL–CCMR–59623 at 4–5. 146Contra CL–AFR–59711 at 1; CL–AFR–59685 at 1; CL–Public Citizen–59648 at 3; CL–WEED–59628. 147CL–EEI–EPSA–59602 at 3. 148A discussion of the cumulative studies reviewed by the Commission follows below. See below, Section I.C.2. (discussing studies and reports received or reviwed in connection with the December 2013 Position Limits Proposal), and accompanying text. 149This assumes that, contrary to the Commission’s interpretation of the statute, Congress did not make that determination itself as to physical commodity markets. 150The Commission stated in the December 2013 Position Limits Proposal that it found two studies of actual market events to be helpful and persuasive in making its preliminary alternative necessity finding, namely, the interagency report on the silver crisis, U.S. Commodity Futures Trading Commission, ‘‘Part Two, A Study of the Silver Market, May 29, 1981, Report to The Congress in Response to Section 21 of the Commodity Exchange Act, and the PSI Report on, U.S. Senate, ‘‘Excessive Speculation in the Natural Gas Market,’’ June 25, 2007. 151 December 2013 Position Limits Proposal, 78 FR at 75695. 152Commodity Futures Trading Commission, Report to The Congress in Response to Section 21 of the Commodity Exchange Act, May 29, 1981, Part Two, A Study of the Silver Market. 153Excessive Speculation in the Natural Gas Market, Staff Report with Additional Minority Staff Views, Permanent Subcommittee on Investigations, United States Senate, Released in Conjunction with the Permanent Subcommittee on Investigations June 25 & July 9, 2007 Hearings. 154One commenter called the Commission’s choice ‘cherry-picking.’ CL–Citadel–59717 at 4. 155The Commission disagrees; that an exemplary event occurred in the past does not make it irrelevant. 156Contra CL–Sen. Levin–59637 at 6 (pointing to ‘‘concrete examples’’). 157E.g., CL–Chamber–59684 at 3; CL–CME–59718 at 3, 18; CL–IECAssn–59679 at 2; CL–ISDA/SIFMA– 59611 at 12; and CL–USCF–59644 at 3. 158E.g., CL–IECAssn–59679 at 2; and CL–BG Group–59656 at 3. Certainly the Commission seeks to prevent extreme events such as Amaranth and the Hunt brothers, however infrequently they may occur. 159E.g., CL–CME–59718 at 18; and CL–CCMR– 59623 at 3. 160CL–CME–59718 at 18. 161E.g., CL–EEI–EPSA–59602 at 2; CL–WGC– 59558 at 2. 162E.g., CL–Citadel–59717 at 4; CL–ISDA/ SIFMA–59611 at 12–14; CL–MFA–59606 at 10; and CL–WGC–59558 at 2. 163E.g., CL–Better Markets–59716 at
12; CL–BG Group-59656 at 3; CL–COPE–59622 at 4–5; CL– CCMR–59623 at 4; CL–ISDA/SIFMA–59611 at 13; and CL–AMG–59709 at 5. 164 December 2013 Position Limits Proposal, 78 FR at 75685, n. 60. The Commission received many comments on its preliminary alternative necessity finding; the Commission summarizes and responds to significant comments below. a. Studies’ Lack of Consensus.140 The Commission stated in the December 2013 Position Limits Proposal that the lack of consensus in the studies reviewed at that time warrants acting on the side of caution and implementing position limits as a prophylactic measure, ‘‘to protect against undue price fluctuations and other burdens on commerce that in some cases have been at least in part attributable to excessive speculation.’’ 141 Some commenters suggested that a lack of consensus means instead that the Commission should not implement position limits,142 that the issue merits further study,143 that it would be arbitrary and capricious to implement position limits,144 and that the desire to err on the side of caution should be irrelevant to an assessment of whether position limits are necessary.145 In short, these comments contend that the lack of consensus means position limits cannot be necessary.146 The Commission disagrees. The lack of consensus does not provide ‘‘objective evidence that position limits are not necessary;’’ 147 rather, it suggests that they remain controversial.148 In response to these comments, the Commission believes that Congress could not have intended by using the word ‘‘necessary’’ to restrict the Commission from determining to implement position limits unless experts unanimously agree or form a consensus they would be beneficial. Otherwise a necessity finding would be virtually impossible and, in fact, the Commission could plausibly be stymied by interested persons publishing self-interested studies. The Commission’s view in this respect is supported by the text of CEA section 4a(a)(1), which states that there shall be such limits as ‘‘the Commission finds’’ are necessary.149 Thus, while the Commission finds the studies useful, it does not cede the necessity finding to the authors. b. Reliance on Silver and Natural Gas Studies.150 The Commission stated in the December 2013 Position Limits Proposal that it ‘‘found two studies of actual market events to be helpful and persuasive in making its preliminary alternative necessity finding,’’ 151 namely, the Interagency Silver Study 152 and the PSI Report on Excessive Speculation in the Natural Gas Market.153 Some commenters criticized the Commission’s reliance on these two studies.154 These commenters dismissed the two studies, variously, as limited, outdated,155 dubious,156 unpersuasive, anecdotal, and irrelevant.157 Other commenters characterized the episodes as extreme or unique.158 Some commenters observed that neither study recommended position limits.159 One noted that, ‘‘Each study focuses on activities in a single market during a
limited timeframe that occurred years ago.’’ 160 Others noted that the Commission has undertaken no independent analysis of each market, commodity, or contract affected by this rulemaking.161 They then claim that because particular markets or commodities have unique characteristics, one cannot extrapolate from these two specific episodes to other commodities or other markets.162 Several commenters describe the Hunt brothers silver crisis and the collapse of the natural gas speculator Amaranth as instances of market manipulation rather than excessive speculation.163 As discussed above, the presence of manipulative intent or activity does not preclude the existence of excessive speculation, and traders do not need manipulative intent for the accumulation of very large positions to cause the negative consequences observed in the Hunt and Amaranth incidents. These are some reasons position limits are valuable as a prophylactic measure for, in the language of CEA section 4a(a)(1), ‘‘preventing’’ burdens on interstate commerce. The Hunt brothers, who distorted the price of silver, and Amaranth, who distorted the price of natural gas, are examples that illustrate the burdens on interstate commerce of excessive speculation that occurred in the absence of position limits, and position limits would have restricted those traders’ ability to cause unwarranted price movement and market volatility, and this would be so even had their motivations been innocent. Both episodes involved extraordinarily large speculative positions, which the Commission has historically associated with excessive speculation.164 We are also given no persuasive reason to change our conclusion that extraordinarily large speculative positions could result in sudden or unreasonable fluctuations or unwarranted price changes in other physical commodity markets, just as they did in silver and natural case in the Hunt Brothers and Amaranth episodes. Although commenters describe changes in these markets over time, the characteristics that we find salient have

165See infra Section I.C.1.f., and accompanying text. 166CL–CME–59718 at 13–14. 167See, e.g., Establishment of Speculative Position Limits, 46 FR at 50940 (Oct. 16, 1981) (‘‘[I]t appears that the capacity of any contract market to absorb the establishment and liquidation of large speculative positions in an orderly manner is related to the relative size of such positions, i.e., the capacity of the market is not unlimited.’’). 168See also 1 U.S.C. 1 (‘‘In determining the meaning of any Act of Congress, unless the context indicates otherwise—words importing the singular include and apply to several persons, parties, or things[.]’’) 169See the Commission’s discussion of its verification of estimates of deliverable supply and work with open interest data, below. 170CL–USCF–59644 at 2. 171CL–USCF–59644 at 2. This commenter exaggerates. The last arguably relevant report of Commission staff is ‘‘Commodity Swap Dealers & Index Traders with Commission Recommendations’’ (Sept. 2008), available at http:// www.cftc.gov/idc/groups/public/@newsroom/ documents/file/cftcstaffreportonswapdealers09.pdf. However, several authors or co-authors of academic papers reviewed by the Commission are or have been affiliated with the Commission in various capacities and have added to the current literature relating to position limits. Each of Harris, see note240, Kirilenko, see note 2400, and Overdahl, see notes 240 and 241, are former Chief Economists of the Commission. Other authors, e.g., Aulerich, Boyd, Brunetti, Bu¨ yu¨ ks¸ahin, Einloth, Haigh, Hranaiova, Kyle, Robe, and Rothenberg, are now or have been staff and/or consultants to the Commission, have spent sabbaticals at the Commission, or have been detailed to the Commission from other federal agencies. Graduate students studying with some study authors, including some working on dissertations, have also cycled through the Commission as interns. Cf. note 180 (disclaimer on paper by Harris and Bu¨ yu¨ ks¸ahin). 172CL–USCF–59644 at 3. Data regarding investor and hedger trading records may be protected by
section 8 of the CEA, 7 U.S.C. 12. In general, ‘‘the
Commission may not publish data and information that would separately disclose the business transactions or market positions of any person and trade secrets or names of customers . . . .’’ 7 U.S.C. 12(a)(1). The Commission must therefore be very careful about granting outside economists access to such data. Commission registrants have in the past ‘‘questioned why the CFTC was permitting outside economists to access CFTC data, why the CFTC was permitting the publication of academic articles using that data, and . . . the administrative process by which the CFTC was employing these outside economists.’’ Review of the Commodity Futures Trading Commission’s Response to Allegations Pertaining to the Office of the Chief Economist, Prepared by the Office of the Inspector General, Commodity Futures Trading Commission, Feb. 21. 2014, at ii, available at http://www.cftc.gov/idc/ groups/public/@freedomofinformationact/ documents/file/oigreportredacted.pdf. The Commission is sensitive to these concerns, and strives to ensure that reports and publications that rely on Commission data do not reveal sensitive information. To do so requires an expenditure of effort by Commission staff. 173CL–USCF–59644 at 3. The Commission rejects the commenter’s aspersion. The Commission’s Office of the Inspector General addressed the perception of institutional censorship in its ‘‘Follow Up Report: Review of the Commodity Futures Trading Commission’s Response to Allegations Pertaining to the Office of the Chief Economist, Jan. 13, 2016 (‘‘Follow Up Report’’), available at http:// www.cftc.gov/idc/groups/public/@aboutcftc/ documents/file/oig_oce011316.pdf. The Follow Up Report emphasizes ‘‘that there has been no allegation that the Chairman or Commissioners have attempted to prevent certain topics from being researched or to alter conclusions,’’ Follow Up Report at 11, but nevertheless recommended ‘‘that OCE not prohibit research topics relevant to the CFTC mission.’’ Follow Up Report at 10. The Follow Up Report observed that recently ‘‘OCE has focused almost exclusively on short-term research and economic analysis in support of other Divisions and the Commission.’’ Follow Up Report at 10. 174 15 U.S.C. 8307(a). See December 2013 Position Limits Proposal, 78 FR at 75684 (discussing section 719(a) of the Dodd-Frank Act in the context of the Commission’s construal of CEA section 4a(a) to mandate that the Commission impose position limits). 175CL–MFA–59606 at 11–12. not changed materially.165 Thus, these two examples remain relevant and compelling. CME makes a textual argument in support of the position that CEA section 4a(a)(2) requires a commodity-bycommodity determination that position limits are necessary. It cites several places in CEA section 4a(a)(1) that refer to limits as necessary to eliminate ‘‘such burden’’ on ‘‘such commodity’’ or ‘‘any commodity.’’ 166 However, the prophylactic measures described herein address vulnerabilities characteristic of each market.167
Accordingly, the Commission believes the statute’s use of the singular is immaterial.168 The Commission’s analysis applies to all physical commodities, and it would account for differences among markets by setting the limits at levels based on updated data regarding estimated deliverable supply in each of the given underlying commodities in the case of spot-month limits or based on exchange recommendation, if an exchange recommended a spot-month limit level of less than 25 percent of estimated deliverable supply, and open interest in the case of single-month and allmonths-combined limits, for each separate commodity. The Commission’s Reproposal regarding whether to adopt conditional spot-month limits is also based on updated data.169 The Commission also does not find it relevant that the Interagency Silver Study and the PSI Report, each of which was published before the Dodd-Frank Act became law, do not recommend the imposition of position limits. Based on the facts described in those reports, along with the Commission’s understanding of the policies underlying CEA section 4a(a)(1) in light of the Commission’s own experience with legacy limits, the Commission preliminarily finds that position limits are necessary within the meaning of that
section.
c. Commission research. One
commenter asserted that the Commission failed ‘‘to conduct proper economic analysis to determine, if in fact, the position limits as proposed were likely to have any positive impact in promoting fair and orderly commodity markets.’’ 170 While acknowledging the Commission’s resource constraints, this commenter remarked on ‘‘the paucity of the published record by the CFTC’s s own staff’’ 171 and suggests that outside authors be given ‘‘controlled access to all of the CFTC’s data regarding investor and hedger trading records.’’ 172 This commenter then proceeds to accuse the Commission of failing to ‘‘conduct such research because they felt the data would not in fact support the proposed position limit regulations.’’ 173 The Commission disagrees that it has failed to conduct proper economic analysis to determine the likely benefits of position limits. CEA section 15(a) requires that before promulgating a regulation under the Act, the Commission consider the costs and benefits of the action according to five statutory factors. The Commission does so below in robust fashion with respect to the Reproposal in its entirety, including the alternative necessity finding. Neither section 15(a) of the CEA nor the Administrative Procedure Act requires the Commission to conduct a study in any particular form so long as it considers the costs and benefits and the entire administrative record. Section 719(a) of the Dodd-Frank Act, on the other hand, provides that the Commission ‘‘shall conduct a study of the effects (if any) of the position limits imposed pursuant to the . . . [CEA] on excessive speculation’’ and report to Congress on such matters after the imposition of position limits.174 The Commission will do so as required by
Section 719(a), thereby fully discharging
its duty. At all stages, the Commission has relied on and will continue to rely on the input of staff economists in the Division of Market Oversight (‘‘DMO’’) and the Office of the Chief Economist (‘‘OCE’’). d. Excessive Speculation One commenter opined that, ‘‘in discussing only the Hunt Brothers and Amaranth case studies the Commission has not given adequate weight to the benefits that speculators provide to the market.’’ 175 To the contrary, the Commission recognizes that speculation is part of a well-functioning market, particularly insofar as speculators contribute valuable liquidity. The focus of this reproposed rulemaking is not speculation per se; Congress identified excessive speculation as an undue

176 7 U.S.C. 6a(a)(1). One commenter suggests that the Commission base speculative position limits on ‘‘a determination of an acceptable total level of speculation that approximates the historic ratio of hedging to investor/speculative trading.’’ CL–A4A– 59714 at 4. The Commission declines at this time to adopt such a ratio as basis for speculative position limits. Among other things, the Commission does not now collect reliable data distinguishing hedgers from speculators. Also, there may be levels above a historic hedging ratio that still provide liquidity rather than denoting excessive speculation. While the Commission has authority under section 4a(a)(1) of the Act to impose position limits on a group or class of traders, the only way that the Commission knows how to implement limit levels based on such a historic ratio would be to impose rationing, which the Commission declines to do at this time. 177CL–ISDA/SIFMA–59611 at 3, 14–15; see also CL–FIA–59595 at 6–7. 178 December 2013 Position Limits Proposal, 78 FR at 75685, n. 60 (citation omitted). 179 7 U.S.C. 6a(a)(1). 180CL–ISDA/SIFMA–59611 at 3; see also CL– CCMR–59623 at 4; CL-Chamber-59684 at 4. Contra CL-Sen. Levin-59637 at 6 (stating ‘‘[c]ontrary to the complaints of some critics, it would be a waste of time and resources for the Commission to expand the proposed rules beyond the existing justification to repeat the same analysis, reach the same conclusions, and issue the same findings for each of the 28 commodities.’’). 181See also CL–CCMR–59623 at 4–5. Another commenter ‘‘contends that the best available evidence discounts the theory that there is excessive speculation distorting the prices in the commodity markets.’’ CL–MFA–59606 at 13 (citing Pirrong). Such a contention is inconsistent with ‘‘Congress’ determination, codified in CEA section 4a(a)(1), that position limits are an effective tool to address excessive speculation as a cause of sudden or unreasonable fluctuations or unwarranted changes in the price of . . . [agricultural and exempt] commodities. December 2013 Position Limits Proposal, 78 FR at 75695 (footnote omitted). Another commenter mischaracterizes the finding of the Congressional Budget Report, ‘‘Evaluating Limits on Participation and Transactions in Markets for Emissions Allowances’’ (2010), available at http://www.cbo.gov/publication/21967 (‘‘CBO Report’’); the CBO Report does not conclude ‘‘that position limits are harmful to markets.’’ CL– IECAssn–59679 at 3. Rather, in the context of creating markets for emissions allowance trading, the CBO Report discusses both the uses and benefits and the challenges and drawbacks of not only position limits but also circuit breakers, in addition to banning certain types of traders and banning allowance derivatives. Among other things, the CBO Report states, ‘‘Position Limits would probably lessen the possibility of systemic risk and manipulation in allowance markets . . . .’’ CBO Report at viii. Another commenter states
that a ‘‘CFTC study’’ found that the 2008 crude oil crisis was primarily due to fundamental factors in the supply and demand of oil. CL–CCMR–59623 at 4. The referenced study is Harris and Bu¨ yu¨ ks¸ahin, The Role of Speculators in the Crude Oil Futures Market (working paper 2009). See generally note 240 (listing studies that employ the Granger method of statistical analysis). While Harris is a former Chief Economist, and Bu¨ yu¨ ks¸ahin is a former staff economist in OCE, as noted above, the cover page of the referenced paper contains the standard disclaimer, ‘‘This paper reflects the opinions of its authors only, and not those of the U.S. Commodity Futures Trading Commission, the Commissioners, or other staff of the Commission.’’ That is, it is not a ‘‘CFTC study.’’ In addition, other studies of that market at that time reached different conclusions. Cf. note 252 (citing study that concludes price changes precede the position change). The Commission reviewed several studies of the crude oil market around 2008 and discusses them herein. See discussion of persuasive academic studies, below. The Commission cautions that, given the continuing controversy surrounding position limits, it is unlikely that one study will ever be completely dispositive of these complicated and difficult issues. 182 December 2013 Position Limits Proposal, 78 FR at 75683. 183CL–CCMR–59623 at 4 (claim supported only by a reference to a comment letter that pre-dates the December 2013 Position Limits Proposal). 184CL–MFA–59606 at 12 (citing one academic paper, Irwin and Sanders, The Impact of Index and Swap Funds on Commodity Futures Markets:
Preliminary Results (working paper 2010)). See generally note 240 (studies that employ the Granger method of statistical analysis). 185E.g., CL–MFA–59606 at 11–12, n. 26. Contra CL–AFR–59685 at 1 (stating ‘‘We understand that other factors contribute to highly volatile commodity prices, but excessive speculation plays a significant part, according to studies by Princeton, MIT, the Petersen Institute, the University of London, and the U.S. Senate, among other highly credible sources.’’). 186CL–MFA–59606 at 13, n. 30. 187E.g., CL–MFA–59606 at 12–13 (hedge funds). Cf. CL–SIFMA AMG–59709 at 15 (asserting ‘‘neither Amaranth nor the Hunt brothers were in any way involved in commodity index swaps’’), 16 (registered investment companies and ERISA accounts). 188CL–MFA- 59606 at 13. Contra CL–CMOC– 59702 at 2 (maintaining that witness testimony before policymakers ‘‘confirmed that the erosion of the position limits regime was a leading cause in market instability and wild price swings seen in recent years and that it had led to diminished confidence in the commodity derivative markets as a hedging and price discovery tool’’). burden on interstate commerce in CEA
section 4a(a)(1).176
One commenter asserted that the Commission must provide a definition of excessive speculation before making any necessity finding.177 The Commission disagrees that the rule must include such a definition. The statute contains no such requirement, and did not contain such a requirement prior to the Dodd-Frank Act. The Commission has never based necessity findings on a rigid definition. The Commission’s position on this issue has been clear over time: ‘‘The CEA does not define excessive speculation. But the Commission historically has associated it with extraordinarily large speculative positions . . . .’’ 178 CEA section 4a(a)(1) states that position limits should diminish, eliminate, or prevent burdens on interstate commerce associated with sudden or unreasonable fluctuations or unwarranted changes in the price of commodities.179 It stands to reason that excessive speculation involves positions large enough to risk such unreasonable fluctuations or unwarranted changes. This commenter also urges the Commission to ‘‘demonstrate and determine that . . . harmful excessive speculation exists or is reasonably likely to occur with respect to particular commodities’’ 180 before implementing any position limits.181 As stated in the December 2013 Position Limits Proposal, the Commission referenced its prior determination in 1981 ‘‘that, with respect to any particular market, the ‘existence of historical trading data’ showing excessive speculation or other burdens on that market is not ‘an essential prerequisite to the establishment of a speculative limit.’ ’’ 182 The Commission reiterates this statement and underscores that these risks are characteristic of contract markets generally. Differences among markets can be addressed, as the Commission reproposes to do here, by setting the limit levels to account for individual market characteristics. Attempting to demonstrate and determine that excessive speculation is reasonably likely to occur with respect to particular commodities before implementing position limits is impractical because historical trading data in a particular commodity is not necessarily indicative of future events in that commodity. Further, it would require the Commission to determine what may happen in a forecasted future state of the market in a particular commodity. As the Commission has often repeated, position limits are a prophylactic measure. Inherently, then, position limits are designed to address the burdens of excessive speculation well before they occur, not when the Commission somehow determines that such speculation is imminent, which the Commission (or any market actor for that matter) cannot reliably do. e. Volatility Commenters assert, variously, that ‘‘the volatility of commodity markets has decreased steadily over the past decade,’’ 183 that ‘‘research found that there was a negative correlation between speculative positions and market volatility,’’ 184 research shows that factors other than excessive speculation were
primarily responsible for specific instances of price volatility,185 that futures markets are associated with lower price volatility,186 that particular types of speculators provide liquidity rather than causing price volatility,187 that position limits will increase volatility,188 etc. It would follow, then, according to these commenters, that because they believe there is little or no volatility (no sudden or unreasonable fluctuations or unwarranted price changes), or no volatility caused by excessive speculation, position limits cannot be necessary. As stated above, the Commission recognizes that speculation is part of a

189That a particular type of speculator trades a different type of instrument, employs a different trading strategy, or is unlevered, diversified, subject to other regulatory regimes, etc., so as to distinguish it in some way from Amaranth or the Hunt brothers does not overcome the size of the position held by the speculator, and the risks inherent in amassing extraordinarily large speculative positions. 190CEA section 4a(a)(1); 7 U.S.C. 6a(a)(1). 191See the discussion of the impact analysis, below under § 150.2. 192CL–Citadel–59717 at 3–4 (footnote omitted). Contra CL-Sen. Levin-59637 at 6 (declaring that ‘‘[t]he Commission’s analysis and findings, paired with concrete examples, provide a comprehensive explanation of the principles and reasoning behind establishing position limits.’’). 193Although the events described in the proposal are sufficient to support the necessity finding for the reasons given, the Commission also notes reports that more recent market events have been perceived as involving excessively large positions that have caused or threatened to cause market disruptions. See, e.g., Ed Ballard, Speculators sit on Sugar Pile, Raising Fears of Selloff, The Wall Street Journal (Nov. 21, 2016) (‘‘Speculative investors have built a record position in sugar this year, sparking fears of a swift pullback in its price.’’); Of mice and markets, A surge in speculation is making commodity markets more volatile, The Economist (Sept. 10, 2016) (discussing ‘‘scramble by funds to unwind their short positions in’’ West Texas Intermediate that appears to have ‘‘fanned a rally in spot oil prices’’). As discussed elsewhere, willingness to participate in the futures and swaps markets may be reduced by perceptions that a participant with an unusually large speculative position could exert unreasonable market power. 194CL–WGC–59558 at 2; see also CL–BG Group59656 at 3. 195 December 2013 Position Limits Proposal, 78 FR at 75690. 196The Commission’s methodology is a fair approximation of how the limits would have been applied during the time of the silver crisis. See December 2013 Position Limits Proposal, 78 FR at 75690. 197 December 2013 Position Limits Proposal, 78 FR at 75690–1. 198For example, using historical month-end open interest data, the Commission calculated a singleand all-months-combined limit level of 6,700 contracts, which would have been exceeded by a total Hunt position of over 12,000 contracts for March delivery. December 2013 Position Limits Proposal, 78 FR at 75690. Baldly, a position of 12,000 contracts would still exceed a 7,600 contract limit. 199 December 2013 Position Limits Proposal, 78 FR at 75692. 200 December 2013 Position Limits Proposal, 78 FR at 75692–3. 201See level of initial limits under App. D to part
150. 202Establishment of Speculative Position Limits,
46 FR 50938, 50940. 203A gross comparison such as this may not meaningful. For example, the Commission could have increased the size of Amaranth’s historical position proportionately to the increased size of the market and compared it to the limit level for natural gas that the Commission adopts today. But such an approach would be less rigorous than the analysis on which the Commission bases its determination today. well-functioning market particularly, as noted in comments, as a source of liquidity. Position limits address excessive speculation, not speculation per se. Position limits neither exclude particular types of speculators nor prohibit speculative transactions; they constrain only speculators with excessively large positions in order to diminish, eliminate, or prevent an undue and unnecessary burden on interstate commerce in a commodity.189 The Commission agrees that futures markets are associated with, and may indeed contribute to, lower volatility in underlying commodity prices. However, as Congress observed, in CEA section 4a(a)(1), excessive speculation in a commodity contract that causes sudden or unreasonable fluctuations or unwarranted changes in the price of such commodity, is an undue and unnecessary burden on interstate commerce in such commodity.190 In promulgating CEA section 4a(a)(1), Congress adopted position limits as a useful tool to diminish, eliminate, or prevent those problems. The Commission believes that position limits are a necessary prophylactic measure to guard against disruptions arising from excessive speculation, and the Commission has endeavored to repropose limit levels that are not so low as to hamper healthy speculation as a source of liquidity.191 f. Basis for Determination One commenter states, ‘‘The necessity finding . . . proffered by the Commission—which consists of a discussion of two historical events and a cursory review of existing studies and reports on position limits related issues—falls short of a comprehensive analysis and justification for the proposed position limits.192 We disagree with the commenter’s opinion that the Commission’s analysis is not comprehensive or falls short of justifying the reproposed rule.193 Another commenter states that the December 2013 Position Limits Proposal ‘‘does not provide any quantitative analysis of how the outcome of these [two historical] events might have differed if the proposed position limits had been in place.’’ 194 The Commission disagrees. The Commission stated in the December 2013 Position Limits Proposal that, ‘‘The Commission believes that if Federal speculative position limits had been in effect that correspond to the . . . . [proposed] limits . . . , across markets now subject to Commission jurisdiction, such limits would have prevented the Hunt brothers and their cohorts from accumulating such large futures positions.’’ 195 This statement was based on calculations using a methodology similar to 196 that proposed in the December 2013
Position Limits Proposal applied to quantitative data included and as described therein.197 The Commission’s stated belief is unchanged at the higher singlemonth and all-months-combined limit levels of 7,600 contracts that the Commission adopts today for silver.198 Nevertheless, historical data regarding absolute position size from the period of the late-1970’s to 1980 may not be readily comparable to the numerical limits adopted in the current market environment. Accordingly, the Commission is reproposing establishing levels using the methodology based on the size of the current market as described elsewhere in this release. With respect to Amaranth, the Commission stated, ‘‘Based on certain assumptions . . . , the Commission believes that if Federal speculative position limits had been in effect that correspond to the limits that the Commission . . . [proposed in the December 2013 Position Limits Proposal], across markets now subject to Commission jurisdiction, such limits would have prevented Amaranth from accumulating such large futures positions and thereby restrict its ability to cause unwarranted price effects.’’ 199 This statement of belief about Amaranth was also based on calculations using the methodology applied to quantitative data as described and included in the December 2013 Position Limits Proposal preamble.200 The historical size of Amaranth positions would no longer breach the higher single-month and allmonths-combined limit levels of 200,900 contracts that the Commission adopts today for natural gas.201 However, the Commission is reproposing setting a level using a methodology that adapts to changes in the market for natural gas, i.e., the fact that it has grown larger and more liquid since the collapse of Amaranth. Thus, it stands to reason that a speculator might now have to accumulate a larger position than Amaranth’s historical position to present a similar risk of disruption to the natural gas market. In fact, the Commission has long recognized ‘‘that the capacity of any contract market to absorb the establishment and liquidation of large speculative positions in an orderly manner is related to the relative size of such positions, i.e., the capacity of the market is not unlimited.’’ 202 A larger market should have larger capacity, other things being equal; 203 hence, the Commission is adopting higher levels of limits. Moreover, costly disruptions like those associated with Amaranth remain entirely possible. Because the costs of these disruptions can be great, and borne by members of the public

204E.g., CL–CCMR–59623 at 3 (supporting additional transparency and reporting); CL-Citadel– 59717 at 4 (pointing to available tools, including ‘‘enhanced market surveillance, broadened reporting requirements, broadened special call authorities, and exchange limits’’); CL–ISDA/ SIFMA–59611 at 13 (noting that tools that the Commission has incorporated include ‘‘enhanced market surveillance, broadened reporting requirements, broadened special call authorities, and exchange limits’’); CL–MFA–59606 at 10; and CL–SIFMA AMG–59709 at 5–6 (providing examples of new tools). 205E.g., CL–CME–59718 at 18; CL–ICE–59645 at 2–4; CL–FIA–59595 at 6, n. 13, 12–13; and CL– AMG–59709 at 8. 206The Commission observes that logically there is no reason why the availability of some regulatory tools under the CEA should preclude the use of another tool explicitly authorized by Congress. 207 78 FR at 75681 (footnotes omitted). 208See generally December 2013 Position Limits Proposal, 78 FR at 75681. 209See generally December 2013 Position Limits Proposal, 78 FR at 75747–8. 210See discussion of requirements for exchangeset position limits under § 150.5, below, and exchange core principles regarding position limits, below. 211See reproposed § 150.5(a)(6)(iii). 212See generally 7 U.S.C. 7(d)(6) (DCM Core Principles: Emergency Authority); 7 U.S.C. 7b– 3(f)(8) (Core Principles for Swap Execution Facilities—Emergency Authority); 17 CFR 37.800 (Swap Execution Facility Core Principle 8— Emergency authority), 17 CFR 38.350 (Designated Contract Markets –Emergency Authority—Core Principle 6). 213E.g., CL–FIA–59595 at 3; CL–EEI–EPSA–59602 at 2, 8–9. 214See supra Section I.C.2 (discussing the Interagency Silver Study and the PSI Report on Excessive Speculation in the Natural Gas Market). 215E.g., CL-Citadel-59717 at 4–5; CL–EEI–EPSA– 59602 at 8–9. 216CL–CME–59718 at 3. unconnected with trading markets, the Commission preliminarily finds it necessary to impose speculative position limits as a preventative measure. As markets differ in size, the limit levels differ accordingly, each designed to prevent the accumulation of positions that are extraordinary in size in the context of each market. Several commenters opined that the Commission, in reaching its preliminary alternative necessity finding, ignores current market developments and does not employ the ‘‘new tools’’ other than position limits available to it to prevent excessive speculation or manipulative or potentially manipulative behavior.204 Specifically, some commenters suggested that position limits are not necessary because position accountability rules and exchange-set limits are adequate.205 The Commission agrees that the Dodd-Frank Act gave the Commission new tools with which to protect and oversee the commodity markets, and agrees that these along with older tools may be useful in addressing market volatility. However, the Commission disagrees that the availability of other tools means that position limits are not
necessary.206 Rather the statute, at a minimum, reflects Congress’ judgment that position limits may be found by the Commission to be necessary. The Commission notes that although CEA
section 4a(a) position limits provisions
have existed for many years, the DoddFrank Act not only retained CEA section 4a(a), but added, rather than deleted, several sections. This leads to the conclusion that Congress appears to share the Commission’s view that the other tools provided by Congress were not sufficient. Position accountability, for example, is an older tool, from the era of the CFMA. As the Commission explained in the December 2013 Position Limits Proposal, the CFMA ‘‘provided a statutory basis for exchanges to use preexisting position accountability levels as an alternative means to limit the burdens of excessive speculative positions. Nevertheless, the CFMA did not weaken the Commission’s authority in CEA section 4a to establish position limits as an alternative means to prevent such undue burdens on interstate commerce. More recently, in the CFTC Reauthorization Act of 2008, Congress gave the Commission expanded authority to set position limits for significant price discovery contracts on exempt commercial markets,’’ 207 and it expanded the Commission’s authority again in the Dodd-Frank Act.208 While position accountability is useful in providing exchanges with information about specific trading activity so that exchanges can act if prudent to require a trader to reduce a position after the position has already been amassed, position limits operate prophylactically without requiring case-by-case, ex post determinations about large positions. As to exchange-set accountability levels or position limits set at levels below those of federal position limits, those remain useful as well and should be used, at the exchanges’ discretion, in conjunction with federal position limits. They may be most useful, for example, with respect to contracts that are not corereferenced futures contracts or if an exchange determines that federal limits are too high to address adequately the conditions in the markets it administers. In the regulations that the Commission reproposes today, the Commission would update (rather than eliminate) the acceptable practices for exchange-set speculative position limits and position accountability rules to conform to the Dodd-Frank Act changes [as described in the December 2013 Position Limits Proposal].209 Generally, for contracts subject to speculative limits, exchanges may set limits no higher than the federal limits,210 and may impose ‘‘restrictions . . . to reduce the threat of market manipulation or congestion, to maintain orderly execution of transactions, or for such other purposes consistent with its responsibilities.’’ 211 And § 150.5(b)(3) sets forth the requirements for position accountability in lieu of exchange-set limits in the case of contracts not subject to federal limits. The exchanges are also still authorized to react to instances of greater price volatility by exercising emergency authority as they did during the silver crisis.212 In addition, the Commission has striven to take current market developments into account by
considering the market data to which the Commission has access as described herein and by considering the description of current market developments to the extent included in the comments the Commission has received in connection with the December 2013 Position Limits Proposal. Some commenters suggest that the Commission, in reaching its preliminary alternative necessity finding, has not undertaken any empirical analysis of available data.213 As discussed above, the Commission carefully reviewed the Interagency Silver Study and the PSI Report on Excessive Speculation in the Natural Gas Market.214 The Commission also carefully considered the studies submitted during the various comment periods regarding the December 2013 Position Limits Proposal and the 2016 Supplemental Position Limits Proposal. Other commenters suggest that the Commission relies on incomplete, unreliable, or out of date data, and that the Commission should collect more and/or better data before determining that position limits are necessary or implementing position limits.215 The Commission disagrees. The Commission has considered the recent data presented by the exchanges in support of their estimates of deliverable supply. The Commission is expending significant, agency-wide efforts to improve data collection and to analyze the data it receives. The quality of the data on which the Commission relies has improved since the December 2013 Position Limits Proposal. The Commission is satisfied with the quality of the data on which it bases its Reproposal. One commenter opines that, ‘‘The Proposal’s ‘necessary’ finding offers no reasoned basis for adopting its framework and the shift in regulatory policy it embodies.’’ 216 To the contrary,

217See CL–Sen. Levin–59637 at 6 (stating that the Commission’s necessity finding ‘‘appropriately reflects Congressional action in enacting the DoddFrank Act which requires the Commission to impose appropriate position limits on speculators trading physical commodities.’’). 218CL–AMG–59709 at 9. See the Commission’s response to the comment regarding the purported lack of ‘‘quantitative analysis of how the outcome of these [two historical] events might of differed if the proposed position limits had been in place’’ at the text accompanying notes 192–200 above. See also CL–CME–59718 at 41–3; CL–ISDA/SIFMA– 59611 at 28. 219See note 202 supra and accompanying text. 220See December 2013 Position Limits Proposal, 78 FR at 75691 (citing the PSI Report, ‘‘Amaranth accumulated such large positions and traded such large volumes of natural gas futures that it distorted market prices, widened price spread, and increased price volatility.’’). 221See December 2013 Position Limits Proposal, 78 FR at 75692 (citing the PSI Report, ‘‘Commercial participants in the 2006 natural gas markets were reluctant or unable to hedge.’’). 222CL–CME–59718 at 41–42. 223See notes 207–212 supra and accompanying text. 224CL–ISDA/SIFMA–59611 at 28. 225The Commission discussed the trading activity of Amaranth at length in the December 2013 Position Limits Proposal, 78 FR at 75691–3; in particular, Amaranth’s calendar spread trading is discussed at 78 FR 75692. The Commission repeats that the findings of the Permanent Subcommittee in the PSI Report support the imposition of speculative position limits outside the spot month. A trader, who does not liquidate an extraordinarily large long futures position in the nearby physicaldelivery futures contract, contrary to typical declining open interest patterns in a physicaldelivery contract approaching expiration, may cause the nearby futures price to increase as short position holders, who do not wish to make physical delivery, bid up the futures price in an attempt to offset their short positions. Potential liquidity providers who do not currently hold a deliverable commodity may be hesitant to establish short positions as a physical-delivery futures contract approaches expiration, because exchange rules and contract terms require such short position holder to prepare to make delivery by obtaining the cash commodity. 226CL–CME–59718 at 43; cf. CL–APGA–59722 at 3 (asserting that ‘‘the non-spot month limits being proposed by the Commission are too high to be effective’’). 227CL–CCMR–59623 at 4. 228CL–ISDA/SIFMA–59611 at 28; CL–Better Markets–59716 at 24; CL–APGA–59722 at 6–7. 229CL–Better Markets–59716 at 22, n. 38 (Parnon Energy). 230See the discussion in levels of limits, under § 150.2, below. 231E.g., December 2013 Position Limits Proposal, 78 FR at 75681. 232CEA section 4a(a)(3)(B)(iii), 7 U.S.C. 6a(a)(3)(B)(iii). Some commenters expressed concern that position limits could disproportionately affect commercial entities. E.g.,
CL–CME–59718 at 43; CL–APGA–59722 at 3. Some commenters expressed concern about the application of position limits to trade options. E.g., CL–APGA–59722 at 3; CL–EEI–EPSA–59602 at 3. The Commission reminds commenters that speculative position limits do not apply to bona fide hedging transactions or positions. CEA section 4a(c), 7 U.S.C. 6a(c). 233The Commission will revisit the specific limitations set forth in CEA section 4a(a)(3) when, under reproposed § 150.2(e), it considers resetting limit levels. 234A list of studies and reports that the Commission reviewed in connection with the December 2013 Position Limits Proposal was included in its Appendix A to the preamble. December 2013 Position Limits Proposal, 78 FR at 75784–7. One commenter observed that the studies reviewed in connection with the December 2013 Position Limits Proposal are not all ‘‘necessarily germane to specific position limits proposed.’’ CL– Citadel–59717 at 4. See also CL–CCMR–59623 at 5 (stating that it had reviewed the studies, and found that ‘‘only 27 address position limits’’). The Commission acknowledges that some studies are more relevant than others. The Commission in the December 2013 Position Limits Proposal was disclosing the studies that it had reviewed and the necessity finding, including the Commission’s responses to comments, is the Commission’s explanation of why position limits are necessary.217 g. Non-Spot-Month Limits Some commenters opine that ‘‘the Commission’s proposed non-spot-month position limits do not increase the likelihood of preventing the excessive speculation or manipulative trading exemplified by Amaranth or the Hunt brothers relative to the status quo.’’ 218 The Commission disagrees; as repeated above, ‘‘the capacity of the market is not unlimited.’’ 219 This includes markets in non-spot month contracts. Thus, as with spot-month contracts, extraordinarily large positions in non-spot month contracts may still be capable of distorting prices.220 If prices are distorted, the utility of hedging may decline.221 One commenter argues for non-spot month position accountability rules; 222 the Commission discusses position accountability above.223 Another argues that Amaranth was really just ‘‘another case of spot-month misconduct.’’ 224 The Commission disagrees that this limits the relevance of Amaranth; a speculator like Amaranth may attempt to distort the perception of supply and demand in order to benefit, for instance, calendar spread positions by, for instance, creating the perception of a nearby shortage of the commodity which a speculator could do by accumulating extraordinarily large long positions in the nearby month.225 One commenter states that ‘‘improperly calibrated nonspot month limits would also deter speculative activity that triggers no risk of manipulation or ‘causing sudden or unreasonable fluctuations or unwarranted changes in the price of such commodity,’ the hallmarks of ‘excessive speculation.’ ’’ 226 The Commission sees
little merit in this objection because the Reproposal would calibrate the levels of the non-spot month limits to accommodate speculative activity that provides liquidity for hedgers. h. Meaning of Necessity One commenter suggests that position limits could only be necessary if they were the only means of preventing the Hunt brothers and Amaranth crises.227 First, while the Commission relies on these incidents to explain its reasoning, the risks they illustrate apply to all markets in physical commodities, and so the efficacy of the limits the Commission adopts today, and the extent to which other tools are sufficient, cannot be judged solely by whether they might have prevented those specific incidents. Second, in any event, the Commission rejects such an overly restrictive reading, which lacks a basis in both common usage and statutory construction. The Commission preliminarily finds that limits are necessary as a prophylactic tool to strengthen the regulatory framework to prevent excessive speculation ex ante to diminish the risk of the economic harm it may cause further than it would reliably be from the other tools alone. Other commenters question why the Commission proposed limits at levels they contend are too high to be effective, undercutting the Commission’s alternative necessity finding.228 One commenter points out that the limit levels as proposed would not have prevented the misconduct alleged by the Commission in a particular enforcement action filed in 2011.229 As repeated elsewhere in this Notice 230 and in the December 2013 Position Limits Proposal,231 in establishing limits, the Commission must, ‘‘to the maximum extent practicable, in its discretion . . . ensure sufficient market liquidity for bona fide hedgers.232 The Commission realizes that the reproposed initial limit levels may prevent or deter some, but fail to eliminate all, excessive speculation in the markets for the 25 commodities covered by this first phase of implementation. But the Commission is concerned that initial limit levels set lower than those reproposed today, and in particular low enough to prevent market manipulation or excessive speculation in specific, less egregious cases than the Hunt brothers or Amaranth, could impair liquidity for hedges.233 The Commission requests comment on all aspects of this section.
2. Studies and Reports
The Commission has reviewed and evaluated studies and reports received as comments on the December 2013 Position Limits Proposal, in addition to the studies and reports reviewed in connection with the December 2013 Position Limits Proposal 234 (such

evaluated. The Commission requested comment on its discussion of the studies, and invited commenters to advise the Commission of other studies to consider, in the hope that commenters would indicate which studies they believe are more germane or persuasive and suggest other studies for Commission review. 235 December 2013 Position Limits Proposal, 78 FR at 75694. 236See 162 Cong. Rec. E1005–03, E1006 (June 28,
2016) (Statement of Rep. Conaway, Chairman of the
House Committee on Agriculture) (‘‘Comment letters on either side declaring that the matter is settled in their favor among respectable economists are simply incorrect.’’). Contra CL–CCMR–59623 at 5, which says, ‘‘The Committee staff also reviewed these studies and found that of them, only 27 address position limits, with the majority opposing such limits.’’ The commenter describes how it arrives at this conclusion as follows: ‘‘The Committee staff reviewed the abstract and body of each study to determine if the author assessed: (1) Whether position limits are effective at reducing speculation; or (2) whether excessive speculation is distorting prices in commodities markets. If the author presented a critical analysis of the issue, rather than just mentioning position limits or excessive speculation in passing, then the Committee staff included the study in its tally.’’ Such a method is relatively unsophisticated, and the Commission cannot evaluate it without knowing to which studies the commenter refers. The commenter continues, ‘‘Of the total, 105 studies address whether excessive speculation is distorting prices in today’s commodity markets, with 66 of these studies finding that excessive speculation is not a problem.’’ This statement did not identify the 66 studies or 105 studies on which it based its belief. Accordingly, the Commission is unable to evaluate the basis of its belief. 237See discussion of mandate, above. We emphasize that this discussion relates only to the Commission’s alternative necessity finding. To the extent there is a Congressional mandate that the Commission establish position limits, these studies could be no basis to disregard it. As noted in the December 2013 Position Limits Proposal, ‘‘Studies that militate against imposing any speculative position limits appear to conflict with the Congressional mandate . . . that the Commission impose limits on futures contracts, options, and certain swaps for agricultural and exempt commodities.’’ 78 FR at 75695 (footnote omitted). Separately, ‘‘such studies also appear to conflict with Congress’ determination, codified in CEA
section 4a(a)(1), that position limits are an effective
tool to address excessive speculation as a cause of sudden or unreasonable fluctuations or unwarranted changes in the price of such commodities,’’ irrespective of whether they are mandated. Id. The Commission acknowledges that some of the studies, when considered as comments on the December 2013 Position Limits Proposal, can be understood to suggest that, contrary to the Congressional determination, there is no empirical evidence that excessive speculation exists, that excessive speculation causes sudden or unreasonable fluctuations or unwarranted changes in the price of a commodity, or is an undue and unnecessary burden on interstate commerce in a commodity. 238See discussion of necessity finding, above. 239These categories are not exclusive; some studies employ or examine more than one type of methodology. That researchers in the different categories employed different methodologies complicates the task of comparing the studies across the seven categories. In addition, some studies were not susceptible to meaningful economic analysis for various reasons, such as being written in a foreign language, being founded on suspect methodologies, being press releases, etc. These studies include: Basak and Pavlova, A Model Financialization of Commodities (working paper 2013); Bass, Finanazma¨rkte als Hungerverursacher? (working paper 2011); Bass, Finanzspekulation und Nahrungsmittelpreise. Anmerkungenzum Stand der Forschung (working paper 2013); Bukold, O¨ lpreisspekulation und Benzinpreise in Deutschland, (2011); Chevalier, (Ministere de l’Economie, de l’Industrie e t de l’emploi): Rappor t du groupe de travai l sur la volatilite des prix du pe`trole, (2010); Dicker, Oil’s Endless Bid, (2011); Ederington and Lee, Who Trades Futures and How:
Evidence from the Heating Oil Market?, Journal of Business 2002; Evans, The Official Demise of the Oil Bubble, Wall Street Journal 2008; Gheit and Katzenberg, Surviving Lower Oil Prices, Oppenheimer & Co. (2008); Ghosh, Commodity Speculation and the Food Crisis, (working paper 2010); Halova, The Intraday Volatility-Volume Relationship in Oil and Gas Futures, (working paper 2012); Jouyet, Rappor t d’ e´tape-Pre´venir e t ge´rer l’instabilite´ des marche´s agricoles, (2010); Korzenik, Fundamental Misconceptions in the Speculation Debate, (2009); Lake Hill Capital Management, Investable Indices are Distorting Commodity Markets?, (2013); Lee, Cheng, and Koh, Would Position Limits Have Made any Difference to the ‘Flash Crash’ on May 6, 2010?, Review of Futures Markets (2010); Markham, Manipulation of Commodity Futures Prices: The Unprosecutable Crime, Yale Journal of Regulation (1991); Mayer, The Growing Financializsation of Commodity Markets: Divergences between Index Investors and Money Managers, Journal of Development Studies (2012); Morse, Oil dotcom, Research Notes, (2008); Naylor, Food Security in an Era of Economic Volatility (working paper 2010); Newell, Commodity Speculation’s ‘‘Smoking Gun’’ (2008); Peri, Vandone, and Baldi, Internet, Noise Trading and Commodity Prices (working paper 2012); Soros, Interview with Stern Stern Magazine (2008); Tanaka, IEA Says Speculation Amplifying Oil Price Moves, (2006); Von Braun and Tadesse, Global Food Price Volatility and Spikes: An Overview of Costs, Cause and Solutions (2012). 240Studies that employ the Granger method of statistical analysis include: Algieri, Price Volatility, Continued studies and reports, collectively, ‘‘studies’’). Appendix A to this preamble is a summary of the various studies reviewed and evaluated by the Commission. The Commission observed in the December 2013 Position Limits Proposal, ‘‘There is a demonstrable lack of consensus in the studies.’’ 235 Neither the passage of time nor the additional studies have changed the Commission’s view: As a group, these studies do not show a consensus in favor of or against position limits.236 In addition to arriving at disparate conclusions, the quality of the studies varies. Nevertheless, the Commission believes that some well-executed studies suggest that excessive speculation cannot be excluded as a possible cause of undue price fluctuations and other burdens on commerce in certain circumstances. All of these factors persuade the Commission to act on the side of caution in preliminarily finding limits necessary, consistent with their prophylactic purpose. For these reasons, explained in more detail below, the Commission preliminarily concludes that the studies, individually or taken as a whole, do not persuade the Commission to reverse course 237 or to change its necessity finding.238 The Commission’s deliberations are informed by its consideration of the studies. The Commission recognizes that speculation and volatility are not per se
unusual or exceptional occurrences in commodity markets. Some economic studies attempt to distinguish normal, helpful speculative activity in commodity markets from excessive speculation, and normal volatility from unreasonable price fluctuations. It has proven difficult in some studies to discriminate between the proper workings of a wellfunctioning market and unwanted phenomena. That some studies have as yet failed to do so with precision or certainty does not, in light of the full record, persuade the Commission to reverse course or to change its necessity finding. In general, many studies focused on subsidiary questions and did not directly address the desirability or utility of position limits. Their proffered interpretations may not be the only plausible explanation for statistical results. There is no broad academic consensus on the formal, testable economic definition of ‘‘excessive speculation’’ in commodity futures markets or other relevant terms such as ‘‘price bubble.’’ There is also no broad academic consensus on the best statistical model to test for the existence of excessive speculation. There are not many papers that quantify the impact and effectiveness of position limits in commodity futures markets. The Commission has identified some reasons why there are not many compelling, peer-reviewed economic studies engaging in quantitative, empirical analysis of the impact of position limits on prices or price volatility: Limitations on publicly available data, including detailed information on specific trades and traders; pre-existing position limits in some commodity markets, making it difficult to determine how those markets would operate in the absence of position limits; and the difficulties inherent in modelling complex economic phenomena. The studies that the Commission considered can be grouped into seven categories.239 Granger Causality Analyses 240

Speculation and Excessive Speculation in Commodity Markets: Sheep or Shepherd Behaviour? (working paper 2012); Antoshin, Canetti, and Miyajima, IMF Global Financial Stability Report: Financial Stress and Deleveraging:
Macrofinancial Implications and Policy, Annex 1.2, Financial Investment in Commodities Markets (October 2008); Aulerich, Irwin, and Garcia, Bubbles, Food Prices, and Speculation: Evidence from the CFTC’s Daily Large Trader Data Files (NBER Conference 2012); Borin and Di Nino, The Role of Financial Investments in Agricultural Commodity Derivatives Markets (working paper 2012); Brunetti and Bu¨ yu¨ ks¸ahin, Is Speculation Destabilizing? (working paper 2009); Cooke and Robles, Recent Food Prices Movements: A Time Series Analysis (working paper 2009); Frenk, Review of Irwin and Sanders 2010 OECD Report (Better Markets June 10, 2010); Gilbert, Commodity Speculation and Commodity Investment (2010); Gilbert, How to Understand High Food Prices, Journal of Agricultural Economics (2008); Gilbert, Speculative Influences on Commodity Futures Prices, 2006–2008, UN Conference on Trade and Development (2010); Goyal and Tripathi, Regulation and Price Discovery: Oil Spot and Futures Markets (working paper 2012); Grosche, Limitations of Granger Causality Analysis to Assess the Price Effects From the Financialization of Agricultural Commodity Markets Under Bounded Rationality, Agricultural and Resource Economics (2012); Harris and Bu¨ yu¨ ks¸ahin, The Role of Speculators in the Crude Oil Futures Market (working paper 2009); Irwin and Sanders, Energy Futures Prices and Commodity Index Investment:
New Evidence from Firm-Level Position Data (working paper 2014); Irwin and Sanders, The Impact of Index and Swap Funds on Commodity Futures Markets: A Systems Approach, Journal of Alternative Investments (working paper 2010); Irwin and Sanders, The Impact of Index and Swap Funds on Commodity Futures Markets: Preliminary Results (working paper 2010); Irwin and Sanders, The ‘‘Necessity’’ of New Position Limits in Agricultural Futures Markets: The Verdict from Daily Firm-Level Position Data (working paper 2014); Irwin and Sanders, The Performance of CBOT Corn, Soybean, and Wheat Futures Contracts after Recent Changes in Speculative Limits (working paper 2007); Irwin, Sanders, and Merrin, Devil or Angel: The Role of Speculation in the Recent Commodity Price Boom, Journal of Agricultural and Applied Economics (2009); Kaufman, The role of market fundamentals and speculation in recent price changes for crude oil, Energy Policy, Vol. 39, Issue 1 (January 2011); Kaufmann and Ullman, Oil Prices, Speculation, and Fundamentals: Interpreting Causal Relations Among Spot and Futures Prices, Energy Economics, Vol. 31, Issue 4 (July 2009); Mayer, The Growing Interdependence Between Financial and Commodity Markets, UN Conference on Trade and Development (discussion paper 2009); Mobert, Do Speculators Drive Crude Oil Prices? (2009 working paper); Robles, Torero, and von Braun, When Speculation Matters (working paper 2009); Sanders, Boris, and Manfredo, Hedgers, Funds, and Small Speculators in the Energy Futures Markets: An Analysis of the CFTC’s Commitment of Traders Reports, Energy Economics (2004); Sanders, Irwin, and Merrin, The Adequacy of Speculation in Agricultural Futures Markets: Too Much of a Good Thing?, Applied Economic Perspectives and Policy (2010); Sanders, Irwin, and Merrin, Smart Money? The Forecasting Ability of CFTC Large Traders, Journal of Agricultural and Resource Economics (2009); Sanders, Irwin, and Merrin, A Speculative Bubble in Commodity Futures? Cross-Sectional Evidence, Agricultural Economics (2010); Singleton, The 2008 Boom/Bust in Oil Prices (working paper 2010); Singleton, Investor Flows and the 2008 Boom/Bust in Oil Prices (working paper 2011); Stoll and Whaley, Commodity Index Investing and Commodity Futures Prices (working paper 2010); Timmer, Did Speculation Affect World Rice Prices?, UN Food and Agricultural Organization (working paper 2009); Tse and Williams, Does Index Speculation Impact Commodity Prices?, Financial Review, Vol. 48, Issue 3 (2013); Tse, The Relationship Among Agricultural Futures, ETFs, and the US Stock Market, Review of Futures Markets (2012); Varadi, An Evidence of Speculation in Indian Commodity Markets (working paper 2012); Williams, Dodging Dodd-Frank: Excessive Speculation, Commodities Markets, and the Burden of Proof, Law & Policy Journal of the University of Denver (2015). 241Studies that employ the comovement or cointegration methods include: Ada¨mmer, Bohl and Stephan, Speculative Bubbles in
Agricultural Prices (working paper 2011); Algieri, A Roller Coaster Ride: an Empirical Investigation of the Main Drivers of Wheat Price (working paper 2013); Babula and Rothenberg, A Dynamic Monthly Model of U.S. Pork Product Markets: Testing for and Discerning the Role of Hedging on Pork-Related Food Costs, Journal of Int’l Agricultural Trade and Development (2013); Baffes and Haniotos, Placing the 2006/08 Commodity Boom into Perspective, World Bank Policy Research Working Paper 5371 (2010); Basu and Miffre, Capturing the Risk Premium of Commodity Futures: The Role of Hedging Pressure, Journal of Banking and Risk (2013); Belke, Bordon, and Volz, Effects of Global Liquidity on Commodity and Food Prices, German Institute for Economic Research (2013); Bicchetti and Maystre, The Synchronized and Long-lasting Structural Change on Commodity Markets: Evidence from High Frequency Data (working paper 2012); Boyd, Bu¨ yu¨ ks¸ahin, and Haigh, The Prevalence, Sources, and Effects of Herding (working paper 2013); Bunn, Chevalier, and Le Pen, Fundamental and Financial Influences on the Co-movement of Oil and Gas Prices (working paper 2012); Bu¨ yu¨ ks¸ahin, Harris, and Haigh, Fundamentals, Trader Activity, and Derivatives Pricing (working paper 2008); Bu¨ yu¨ ks¸ahin and Robe, Does it Matter Who Trades Energy Derivatives?, Review of Env’t, Energy, and Economics (2013); Bu¨ yu¨ ks¸ahin and Robe, Does ‘‘Paper Oil’’ Matter? (working paper 2011); Bu¨ yu¨ ks¸ahin and Robe, Speculators, Commodities, and Cross-Market Linkages (working paper 2012); Cheng, Kirilenko, and Xiong, Convective Risk Flows in Commodity Futures Markets (working paper 2012); Coleman and Dark, Economic Significance of Non-Hedger Investment in Commodity Markets (working paper 2012); Creti, Joets, and Mignon, On the Links Between Stock and Commodity Markets’ Volatility, Energy Economics (2010); Dorfman and Karali, Have Commodity Index Funds Increased Price Linkages between Commodities? (working paper 2012); Filimonov, Bicchetti, Maystre, and Sornette, Quantification of the High Level of Endogeneity and of Structural Regime Shifts in Commodity Markets, (working paper 2013); Haigh, Harris, and Overdahl, Market Growth, Trader Participation and Pricing in Energy Futures Markets (working paper 2007); Hoff, Herding Behavior in Asset Markets, Journal of Financial Stability (2009); Kawamoto, Kimura, et al., What Has Caused the Surge in Global Commodity Prices and Strengthened Cross-market Linkage?, Bank of Japan Working Papers Series No.11–E–3 (May 2011); Korniotis, Does Speculation Affect Spot Price Levels? The Case of Metals With and Without Futures Markets (working paper, FRB Finance and Economic Discussion Series 2009); Le Pen and Se´vi, Futures Trading and the Excess Comovement of Commodity Prices (working paper 2012); Pollin and Heintz, How Wall Street Speculation is Driving Up Gasoline Prices Today (AFR working paper 2011); Tang and Xiong, Index Investment and Financialization of Commodities,
Financial Analysts Journal (2012); and Windawi, Speculation, Embedding, and Food Prices: A Cointegration Analysis (working paper 2012). 242Studies that employ models of fundamental supply and demand include: Acharya, Ramadorai, and Lochstoer, Limits to Arbitrage and Hedging:
Evidence from Commodity Markets, Journal of Financial Economics (2013); Allen, Litov, and Mei, Large Investors, Price Manipulation, and Limits to Arbitrage: An Anatomy of Market Corners, Review of Finance (2006); Bos and van der Molen, A Bitter Brew? How Index Fund Speculation Can Drive Up Commodity Prices, Journal of Agricultural and Applied Economics (2010); Breitenfellner, Crespo, and Keppel, Determinants of Crude Oil Prices:
Supply, Demand, Cartel, or Speculation?, Monetary Policy and the Economy (2009); Brennan and Schwartz, Arbitrage in Stock Index Futures, Journal of Business (1990); Byun and Sungje, Speculation in Commodity Futures Market, Inventories and the Price of Crude Oil (working paper 2013); Chan, Trade Size, Order Imbalance, and Volatility-Volume Relation, Journal of Financial Economics (2000); Chordia, Subrahmanyam and Roll, Order imbalance, Liquidity, and Market Returns, Journal of Financial Economics (2002); Cifarelli and Paladino, Oil Price Dynamics and Speculation: a Multivariate Financial Approach, Energy Economics (2010); Doroudian and Vercammen, First and Second Order Impacts of Speculation and Commodity Price Volatility (working paper 2012); Ederington, Dewally, and Fernando, Determinants of Trader Profits in Futures Markets (working paper 2013); Einloth, Speculation and Recent Volatility in the Price of Oil (working paper 2009); Frankel and Rose, Determinants of Agricultural and Mineral Commodity Prices (working paper 2010); Girardi, Do Financial Investors Affect Commodity Prices? (working paper 2011); Gorton, Hayashi, Rouwenhorst, The Fundamentals of Commodity Futures Returns, Review of Finance (2013); Guilleminot and Ohana, The Interaction of Hedge Funds and Index Investors in Agricultural Derivatives Markets (working paper 2013); Gupta and Kamzemi, Factor Exposures and Hedge Fund Operational Risk: The Case of Amaranth (working Some economic studies considered by the Commission employ the Granger method of statistical analysis. The Granger method seeks to assess whether there is a strong linear correlation between two sets of data that are arranged chronologically forming a ‘‘time series.’’ While the Granger test is referred to as the ‘‘Granger causality test,’’ it is important to understand that, notwithstanding this shorthand, ‘‘Granger causality’’ does not necessarily establish an actual cause and effect relationship. The result of the Granger method is evidence, or the lack of evidence, of the existence of a linear correlation between the two time series. The absence of Granger causality does not necessarily imply the absence of actual causation. Comovement or Cointegration Analyses 241 The comovement method looks for whether there is correlation that is contemporaneous and not lagged. A subset of these comovement studies use a technique called cointegration for testing correlation between two sets of data. Models of Fundamental Supply and Demand 242

paper 2009); Haigh, Hranaiova, and Overdahl, Hedge Funds, Volatility, and Liquidity Provisions in the Energy Futures Markets, Journal of Alternative Investments (2007); Haigh, Hranaiova, and Overdahl, Price Dynamics, Price Discovery, and Large Futures Trader Interactions in the Energy Complex, (working paper 2005); Hamilton, Causes and Consequences of the Oil Shock of 2007–2008, Brookings Paper on Economic Activity (2009); Hamilton and Wu, Effects of Index-Fund Investing on Commodity Futures Prices, International Economic Review, Vol. 56, No. 1 (2015); Hamilton and Wu, Risk Premia in Crude Oil Futures Prices, Journal of International Money and Finance (2013); Harrison and Kreps, Speculative Investor Behavior in a Stock Market with Heterogeneous Expectations, Quarterly Journal of Economics (1978); Henderson, Pearson and Wang, New Evidence on the Financialization of Commodity Markets (working paper 2012); Hirshleifer, Residual Risk, Trading Costs, and Commodity Futures Risk Premia, Review of Financial Studies, Vol. 1, No. 2, Oxford University Press (1988); Hong and Yogo, Digging into Commodities (working paper 2009); Interagency Task Force on Commodity Markets, Interim Report on Crude Oil, multiple federal agencies including the CFTC (2008); Juvenal and Petrella, Speculation in the Oil Market (working paper 2012); Juvenal and Petrella, Speculation in Commodities, and Cross-Market Linkages (working paper 2011); Kilian, Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market, American Economic Review (2007); Kilian and Lee, Quantifying the Speculative Component in the Real Price of Oil: The Role of Global Oil Inventories (working paper 2013); Kilian and Murphy, The Role of Inventories and Speculative Trading in the Global Market for Crude Oil, Journal of Applied Econometrics (2010); Knittel and Pindyck, The Simple Economics of Commodity Price Speculation, (working paper 2013); Kyle and Wang, Speculation Duopoly with Agreement to Disagree: Can Overconfidence Survive the Market Test?, Journal of Finance (1997); Manera, Nicolini and Vignati, Futures Price Volatility in Commodities Markets: The Role of Short-Term vs Long-Term Speculation (working paper 2013); Mei, Acheinkman, and Xiong, Speculative Trading and Stock Prices: An Analysis of Chinese A–B Share Premia, Annals of Economics and Finance (2009); Morana, Oil Price Dynamics, Macro-finance Interactions and the Role of Financial Speculation, Journal of Banking & Finance, Vol. 37, Issue 1 (Jan. 2012); Mou, Limits to Arbitrage and Commodity Index Investment: Front-Running the Goldman roll (working paper 2011); Plato and Hoffman, Measuring the Influence of Commodity Fund Trading on Soybean Price Discovery (working paper 2007); Sornette, Woodard and Zhou, The 2006– 2008 Oil Bubble and Beyond: Evidence of Speculation, and Prediction, Physica A. (2009); Stevans and Sessions, Speculation, Futures Prices, and the U.S. Real Price of Crude Oil, American Journal of
Social and Management Science (2010); Trostle, Global Agricultural Supply and Demand:
Factors Contributing to the Recent Increase in Food Commodity Prices, USDA Economic Research Service (2008);Van der Molen, Speculators Invading the Commodity Markets (working paper 2009); Weiner, Do Birds of A Feather Flock Together? Speculation in the Oil Markets, (Working Paper 2006); Weiner, Speculation in International Crises:
Report from the Gulf, Journal of Int’l Business Studies (2005); Westcott and Hoffman, Price Determination for Corn and Wheat: The Role of Market Factors and Government Programs (working paper 1999); Wright, International Grain Reserves and Other Instruments to Address Volatility in Grain Markets, World Bank Research Observer (2012). 243Studies that include switching regressions or similar analyses include: Brooks, Prokopczuk, and Wu, Boom and Bust in Commodity Markets:
Bubbles or Fundamentals? (working paper 2014); Baldi and Peri, Price Discovery in Agricultural Commodities: the Shifting Relationship Between Spot and Futures Prices (working paper 2011); Chevallier, Price Relationships in Crude oil Futures:
New Evidence from CFTC Disaggregated Data, Environmental Economics and Policy Studies (2012); Cifarelli and Paladino, Commodity Futures Returns: A non-linear Markov Regime Switching Model of Hedging and Speculative Pressures (working paper 2010); Fan and Xu, What Has Driven Oil Prices Since 2000? A Structural Change Perspective, Energy Economics (2011); Hache and Lantz, Speculative Trading & Oil Price Dynamic: A Study of the WTI Market, Energy Economics, Vol. 36, p.340 (March 2013); Lammerding, Stephan, Trede, and Wifling, Speculative Bubbles in Recent Oil Price Dynamics: Evidence from a Bayesian Markov Switching State-Space Approach, Energy Economics Vol. 36 (2013); Sigl-Gru¨ b and Schiereck, Speculation and Nonlinear Price Dynamics in Commodity Futures Markets, Investment Management and Financial Innovations, Vol. 77 (2010); Silvernnoinen and Thorp, Financialization, Crisis and Commodity Correlation Dynamics, Journal of Int’l Financial Markets, Institutions, and Money (2013). 244While there is no broad academic consensus on the formal, testable economic definition of the term ‘‘price bubble,’’ price bubbles are colloquially thought to be unsustainable surges in asset prices fueled by speculation and followed by ‘‘crashes’’ or precipitous price drops. 245Studies that employ eigenvalue stability analysis include: Czudaj and Beckman, Spot and Futures Commodity Markets and the Unbiasedness Hypothesis—Evidence from a Novel Panel Unit Root Test, Economic Bulletin (2013); Du, Yu, and Hayes, Speculation and Volatility Spillover in the Crude Oil and Agricultural Commodity Markets: A Bayesian Analysis, (working paper 2012); Gilbert, Speculative Influences on Commodity Futures Prices, 2006–2008, UN Conference on Trade and Development (working paper 2010); Gutierrez, Speculative Bubbles in Agricultural Commodity Markets, European Review of Agricultural Economics (2012); Phillips and Yu, Dating the Timeline of Financial Bubbles During the Subprime Crisis, Quantitative Economics (2011). 246 In statistical modeling, regression analysis is a process for estimating the relationships among certain types of variables (values that change over time or in different circumstances). 247 In this context, an eigenvalue is a mathematical calculation that summarizes the dynamic properties of the data generated by the model. Generally, an eigenvalue is a concept from linear algebra. 248Studies that present theoretical models include: Avriel and Reisman, Optimal Option Portfolios in Markets with Position Limits and Margin Requirements, Journal of Risk (2000); Dai, Jin and Liu, Illiquidity, Position Limits, and Optimal Investment (working paper 2009); Dicembrino and Scandizzo, The Fundamental and Speculative Components of the Oil Spot Price: A Real Options Value Approach (working paper 2012); Dutt and Harris, Position Limits for CashSettled Derivative Contracts, Journal of Futures Markets (2005); Ebrahim and ap Gwilym, Can Position Limits Restrain Rogue Traders?, at p.832
Journal of Banking & Finance (2013); Edirsinghe, Naik, and Uppal, Optimal Replication of Options with Transaction Costs and Trading Restrictions, Journal of Financial and Quantitative Analysis (1993); Froot, Scharfstein, and Stein, Herd on the Street: Informational Inefficiencies in a Market with Short Term Speculation, (Working Paper 1990); Kumar and Seppi, Futures Manipulation with ‘‘Cash Settlement’’, Journal of Finance (1992); Kyle and Viswanathan, How to Define Illegal Price Manipulation, American Economic Review (2008); Kyle and Wang, Speculation Duopoly with Agreement to Disagree: Can Overconfidence Survive the Market Test?, Journal of Finance (1997); Lee, Cheng and Koh, An Analysis of Extreme Price Shocks and Illiquidity Among Systematic Trend Followers (working paper 2010); Leitner, Inducing Agents to Report Hidden Trades: A Theory of an Intermediary, Review of Finance (2012); Liu, Financial-Demand Based Commodity Pricing: A Theoretical Model for Financialization of Commodities (working paper 2011); Lombardi and van Robays, Do Financial Investors Destabilize the Continued Some economists have developed economic models for the supply and demand of a commodity. These models often include theories of how storage capacity and use affect supply and demand, which may influence the price of a physical commodity over time. An economist looks at where the model is in equilibrium with respect to quantities of a commodity supplied and demanded to arrive at a ‘‘fundamental’’ price or price return. The economist then looks for deviations between the fundamental price (based on the model) and the actual price of a commodity. When there is a statistically significant deviation between the fundamental price and the actual price, the economist generally infers that the price is not driven by market fundamentals of supply and demand. Switching Regressions or Similar Analyses 243 In the context of studies relating to position limits, economists employing switching regression analysis generally posit a model with two states: A normal state, where prices reflect market fundamentals, and a second state, often interpreted as a ‘‘bubble.’’ 244 Using price data, authors of these studies calculate the probability of a transition between the two states. The point of transition is called a structural ‘‘breakpoint.’’ Examination of these breakpoints permits the researcher to identify the duration of a particular ‘‘bubble.’’ Eigenvalue Stability Analysis 245 Some economists have run regression analyses 246 on price and time-lagged values of price. They estimate an equation that relates current to past time values over short time intervals and solve for the roots of that equation, called the eigenvalues (latent values), in order to detect unusual price changes. If they find an eigenvalue 247 with an absolute value of greater than one, they infer that the price of the commodity is in a ‘‘bubble.’’ Theoretical Models 248

Oil Price? (working paper, European Central Bank, 2011); Morris, Speculative Investor Behavior and Learning, Quarterly Journal of Economics (1996); Parsons, Black Gold & Fool’s Gold: Speculation in the Oil Futures Market, Economia (2009); Pierru and Babusiaux, Speculation without Oil Stockpiling as a Signature: A Dynamic Perspective (working paper 2010); Pirrong, Manipulation of the Commodity Futures Market Delivery Process, Journal of Business (1993); Pirrong, The SelfRegulation of Commodity Exchanges: The Case of Market Manipulation, Journal of Law and Economics (1995); Pliska and Shalen, The Effects of Regulation on Trading Activity and Return Volatility in Futures Markets, Journal of Futures Markets (2006); Routledge, Seppi, and Spatt, Equilibrium Forward Curves for Commodities, Journal of Finance (2000); Schulmeister, Technical Trading and Commodity Price Fluctuations (working paper 2012); Schulmeister, Torero, and von Braun, Trading Practices and Price Dynamics in Commodity Markets (working paper 2009); Shleifer and Vishney, The Limits of Arbitrage, Journal of Finance (1997); Sockin and Xiong, Feedback Effects of Commodity Futures Prices (working paper 2012); Vansteenkiste, What is Driving Oil Price Futures? Fundamentals Versus Speculation (working paper, European Central Bank, 2011); Westerhoff, Speculative Markets and the Effectiveness of Price Limits, Journal of Economic Dynamics and Control (2003). 249Studies that are survey or opinion pieces include: Anderson, Outlaw, and Bryant, The Effects of Ethanol on Texas Food and Feed, Agricultural and Food Policy Center Research Report (2008); Baffes, The Long-term Implications of the 2007– 2008 Commodity-Price Boom, Development in Practice (2011); Basu and Gavin, What Explains the Growth in Commodity Derivatives? (working paper 2011); Berg, The Rise of Commodity Speculation:
from Villainous to Venerable, (2011); Bessenbinder, Lilan, and Mahadeva, The Role of Speculation in Oil Markets: What Have We Learned So Far? (working paper 2012); Cagan, Financial Futures Markets: Is More Regulation Needed?, Journal of Futures Markets (1981); Chincarini, The Amaranth Debacle: Failure of Risk Measures or Failure of Risk Management (working paper 2007); Chincarini, Natural Gas Futures and Spread Position Risk:
Lessons from the Collapse of Amaranth Advisors L.L.C., Journal of Applied Finance (2008); CME Group, Inc., Excessive Speculation and Position Limits in Energy Derivatives Markets (working paper); Cooper, Excessive Speculation and Oil Price Shock Recessions: A Case of Wall Street ‘‘De´ja` vu All Over Again,’’ Consumer Federation of America (2011); Dahl, Future Markets: The Interaction of Economic Analyses and Regulation: Discussion, American Journal of Agricultural Economics (1980); De Schutter, Food Commodities Speculation and Food Price Crises, United Nations Special Report on the Right to Food (2010); Easterbrook, Monopoly, Manipulation, and the Regulation of Futures Markets, Journal of Business (1986); Eckaus, The Oil Price Really is a Speculative Bubble (working paper 2008); Ellis, Michaely, and O’Hara, The Making of a Dealer Market: From Entry to Equilibrium in the Trading of Nasdaq Stocks, Journal of Finance (2002); European Commission, Review of the Markets in Financial Instruments Directive (working paper 2010); European Commission, Tackling the Challenges in Commodity Markets, Communication from the European Commission to the European Parliament (2011); Frenk and Turbeville, Commodity Index Traders and the Boom/Bust Cycle in Commodities Prices, Better Markets Copyright (2011); Goldman Sachs, Global Energy Weekly March 2011 (2011); Government Accountability Office, Issues Involving the Use of the Futures Markets to Invest in Commodity Indexes, (Report 2009); Greenberger, The Relationship of Unregulated Excessive Speculation to Oil Market Price Volatility (working paper 2010); Harris, Circuit Breaker and Program Trading Limits: What Have We Learned, Brooking Institutions Press (1997); Henn, CL–WEED–59628; Her Majesty’s Treasury, Global Commodities: A Long Term Vision for Stable, Secure, and Sustainable Global Markets, (2008); House of Commons Select Committee on Science & Technology of the United Kingdom, Strategically Important Metals, (2011); Hunt, Thought for the Day: Unreported Copper Stocks, Simon Hunt Strategic Services (2011); Inamura Kimata, and Takeshi, Recent Surge in Global commodity Prices—Impact of Financialization of Commodities and Globally Accommodative Monetary Conditions, Bank of Japan Review March 2011; International Monetary Fund, Is Inflation Back? Commodity Prices and Inflation, Chapter 3 of IMF’s World Economic Outlook ‘‘Financial Stress, Downturns, and Recoveries’’ (2008); Irwin and Sanders, Index Funds, Financialization, and Commodity Futures Markets, Applied Economic Perspective and Policy (2010); Jack, Populists vs Theorists: Futures Markets and the Volatility of Prices, Exploration in Economic History (2006); Jickling and Austin, Hedge Fund Speculation and Oil Prices (working paper 2011); Kemp, Crisis Remarks the Commodity Business, Reuters Columnist (2008); Khan, The 2008 Oil Price ‘‘Bubble (working paper 2009); Koski and Pontiff, How Are Derivatives Used? Evidence from the Mutual Fund Industry, Journal of
Finance (1996); Lagi, Bar-Yam, and Bertrand, The Food Crisis: A Quantitative Model Of Food Prices Including Speculators and Ethanol Conversion (working paper 2012); Lagi, Bar-Yam, and Bertrand, The Food Crisis: A Quantitative Model Of Food Prices Including Speculators and Ethanol Conversion (working paper 2011); Lines, Speculation in Food Commodity Markets, World Development Movement (2010); Luciani, From Price Taker to Price Maker? Saudi Arabia and the World Oil Market (working paper 2009); Masters and White, The Accidental Hunt Brother: How Institutional Investors are Driving UP Food and Energy Prices (working paper 2008); Medlock and Myers, Who is in the Oil Futures Market and How Has It Changed?, (working paper 2009); Newman, Financialiation and Changes in the Social Relations along commodity Chains: The Case of Coffee, Review of Radical Political Economics (2009); Nissanke, Commodity Markets and Excess Volatility: An Evolution of Price Dynamics Under Financialization (working paper 2011); Nissanke, Commodity Market Linkage in the Global Financial Crisis: Excess Volatility and Development Impact, Journal of Development Studies (2012); Parsons, Black Gold & Fool’s Gold: Speculation in the Oil Futures Market, (Economia 2009); Jones, Price Limits: A Return to Patience and Rationality in U.S. Markets, Speech to the CME Global Financial Leadership (2010); Petzel, Testimony before the CFTC, (July 28, 2009); Pfuderer and Gilbert, Index Funds Do Impact Agricultural Prices? (working paper 2012); Pirrong, Squeezes, Corners, and the Anti-Manipulation Provisions of the Commodity Exchange Act, Regulation (1994); Pirrong, Annex B to CL–ISDA/SIFMA–59611; Plante and Yucel, Did Speculation Drive Oil Prices? Market Fundamentals Suggest Otherwise, Federal Reserve Bank of Dallas (2011); Plante and Yucel, Did Speculation Drive Oil Prices? Futures Market Points to Fundamentals, Federal Reserve Bank of Dallas (2011); Ray and Schaffer, Index Funds and the 2006–2008 Run-up in Agricultural Commodity Prices (working paper 2010); Rossi, Analysis of CFTC Proposed Position Limits on Commodity Index Fund Trading (working paper 2011); Smith, World Oil: Market or Mayhem?, Journal of Economic Perspectives (2009); Technical Committee of the International Organization of Securities Commissions, Task Force on Commodity Futures Market Final Report, (2009); Tokic, Rational Destabilizing Speculation, Positive Feedback Trading, and the Oil Bubble of 2008, Energy Economics (2011); U.S. Commodity Futures Trading Commission, Part Two, A Study of the Silver Market, May 29, 1981, Report to the Congress in Response to Section 21 Of The Commodity Exchange Act., (1981); U.S. Commodity Futures Trading Commission, Staff Report on Commodity Swap Dealers and Index Traders with Commission Recommendations, (2008); U.S. Senate Permanent Subcommittee, Excessive Speculation in the Natural Gas Market, (2007); U.S. Senate Permanent Subcommittee, Excessive Speculation in the Wheat Market, (2009); U.S.
Senate Permanent Subcommittee, The Role of Market Speculation in Rising Oil and Gas Prices: A Need to Put the cop Back on the Beat, (2006); United Nations Commission of Experts on Reforms of the International and Monetary System, Report of the Commission of Experts, (2009); United Nations Conference on Trade and Development, The Global Economic Crisis: Systemic Failures and Multilateral Remedies, (2009); United Nations Conference on Trade and Development, The Financialization of Commodity Markets, (2009); United Nations Conference on Trade and Development, Trade and Development Report: Price Formation in Financialized Commodity Markets: The Role of Information, (2011); United Nations Food and Agricultural Organization, Final Report of the Committee on Commodity Problems: Extraordinary Joint Intersessional Meeting of the Intergovernmental Group (IGG), (2010); United Nations Food and Agricultural Organization, Price Volatility in Agricultural Markets, Economic and Social Perspectives Policy Brief (2010); United Nations Food and Agricultural Organization, Price Volatility in Food and Agricultural Markets: Policy Response, (2011); Urbanchuk, Speculation and the Commodity Markets (2011); Verleger, Annex A to CL–ISDA/SIFMA–59611; Woolley, Why are Financial Markets so Inefficient and Exploitative— and a Suggested Remedy, (2010); Wray, The Commodities Market Bubble: Money Manager Capitalism and the Financialization of Commodities (working paper 2008). 250For example, these surveys may posit ‘‘facts’’ that are unsupported by testing, may not test their hypotheses, or may claim results that are subject to multiple interpretations. Some studies perform little or no empirical analysis and instead present a general theoretical model that may bear, directly or indirectly, on the effect of excessive speculation in the commodities markets. Because these papers do not include empirical analysis, they contain many untested assumptions and conclusory statements, limiting their usefulness to the Commission. Surveys of Economic Literature and Opinion Pieces 249 The Commission considered more than seventy studies that are survey or opinion pieces. Some of these studies provide useful background material but, on the whole, they offer mere opinion unsupported by rigorous empirical analysis. While they may be useful for developing hypotheses or informing policymakers, these secondary sources often exhibit policy bias and are not neutral, reliable bases for scientific inquiry the way that primary economic studies are.250 More Persuasive Academic Studies While the economic literature is inconclusive, the Commission can

251 Generally, studies that the Commission considers to be well-executed, for example, employ well-accepted, defensible, scientific methodology, document and present facts and results that can be replicated, are on point regarding issues relevant to position limits, and may eventually appear in respected, peer-reviewed academic journals. 252A risk premium is the amount of return on a particular asset or investment that is in excess of the expected rate of return on a theoretically risk free asset or investment, i.e., one with a virtually certain or guaranteed return. 253The economic rationale behind this is that speculative traders would be taking long positions to earn the risk premium, among other things. If more speculative traders are going long, i.e., bidding to earn the risk premium, the risk premium would be reduced. In this way, speculators make it cheaper for short hedgers to lock in their price risk. Contra Harris and Bu¨ yu¨ ks¸ahin, The Role of Speculators in the Crude Oil Futures Market (working paper 2009) (concluding that price changes precede the position change). In this way, speculators make it cheaper for short hedgers to lock in their price risk. 254Long speculators would tend to be compensated for assuming the price risk that is inherent with going long in the crude oil futures contract. If more speculators are bidding to earn the risk premium by taking long position in crude oil futures contracts, it should lower the risk premium, all else being equal. 255That is, when long speculative positions are larger, the risk premiums are smaller. 256See also Hamilton and Wu, Risk Premia in Crude Oil Futures Prices, Journal of International Money and Finance (2013); Hamilton, Causes of the Oil Shock of 2007–2008, Brookings Paper on Economic Activity (2009). 257 December 2013 Position Limits Proposal, 78 FR at 75695–6. 258U.S. Commodity Futures Trading Commission, ‘‘Part Two, A Study of the Silver Market,’’ May 29, 1981, Report to Congress in Response to Section 21 of The Commodity Exchange Act. 259U.S. Senate Permanent Subcommittee on Investigations, ‘‘Excessive Speculation in the Natural Gas Market,’’ June 25, 2007. 260E.g., U.S. Commodity Futures Trading Commission, Staff Report on Commodity Swap Dealers and Index Traders with Commission Recommendations (2008); U.S. Senate Permanent Subcommittee, Excessive Speculation in the Wheat Market (2009); U.S. Senate Permanent Subcommittee, The Role of Market Speculation in Rising Oil and Gas Prices: A Need to Put the Cop Back on the Beat (2006). 261See, e.g., CL–FIA–60937 at 5. 262CL–FIA–61036 at 2. identify a few of the well-executed studies that do not militate against and, to some degree, support the Commission’s reproposal to follow, out of due caution, a prophylactic approach.251 Hamilton and Wu, in Risk Premia in Crude Oil Futures Prices, Journal of International Money and Finance (2013), using models of fundamental supply and demand, find evidence that changes in noncommercial
positions can affect the risk premium in crude oil futures prices; that is, Hamilton and Wu found that, for a limited period around the time of the 2008 financial crisis that gave rise to the Dodd-Frank Act, increases in speculative positions reduced the risk premiums 252 in crude oil futures prices.253 This is important because, all else being equal, one would expect the risk premium to be the component of price that would be affected by traders accumulating large positions.254 Hamilton, in Causes of the Oil Shock of 2007–2008, Brookings Paper on Economic Activity (2009), also concludes that the oil price run-up was caused by strong demand confronting stagnating world production, but that something other than fundamental factors of supply and demand (as modeled) may have aggravated the speed and magnitude of the ensuing oil price collapse. Singleton, in Investor Flows and the 2008 Boom/Bust in Oil Prices (working paper 2011), employs a technique that is similar to Granger causality and finds a negative correlation between speculative positions and risk premiums.255 Chevallier, in Price Relationships in Crude Oil Futures: New Evidence from CFTC Disaggregated Data, Environmental Economics and Policy Studies (2012), applies switching regression analysis to position data and concludes that one cannot eliminate the possibility of speculation as one of the main factors contributing to oil price volatility in 2008. This study also suggests that when supply and demand are highly inelastic, i.e., relatively unresponsive to price changes, financial investors may have contributed to oil price volatility by taking large positions in energy sector commodity index funds.256 As one may infer from this small sample, some of the more compelling studies that support the proposition that large positions may move prices involve empirical studies of the oil market. The Commission acknowledges that not all commodity markets exhibit the same price behavior at the same times. Even so, that the findings of a particular study of the market experience of a particular commodity over a particular time period may not be extensible to other commodity markets or over other time periods does not mean that the Commission should disregard that study. This is because, as explained elsewhere, these markets are over time all susceptible to similar risks from excessive speculation. Again, this supports a prophylactic approach to limits and a determination that limits are necessary to effectuate their statutory purposes. The Commission in the December 2013 Position Limits Proposal identified two studies of actual market events to be helpful and persuasive in making its alternative necessity finding: 257 The inter-agency report on the silver crisis 258 and the PSI Report on Excessive Speculation in the Natural Gas Market.259 These two studies and some of the other reports included in the survey category 260 do not use statistical or theoretical models to reach economically rigorous
conclusions. Some of the evidence cited in these studies is anecdotal. Still, these two studies are in-depth examinations of actual market events and the Commission continues to find them to be helpful and persuasive in making its preliminary alternative necessity finding. The Commission reiterates that the PSI Report (because it closely preceded Congress’ amendments to CEA
section 4a(a) in the Dodd-Frank Act)
indicates how Congress views limits as necessary as a prophylactic measure to prevent the adverse effects of excessively large speculative positions. The studies, individually or taken as a whole, do not dissuade the Commission from its consistent view that large speculative positions and outsized market power pose risks to wellfunctioning commodities markets, nor from its preliminary finding that speculative position limits are necessary to achieve their statutory purposes. The Commission requests comment on its discussion of studies and reports. It also invites commenters to advise the Commission of any additional studies that the Commission should consider, and why.
II. Compliance Date for the Reproposed
Rules
Commenters requested that the Commission delay the compliance date, generally for at least nine months, to provide adequate time for market participants to come into compliance with a final rule.261 In addition, a commenter requested the Commission delay the compliance date until no earlier than January 3, 2018, to coordinate with the expected implementation date for position limits in Europe.262 In response to commenters, in this reproposal, the Commission proposes to delay the compliance date of any final rule until, at earliest, January 3, 2018, as provided under reproposed § 150.2(e). The Commission is of the opinion that a delay would provide market participants with sufficient time to come into compliance with a final rule, particularly in light of grandfathering provisions, discussed below. The Commission believes that a delay until January 3, 2018, would provide time for market participants to gain

263At that time, the Commission noted that several terms that are not currently in part 150 were not included in the December 2013 Position Limits Proposal even though definitions for those terms were adopted in vacated part 151. The Commission stated its view that the definition of those terms was not necessary for clarity in light of other revisions proposed in that rulemaking. The terms not proposed at that time include ‘‘swaption’’ and ‘‘trader.’’ 264The December 2013 Position Limits Proposal also made several non-substantive edits to the definitions to make them easier to read. 265See Aggregation of Positions, 78 FR 68946 (Nov. 15, 2013) at 68965, 68974 (proposing changes to the definitions of ‘‘eligible entity’’ and ‘‘independent account controller’’) (‘‘November 2013 Aggregation Proposal’’). The Commission issued a supplement to this proposal in September 2015, but the supplement did not propose any changes to the definitions. See 80 FR 58365 (Sept. 29, 2015). 266The December 2013 Position Limits Proposal mirrored the amendments to the definitions of ‘‘eligible entity’’ and ‘‘independent account controller,’’ proposed in the November 2013 Aggregation Proposal, and also included some nonsubstantive change to the definition of ‘‘independent account controller.’’ 267See 2016 Final Aggregation Rule, adopted by the Commission separately from this Reproposal. access to adequate systems to compute futures-equivalent positions. The Commission bases this opinion on its experience, including with swap dealers and clearing members of derivative clearing organizations, who, as reporting entities under part 20 (swaps large trader reporting), have been required to prepare reports of swaps on a futuresequivalent basis for years. As discussed above, futures-equivalent reporting of swaps under part 20 generally has improved. This means many reporting entities already have implemented acceptable systems to compute futuresequivalent positions. The systems developed for that purpose also should be acceptable for monitoring compliance with position limits. The Commission believes it is reasonable to expect some reporting entities to offer futures-equivalent computation services to market participants. In this regard, such reporting entities already compute and report, under part 20, futuresequivalent positions for swap counterparties with reportable positions, including spot-month positions and non-spot-month positions. The Commission notes that market participants who expect to be over the limits would need to assess whether exemptions are available (including requesting non-enumerated bona fide hedging positon exemptions or spread exemptions from exchanges, as discussed below under reproposed §§ 150.9 and 150.10). In the absence of exemptions, such market participants would need to develop plans for coming into compliance. The Commission notes the request for a further delay in a compliance date may be mitigated by the grandfathering provisions in the
Reproposal. First, the reproposed rules would exclude from position limits ‘‘pre-enactment swaps’’ and ‘‘transition period swaps,’’ as discussed below. Second, the rules would exempt certain pre-existing positions from position limits under reproposed § 150.2(f). Essentially, this means only futures contracts initially would be subject to non-spot-month position limits, as well as swaps entered after the compliance date. The Commission notes that a pre-existing position in a futures contract also would not be a violation of a non-spot-month limit, but, rather, would be grandfathered, as discussed under reproposed § 150.2(f)(2), below. Nevertheless, the Commission intends to provide a substantial implementation period to ease the compliance burden. The Commission requests comment on its discussion of the proposed compliance date.
III. Reproposed Rules
The Commission is not addressing comments that are beyond the scope of this reproposed rulemaking. A. § 150.1—Definitions

Various Definitions Found in § 150.1
Among other elements, the December 2013 Position Limits Proposal included amendments to the definitions of ‘‘futures-equivalent,’’ ‘‘long position,’’ ‘‘short position,’’ and ‘‘spot-month’’ found in § 150.1 of the Commission’s regulations, to conform them to the concepts and terminology of the CEA, as amended by the Dodd-Frank Act. The Commission also proposed to add to § 150.1, definitions for ‘‘basis contract,’’ ‘‘calendar spread contract,’’ ‘‘commodity derivative contract,’’ ‘‘commodity index contract,’’ ‘‘core referenced futures contract,’’ ‘‘eligible affiliate,’’ ‘‘entity,’’ ‘‘excluded commodity,’’ ‘‘intercommodity spread contract,’’ ‘‘intermarket spread positions,’’ ‘‘intramarket spread positions,’’ ‘‘physical commodity,’’ ‘‘pre-enactment swap,’’ ‘‘pre-existing position,’’ ‘‘referenced contract,’’ ‘‘spread contract,’’ ‘‘speculative position limit,’’ ‘‘swap,’’ ‘‘swap dealer’’ and ‘‘transition period swap.’’ In addition, the Commission proposed to move the definition of bona fide hedging from § 1.3(z) into part 150, and to amend and update it. Moreover, the Commission proposed to delete the definition for ‘‘the first delivery month of the ‘crop year.’ ’’ 263 Separately, the Commission proposed making a non-substantive change to list the definitions in alphabetical order rather than by use of assigned letters.264 According to the December 2013 Position Limits Proposal, this last change would be helpful when looking for a particular definition, both in the near future, in light of the additional definitions proposed to be adopted, and in the expectation that future rulemakings may adopt additional definitions. Finally, in connection with the 2016 Supplemental Position Limits Proposal, which provided new alternative processes for DCMs and SEFs to recognize certain positions in commodity derivative contracts as nonenumerated bona fide hedges or enumerated anticipatory bona fide hedges, and to exempt from federal position limits certain spread positions, the Commission proposed to further amend certain relevant definitions, including changes to the definitions of ‘‘futures-equivalent,’’ ‘‘intermarket spread position,’’ and ‘‘intramarket spread position.’’ Separately, as noted in the December 2013 Position Limits Proposal, amendments to two definitions were proposed in the November 2013 Aggregation Proposal,265 which was approved by the Commission on the same date as the December 2013 Position Limits Proposal. The November 2013 Aggregation Proposal, a companion to the December 2013 Position Limits Proposal, included amendments to the definitions of ‘‘eligible entity’’ and ‘‘independent account controller.’’ 266 The Commission notes that since the amendments were part of the separate Aggregation proposal, the proposed amendments to those definitions, and comments thereon, are addressed in the final Aggregation rulemaking (the ‘‘2016 Final Aggregation Rule’’); 267 therefore, the Commission is not addressing the definitions of ‘‘eligible entity’’ and
‘‘independent account controller’’ herein. The Commission is reproposing the amendments to the definitions in § 150.1, as set forth in the December 2013 Position Limits Proposal and as amended in the 2016 Supplemental Position Limits Proposal, with modifications made in response to public comments. The Reproposal also includes non-substantive changes to certain definitions to enhance readability and clarity for market participants and the public, including the extraction of definitions that were contained in the definition of ‘‘referenced contract’’ to stand on their own. The amendments and the public

268The Commission also notes that the proposed definition of ‘‘commodity index contract’’ excluded intercommodity spread contracts, calendar spread contracts, and basis contracts. 269The proposed basis contract definition was not intended to include significant time differentials in prices of the two commodities (e.g., the proposed basis contract definition did not include calendar spreads for nearby vs. deferred contracts). 270 December 2013 Position Limits Proposal at 75696. 271 Id. 272CL–Working Group–59693 at 68. 273CLWorking Group–59959 at 16. 274CL–FIA–59595 at 19; CL–ISDA/SIFMA–59611 at 35. 275CL–FIA–59595 at 4 and 18–19; CL–ISDA/ SIFMA–59611 at 34–35. 276CL–FIA–59595 at 19. 277Consequently, the Commission realizes that its determination to retain its traditional definition while clarifying its meaning by adopting the amended term of ‘‘locational basis contract’’ does not provide for the expanded definition of basis contract requested by some of the commenters. A broader definition of basis contract would result in the exclusion of more derivative contracts from the definition of referenced contract than previously proposed. A contract excluded from the definition of referenced contract is not subject to position limit under this Reproposal. The Commission declines to exclude more than the locational basis contracts that it previously proposed from the definition of referenced contract. comments relevant to each amendment are discussed below. a. Basis Contract Proposed Rule: In the December 2013 Position Limits Proposal, the Commission proposed to exclude ‘‘basis contracts’’ from the definition of ‘‘referenced contracts.’’ 268 While the term ‘‘basis contract’’ is not defined in current § 150.1, the Commission proposed a definition for basis contract in the December 2013 Position Limits Proposal. Proposed § 150.1 defined basis contract to mean ‘‘a commodity derivative contract that is cash-settled based on the difference in: (1) The price, directly or indirectly, of: (a) A particular core referenced futures contract; or (b) a commodity deliverable on a particular core referenced futures contract, whether at par, a fixed discount to par, or a premium to par; and (2) the price, at a different delivery location or pricing point than that of the same particular core referenced futures contract, directly or indirectly, of: (a) A commodity deliverable on the same particular core referenced futures contract, whether at par, a fixed discount to par, or a premium to par; or (b) a commodity that is listed in appendix B to this part as substantially the same as a commodity underlying the same core referenced futures contract.’’ The Commission also proposed
Appendix B to part 150, Commodities
Listed as Substantially the Same for Purposes of the Definition of Basis Contract. As proposed, the definition of basis contract would include contracts cash-settled on the difference in prices of two different, but economically closely related commodities, for example, certain quality differentials (e.g., RBOB gasoline vs. 87 unleaded).269 As explained when it was proposed, the intent of the proposed definition was to reduce the potential for excessive speculation in referenced contracts where, for example, a speculator establishes a large outright directional position in referenced contracts and nets down that directional position with a contract based on the difference in price of the commodity underlying the referenced contracts and a close economic substitute that was not deliverable on the core referenced futures contract.270 In the absence of this provision, the speculator could then increase further the large position in the referenced contracts. By way of comparison, the Commission noted in the December 2013 Position Limits Proposal that there is greater concern (i) that someone may manipulate the markets by disguise of a directional exposure through netting down the directional exposure using one of the legs of a quality differential (if that quality differential contract were not exempted), than (ii) that someone may use certain quality differential contracts that were exempted from position limits to manipulate the outright price of a referenced contract.271 Comments Received: The Commission received a number of comment letters regarding the proposed definition of basis contract. One commenter supported the proposed definition of basis contract and stated that it appreciates the Commission’s inclusion of Appendix B listing the commodities it believes are substantially the same as a core referenced futures contract for purposes of identifying contracts that meet the basis contract definition.272 Other comment letters requested that the Commission broaden the definition to include contracts that settle to other types of differentials, such as processing differentials (e.g., crack or crush spreads) or quality differentials (e.g., sweet vs. sour crude oil). One commenter recommended a definition of basis contract that includes crack spreads, by-products priced at a differential to other by-products (e.g., jet fuel vs. heating oil, both of which are crude oil by-products), and a commodity that includes similar commodities such as a contract based on the difference in prices between light sweet crude and a sour crude that is not deliverable against the NYMEX Light Sweet Crude Oil core referenced futures contract. This commenter suggested that if these types of contracts are included as basis contracts, market participants should be able to net certain contracts where a commodity is priced at a differential to a product or by-product, subject to prior approval according to a process created by the Commission.273 Two commenters specifically
requested that the list in Appendix B include Jet fuel (54 grade) as substantially the same as heating oil (67 grade). They also requested that WTI Midland (Argus) vs. WTI Financial Futures should be listed as basis contracts for Light Louisiana Sweet (LLS) Crude Oil.274 Noting that basis contracts are excluded from the definition of referenced contract and thus not subject to speculative position limits, two commenters requested CFTC expand the list in Appendix B to part 150 of commodities considered substantially the same as a core referenced futures contract, and the corresponding list of basis contracts, to reflect the commercial practices of market participants.275 One of these commenters recommended that the Commission adopt a flexible process for identifying any additional commodities that are substantially the same as a commodity underlying a core referenced futures contract for inclusion in
Appendix B, and allow market
participants to request a timely interpretation regarding whether a particular commodity is substantially the same as a core referenced futures contract or that a particular contract qualifies as a basis contract.276 Commission Reproposal: The Commission has determined to repropose the definition of basis contract as originally proposed, but to change the defined term from ‘‘basis contract’’ to ‘‘location basis contract.’’ The Commission intended the ‘‘basis contract’’ definition to encompass contracts that settle to the difference between prices in separate delivery locations of the same (or substantially the same) commodity, while the industry seems to use the term ‘‘basis’’ more broadly to include other price differentials, including, among other things, processing differentials and quality differentials. Thus, under the Reproposal, the term is changing from ‘‘basis contract’’ to ‘‘location basis contract’’ in order to reduce any confusion stemming from the more encompassing use of the word ‘‘basis’’ in industry parlance.277

278As noted above, according to the commenter, a flexible process would allow market participants to request a timely interpretation regarding whether a particular commodity is substantially the same as a core referenced futures contract or that a particular contract qualifies as a ‘‘basis contract. See CL–FIA–59595 at 19 279See 2016 Supplemental Position Limits Proposal, 81 FR at 38476–80. 280See, e.g., amendments to § 150.1 (the definitions of: ‘‘location basis contract,’’ the definition of ‘‘bona fide hedging position,’’ ‘‘intermarket spread position,’’ ‘‘intra-market spread position,’’ ‘‘pre-existing position,’’ ‘‘speculative position limits,’’ and ‘‘spot month’’), §§ 150.2(f)(2), 150.3(d), 150.3(h), 150.5(a), 150.5(b), 150.5(e), 150.7(d), 150.7(f), Appendix A to part 150, and
Appendix C to part 150.
281 In the December 2013 Position Limits Proposal, the Commission noted that while the proposed definition of ‘‘referenced contract’’ specifically excluded guarantees of a swap, basis contracts and commodity index contracts, spread contracts were not excluded from the proposed definition of ‘‘referenced contract.’’ The December 2013 Position Limits Proposal at 75702. 282 In the December 2013 Position Limits Proposal, the Commission also clarified that if a swap was based on the difference between two prices of two different commodities, with one linked to a core referenced futures contract price (and the other either not linked to the price of a core referenced futures contract or linked to the price of a different core referenced futures contract), then the swap was an ‘‘intercommodity spread contract,’’ was not a commodity index contract, and was a referenced contract subject to the position limits specified in § 150.2. The Commission further clarified that a contract based on the prices of a referenced contract and the same or substantially the same commodity (and not based on the difference between such prices) was not a commodity index contract and was a referenced contract subject to position limits specified in § 150.2. See December 2013 Position Limits Proposal, 78 FR at 75697, n. 163. 283 Id. at 75697, n. 163. 284 Id. at 75697. 285The Commission notes that although it did not receive comments on the proposed definitions for commodity index contract, spread contract, calendar spread contract, and intercommodity spread contract, it did receive a number of comments regarding the interplay of those defined terms and the definition of ‘‘referenced contract.’’ Discussion of those comments are included in the discussion of the proposed definition of ‘‘referenced contract’’ below. The Commission is reproposing
Appendix B as originally proposed. The
Commission is not persuaded by commenters’ suggestions for expanding the current list of commodities considered ‘‘substantially the same’’ in
Appendix B. While a commenter
requested the Commission expand the list to address all ‘‘commercial practices’’ used by market participants, the Commission believes this request is too vague and too broad to be workable. In addition, although a commenter recommended that the Commission adopt a flexible process for identifying any additional commodities that are substantially the same as a commodity underlying a core referenced futures contract for inclusion in Appendix B,278 the Commission observes that market participants are already provided the flexibility of two processes: (i) To request an exemptive, no-action or interpretative letter under § 140.99; and/ or (ii) to petition for changes to
Appendix B under § 13.2. Under either
process, the Commission would need to carefully consider whether it would be beneficial and consistent with the policies underlying CEA section 4a to list additional commodities as substantially the same as a commodity underlying a core referenced futures contract, especially since various market participants might have conflicting views on such a determination in certain cases. Finally, the Commission notes that comments regarding other types of differentials were addressed in the Commission’s 2016 Supplemental Position Limits Proposal, which would allow exchanges to grant spread exemptions, including calendar spreads, quality differential spreads, processing spreads, and product or by-product differential spreads.279 Comments responding to that 2016 Supplemental Position Limits Proposal and the Commission’s Reproposal are discussed below. b. Commodity Derivative Contract Proposed Rule: The December 2013 Position Limits Proposal would define in § 150.1 the term ‘‘commodity derivative contract’’ for position limits purposes as shorthand for any futures, option, or swap contract in a commodity (other than a security futures product as defined in CEA section 1a(45)). The proposed use of such a generic term would be a convenient way to streamline and simplify references in
part 150 to the various kinds of
contracts to which the position limits regime applies. As such, this new definition can be found frequently throughout the Commission’s proposed amendments to part 150.280 Comments Received: The Commission received no comments on the proposed definition. Commission Reproposal: The Commission has determined to repropose the definition as proposed for the reasons given above.
c. Commodity Index Contract, Spread
Contract, Calendar Spread Contract, and Intercommodity Spread Contract Proposed Rule: The December 2013 Position Limits Proposal excluded commodity index contracts from the definition of referenced contracts; thus, commodity index contracts would not be subject to position limits. The Commission also proposed to define the term commodity index contract, which is not in current § 150.1, to mean ‘‘an agreement, contract, or transaction that is not a basis contract or any type of spread contract, based on an index comprised of prices of commodities that are not the same or substantially the same.’’ Further, the Commission proposed to add a definition of basis contract, as discussed above, and spread contract to clarify which types of contracts would not be considered a commodity index contract and thus would be subject to position limits. Under the proposal, a spread contract was defined as ‘‘a calendar spread contract or an intercommodity spread contract.’’ 281 Finally, the Commission proposed the addition of definitions for a calendar spread contract, and an intercommodity spread contract to clarify the meanings of those terms. In particular, under the proposal, a calendar spread contract would mean ‘‘a cash-settled agreement, contract, or transaction that represents the difference between the settlement price in one or a series of contract months of an agreement, contract or transaction and the settlement price of another contract month or another series of contract months’ settlement prices for the same agreement, contract or transaction.’’ An intercommodity spread contract would mean ‘‘a cash-settled agreement, contract or transaction that represents the difference between the settlement price of a referenced contract and the settlement price of another contract, agreement, or transaction that is based on a different commodity.’’ 282 The December 2013 Position Limits Proposal further noted that part 20 of the Commission’s regulations requires reporting entities to report commodity reference price data sufficient to distinguish between commodity index contract and non-commodity index contract positions in covered contracts.283 Therefore, for commodity index contracts, the Commission stated its intention to rely on the data elements in § 20.4(b) to distinguish data records subject to § 150.2 position limits from those contracts that are excluded from § 150.2. The Commission explained that this would enable the Commission to set position limits using the narrower data set (i.e., referenced contracts subject to § 150.2 position limits) as well as conduct surveillance using the broader data set.284 Comments Received: The Commission received no comments on the proposed definitions for commodity index contract, spread contract, calendar spread contract, and intercommodity spread contract.285

286The selection of the core referenced futures contracts is explained in the discussion of § 150.2. See discussion below. 287See 78 FR at 75697 n. 166. 288See proposed § 150.1. 289See December 2013 Position Limits Proposal, 78 FR at 75698. 290See Clearing Exemption for Swaps Between Certain Affiliated Entities, 78 FR 21749, 21783, Apr. 11, 2013. Section 50.52(a) addresses eligible affiliate counterparty status, allowing a person not to clear a swap subject to the clearing requirement of
section 2(h)(1)(A) of the Act and part 50 if the
person meets the requirements of the conditions contained in paragraphs (a) and (b) of § 50.52. The conditions in paragraph (a) of § 50.52 specify either one counterparty holds a majority ownership interest in, and reports its financial statements on a consolidated basis with, the other counterparty, or both counterparties are majority owned by a third party who reports its financial statements on a consolidated basis with the counterparties. The conditions in paragraph (b) of § 50.52 address factors such as the decision of the parties not to clear, the associated documentation, audit, and recordkeeping requirements, the policies and procedures that must be established, maintained, and followed by a dealer and major swap participant, and the requirement to have an appropriate centralized risk management program, rather than the nature of the affiliation. As such, those conditions are less pertinent to the definition of eligible affiliate. 291See December 2013 Position Limits Proposal, 78 FR at 75698; see also definition of ‘‘eligible affiliate’’ in § 150.1, as proposed therein. 292See, e.g., CL–ISDA/SIFMA–59611 at 3 and 33, CL–Working Group–59693 at 66–7. 293Of course, sister affiliates would be required to aggregate, as would any other market participants, if they were trading together pursuant to an express or implied agreement. 294CEA section 1a(38); 7 U.S.C. 1a(38). See also December 2013 Position Limits Proposal, 78 FR at 75698. Commission Reproposal: The Commission has determined to repropose the definitions as originally proposed for the reasons provided above, with the exception that, under the Reproposal, the term ‘‘basis contract’’ will be replaced with the term ‘‘location basis contract,’’ in the reproposed definition of commodity index contract, to conform to the name change discussed above. In addition, the Commission notes that while it had proposed to subsume the definitions of commodity index contract, spread contract, calendar spread contract, and intercommodity spread contract under the definition of referenced contract, in the Reproposal it is enumerating each as a separate definition for ease of reference. d. Core referenced Futures Contract Proposed Rule: The December 2013 Position Limits Proposal provided a list of futures contracts in § 150.2(d) to which proposed position limit rules would apply. The Commission proposed the term ‘‘core referenced futures contract’’ as a short-hand phrase to denote such contracts.286 Accordingly, the Commission proposed to include in § 150.1 a definition of core referenced futures contract to mean ‘‘a futures contract that is listed in § 150.2(d).’’ In its proposal, the Commission also clarified that core referenced futures contracts include options that expire into outright positions in such contracts.287 Comments Received: The Commission received no comments on the proposed definition. Commission Reproposal: The Commission has determined to repropose the definition as originally proposed.
e. Eligible Affiliate Proposed Rule: The term ‘‘eligible affiliate,’’ used in proposed § 150.2(c)(2), is not defined in current § 150.1. The Commission proposed to amend § 150.1 to define an ‘‘eligible affiliate’’ as an entity with respect to which another person: (1) Directly or indirectly holds either: (i) A majority of the equity securities of such entity, or (ii) the right to receive upon dissolution of, or the contribution of, a majority of the capital of such entity; (2) reports its financial statements on a consolidated basis under Generally Accepted Accounting Principles or International Financial Reporting Standards, and such consolidated financial statements include the financial results of such entity; and (3) is required to aggregate the positions of such entity under § 150.4 and does not claim an exemption from aggregation for such entity.288 The definition of ‘‘eligible affiliate’’ proposed in the December 2013 Position Limits Proposal qualified persons as eligible affiliates based on requirements similar to those adopted by the Commission in a separate rulemaking.289 On April 1, 2013, the Commission provided relief from the mandatory clearing requirement of CEA
section 2(h)(1)(A) of the Act for certain
affiliated persons if the affiliated persons (‘‘eligible affiliate counterparties’’) meet requirements contained in § 50.52.290 Under both § 50.52 and the definition proposed in the December 2013 Position Limits Proposal, a person is an eligible affiliate if another person (e.g. a parent company), directly or indirectly, holds a majority ownership interest in such affiliates, reports its financial statements on a consolidated basis under Generally Accepted Accounting Principles or International Financial Reporting Standards, and such consolidated financial statements include the financial results of such affiliates. In addition, for purposes of the position limits regime, that other person (e.g., a parent company) must be required to aggregate the positions of such affiliates under § 150.4 and not claim an exemption from aggregation for such affiliates.291 Comments Received: The Commission received few comments on the proposed definition of ‘‘eligible affiliate.’’ Commenters requested that the Commission harmonize the definition of ‘‘eligible affiliate’’ with the definition of ‘‘eligible affiliate counterparty’’ under § 50.52 in order to include ‘‘sister affiliates’’ within the definition.292 Commission Reproposal: The Commission notes that under § 150.4, aggregation is required by a person that holds an ownership or equity interest of 10 percent or greater in another person, unless an exemption applies. Under reproposed § 150.2(c)(2), sister affiliates would not be required to comply separately with position limits, provided such entities are eligible affiliates.293 As such, the Commission does not believe a there is a need to conform the ‘‘eligible affiliate’’ definition in reproposed § 150.1 to the definition of ‘‘eligible affiliate counterparty’’ in § 50.52 in order to accommodate sister affiliates. The Commission notes that a third person that holds an ownership or equity interest in each of the sister affiliates—e.g., the parent company— would be required to aggregate positions of such eligible affiliates. Thus, the Commission is reproposing the definition without changes. f. Entity Proposed Rule: The December 2013 Position Limits Proposal defined ‘‘entity’’ to mean ‘‘a ‘person’ as defined in section 1a of the Act.’’ 294 The term, not defined in current § 150.1, is used in a number of contexts, and in various definitions in the proposed amendments to part 150. Thus, the definition originally proposed would provide a clear and unambiguous meaning for the term, and prevent confusion. Comments Received: The Commission received no comments on the proposed definition. Commission Reproposal: The Commission has determined to repropose the definition as originally proposed, for the reasons provided above. g. Excluded Commodity Proposed Rule: The phrase ‘‘excluded commodity’’ was added into the CEA in the CFMA, and is defined in CEA

295CEA section 1a(19); 7 U.S.C. 1a(19). 296CEA section 4a(2)(A); 7 U.S.C. 6a(2)(A). 297Prior to the adoption of Part 151, a singlemonth limit was set at a level that was lower than the all-months-combined limit. Operating in conjunction with the lower single-month limit level, as noted below, § 150.3(a)(3) provides a limited exemption for calendar spread positions to exceed that single-month limit, as long as the single month position (including calendar spread positions) is no greater than the level of the allmonths-combined limit. In part 151, the Commission determined to set the single-month position limit levels in § 150.2 at the same level as the all-months-combined limits; in vacating part 151, the court retained the amendments to § 150.2, leaving the single-month limit at the same level as those of the all-months-combined limit levels. The December 2013 Position Limits Proposal retained parity of the single-month limit and all-monthscombined limits levels. 298Moreover, the 2016 Supplemental Position Limits Proposal did not limit the exemption to spread positions held between individual months of a futures contract in the same crop year, nor limit the size of an individual month position to the allmonths limit. 299 17 CFR 150.1(f) currently defines ‘‘futuresequivalent’’ only for an option contract, adjusting the open position in options by the previous day’s risk factor, as calculated at the close of trading by the exchange. 300The December 2013 Position Limits Proposal defined ‘‘futures-equivalent’’ for: (1) An option contact, adjusting the position size by an economically reasonable and analytically supported risk factor, computed as of the previous day’s close or the current day’s close or contemporaneously during the trading day; and (2) a swap, converting the position size to an economically equivalent amount of an open position in a core referenced futures contract. See December 2013 Position Limits Proposal, 78 FR at 75698–9. 301Amendments to CEA section 4a(1) authorize the Commission to extend position limits beyond futures and option contracts to swaps traded on an exchange and swaps not traded on an exchange that perform or affect a significant price discovery function with respect to regulated entities. 7 U.S.C. 6a(a)(1). In addition, under new CEA sections 4a(a)(2) and 4a(a)(5), speculative position limits apply to agricultural and exempt commodity swaps that are ‘‘economically equivalent’’ to DCM futures and option contracts. 7 U.S.C. 6a(a)(2) and (5). 302Under current § 150.2, for purposes of compliance with federal position limits, positions in regular sized and mini-sized contracts are aggregated. The Commission’s practice of aggregating futures contracts when a DCM lists for trading two or more futures contracts with substantially identical terms, is to scale down a position in the mini-sized contract, by multiplying the position in the mini-sized contract by the ratio of the unit of trading in the mini-sized contract
to that of the regular sized contract. See paragraph (b)(2)(D) of app. C to part 38 of the Commission’s regulations for guidance regarding the contract size or trading unit for a futures or futures option contract.
section 1a(19), but is not defined or
used in current part 150.295 CEA section 4a(a)(2)(A), as amended by the DoddFrank Act, utilizes the phrase ‘‘excluded commodity’’ when it provides a timeline under which the Commission is charged with setting limits for futures and option contracts other than on excluded commodities.296 The December 2013 Position Limits Proposal included in § 150.1, a definition of excluded commodity that simply incorporates the statutory meaning, as a useful term for purposes of a number of the proposed changes to
part 150. For example, the phrase was
used in the proposed amendments to § 150.5, in its provision of requirements and acceptable practices for DCMs and SEFs in their adoption of rules and procedures for monitoring and enforcing position limits and accountability provisions; the phrase was also used in the definition of bona fide hedging position. Comments Received: The Commission received no comments on the proposed definition. Commission Reproposal: The Commission has determined to repropose the definition as previously proposed, for the reasons provided above. h. First Delivery Month of the Crop Year Proposed Rule: The term ‘‘first delivery month of the crop year’’ is currently defined in § 150.1(c), with a
table of the first delivery month of the
crop year for the commodities for which position limits are currently provided in § 150.2. The crop year definition had been pertinent for purposes of the spread exemption to the individual month limit in current § 150.3(a)(3), which limits spreads to those between individual months in the same crop year and to a level no more than that of the all-months limit.297 Under the December 2013 Position Limits Proposal, the definition of ‘‘crop year’’ would be deleted from § 150.1. The proposed elimination of the definition conformed with level of individual month limits set at the level of the allmonths limits, thus negating the purpose of the existing spread exemption in current § 150.3(a)(3), which the December 2013 Position Limits Proposal also eliminated. The Commission notes that in its 2016 Supplemental Position Limits Proposal, the Commission proposed to retain a spread exemption in § 150.3 and not, as proposed in the December 2013 Position Limits Proposal, to eliminate it altogether.298 Comments Received: The Commission received no comments on the proposed deletion of the crop year definition. Commission Reproposal: The Commission has determined to repropose the deletion of the definition of the term ‘‘first delivery month of the crop year’’ as originally proposed. The Commission notes that, although in its 2016 Supplemental Position Limits Proposal, the Commission proposed to retain a spread exemption in § 150.3 and, in fact, provides for the approval by exchanges of exemptions to spread positions beyond the limited exemption for spread positions in current § 150.3(a)(3), the crop year definition remains unnecessary since the level of individual month limits has been set at the level of the all-months limits.
i. Futures Equivalent
Proposed Rule: In the December 2013 Position Limits Proposal, the Commission proposed to broaden the definition of the term ‘‘futuresequivalent’’ found in current § 150.1(f) of the Commission’s regulations,299 and to expand upon clarifications included in the current definition relating to adjustments and computation times.300 The Dodd-Frank Act amendments to CEA section 4a,301 in part, direct the Commission to apply aggregate federal position limits to physical commodity futures contracts and to swaps contracts that are economically equivalent to such physical commodity futures contracts on which the Commission has established limits. In order to aggregate positions in futures, options and swaps contracts, it is necessary to adjust the position sizes, since such contracts may have varying units of trading (e.g., the amount of a commodity underlying a particular swap contract could be larger than the amount of a commodity underlying a core referenced futures contract). The Commission proposed to adjust position sizes to an equivalent position based on the size of the unit of trading of the core referenced futures contract. Under the December 2013 Position Limits Proposal, the definition of ‘‘futures equivalent’’ in current § 150.1(f), which is applicable only to an option contract, would be extended to both options and swaps. In the 2016 Supplemental Position Limits Proposal, the Commission proposed two further clarifications to the definition of the term ‘‘futuresequivalent.’’ First, the Commission proposed to address circumstances in which a referenced contract for which futures equivalents must be calculated is itself a futures contract. The Commission noted that this may occur, for example, when the referenced contract is a futures contract that is a mini-sized version of the core referenced futures contract (e.g., the mini-corn and the corn futures contracts).302 The Commission proposed to clarify in proposed § 150.1 that the term ‘‘futures-equivalent’’ includes a futures contract which has been converted to an economically equivalent amount of an open position in a core

303For an example of a futures-equivalent conversion of a swaption, see example 6, WTI swaptions, Appendix A to part 20 of the Commission’s regulations. 304 2016 Supplemental Position Limits Proposal, 81 FR at 38483. See also Table 11 in the December 2013 Position Limits Proposal, 78 FR at 75731–3. 305CL–MFA–59606; CL–FIA–59595 at 15. 306CL–MFA–59606 at 16–17. 307MFA also stated that the Commission should not second guess the results of reasonable models and impose findings of violations after-the-fact as that would introduce tremendous uncertainty into compliance with the position limits regime. Id at 17. 308 Id at 17. 309CL–MFA–59606 at 17; CL–FIA–59595 at 15. 310CL–FIA–59595 at 15. 311Under § 16.01(a)(2), a reporting market is required to record for each trading session the option delta, when a delta system is used, while § 16.01(e) requires a reporting market to make that option delta readily available to the public. A reporting market for this purpose is defined in § 15.00(q) as a DCM or a registered entity under CEA section 1a(40) (under CEA section 1a(40), registered entities include, among others, DCMs, DCOs, SEFs, SDRs). 312 Deltas are computed using an option pricing model. Different option pricing models incorporate different assumptions. For a discussion of circumstances where assumptions in an option pricing model may not hold, see, for example, Paul Wilmott, Derivatives: The Theory and Practice of Financial Engineering chapter 29 (1998) (describing circumstances where delta hedging an option position (i.e., replication trading) can move the price of the underlying asset, violating an assumption of certain option pricing models that replication trading has no influence on the price of the underlying asset). 313The Commission believes that, in the circumstance of option assignment, one business day is a reasonable amount of time to come into compliance because the markets for commodities subject to federal limits under § 150.2 are generally liquid. 314 In the December 2013 Position Limits Proposal, the Commission proposed to define an ‘‘intermarket spread position’’ as ‘‘a long position in a commodity derivative contract in a particular commodity at a particular designated contract market or swap execution facility and a short position in another commodity derivative contract in that same commodity away from that particular designated contract market or swap execution facility.’’ The Commission also proposed to define an ‘‘intramarket spread position’’ as ‘‘a long position in a commodity derivative contract in a particular commodity and a short position in another commodity contract in the same commodity on the same designated contract market or swap execution facility.’’ See December 2013 Position Limits Proposal, 78 FR at 75699–700. referenced futures contract. This clarification would mirror the expanded definition of ‘‘futures-equivalent’’ in the December 2013 Position Limits Proposal, as it would pertain to swaps. Second, the
Commission proposed in the 2016 Supplemental Position Limits Proposal to clarify the definition of the term ‘‘futures-equivalent’’ to provide that, for purposes of calculating futures equivalents, an option contract must also be converted to an economically equivalent amount of an open position in a core referenced futures contract. This clarification would address situations, for example, where the unit of trading underlying an option contract (that is, the notional quantity underlying an option contract) may differ from the unit of trading underlying a core referenced futures contract.303 The Commission expressed the view in the 2016 Supplemental Position Limits Proposal that these clarifications would be consistent with the methodology the Commission used to provide its analysis of unique persons over percentages of the proposed position limit levels in the December 2013 Position Limits Proposal.304 Comments Received: The Commission received two comments on the proposed definition of ‘‘futures-equivalent’’ in the December 2013 Position Limits Proposal.305 Each comment was generally supportive of the proposed definition. Although one commenter commended the flexibility granted to market participants to use different option valuation models, it recommended that the Commission provide guidance on when it would consider an option valuation model unsatisfactory and what the factors the Commission would consider in arriving at such an opinion.306 According to the commenter, the Commission should utilize a ‘‘reasonableness approach’’ by explicitly providing a ‘‘safe harbor’’ for models that produce results within 10 percent of an exchange or Commission model, and should permit market participants to demonstrate the reasonableness under prevailing market conditions of any model that falls outside this safe harbor.307 It was also recommended that the Commission consider the exchanges’ approach to option valuation where appropriate because these approaches are already in use and familiar to market participants.308 Both MFA and FIA supported the optional use of the prior day’s delta to calculate a futures-equivalent position for purposes of speculative position limit compliance.309 In addition, each requested that the Commission confirm or adopt a provision similar to CME Rule 562. That exchange rule provides, among other things, that if a participant’s position exceeds position limits as a result of an option assignment, that participant is allowed one business day to liquidate the excess position without being considered in violation of the limits. FIA urged the Commission to provide market participants with a reasonable period of time to reduce its position below the speculative position limit.310 Commission Reproposal: The Commission has determined to repropose the definition of ‘‘futuresequivalent’’ as proposed in the 2016 Supplemental Position Limits proposal, with the exception that it now proposes adopting the current exchange practice with
regard to option assignments, as discussed below. Regarding risk (delta) models, the Reproposal does not provide a ‘‘safe harbor’’ as requested since risk models, generally, should produce similar results. The Commission believes a difference of 10 percent above or below the delta resulting from an exchange’s model generally would be too great to be economically reasonable. However, the Commission notes that, under the Reproposal, should a market participant believe its model produces an economically reasonable and analytically supported risk factor for a particular trading session that differs significantly from a result published by an exchange for that same time,311 it may describe the circumstances that result in a significant difference and request that staff review that model for reasonableness.312 Regarding the time period for a participant to come into compliance because of option assignment, the Commission agrees that a participant in compliance only because of a previous day’s delta, and no longer, after option assignment, in compliance on a subsequent day, should have one business day to liquidate the excess position resulting from option assignment without being considered in violation of the limits.313 Exchanges currently provide the same amount of time to come into compliance. j. Intermarket Spread Position and Intramarket Spread Position Proposed Rule: In the December 2013 Position Limits Proposal, the Commission proposed to add to current § 150.1 new definitions of the terms ‘‘intermarket spread position’’ and ‘‘intramarket spread position.’’ 314 These terms were defined in the December 2013 Position Limits Proposal within the definition of ‘‘referenced contract.’’ In connection with its 2016 Supplemental Position Limits Proposal to permit exchanges to process applications for exemptions from federal position limits for certain spread positions, the Commission proposed to expand the definitions of these terms as proposed in the December 2013 Position Limits Proposal. In particular, in the 2016 Supplemental Position Limits Proposal,

315As noted above, the definitions of ‘‘intermarket spread position’’ and ‘‘intramarket spread position’’ were included. 316For position limits purposes, proposed § 150.1 would define ‘‘physical commodity’’ to mean any agricultural commodity as that term is defined in § 1.3 of this chapter or any exempt commodity as that term is defined in section 1a(20) of the Act. 317 Vacated § 151.1 defined ‘‘Referenced Contract’’ to mean ‘‘on a futures-equivalent basis with respect to a particular Core Referenced Futures Contract, a Core Referenced Futures Contract listed in § 151.2, or a futures contract, options contract, swap or swaption, other than a basis contract or contract on a commodity index that is: (1) Directly or indirectly linked, including being partially or fully settled on, or priced at a fixed differential to, the price of that particular Core Referenced Futures Contract; or (2) directly or indirectly linked, including being partially or fully settled on, or priced at a fixed differential to, the price of the same commodity underlying that particular Core Referenced Futures Contract for delivery at the same location or locations as specified in that particular Core Referenced Futures Contract.’’ 318Position Limits for Futures and Swaps, 76 FR at 71629. the Commission proposed to define an ‘‘intermarket spread position’’ to mean ‘‘a long (short) position in one or more commodity derivative contracts in a particular commodity, or its products or its by-products, at a particular designated contract market, and a short (long) position in one or more commodity derivative contracts in that same, or similar, commodity, or its products or its by-products, away from that particular designated contract market.’’ Similarly, the Commission proposed in the 2016 Supplemental Position Limits Proposal to define an ‘‘intramarket spread position’’ to mean ‘‘a long position in one or more commodity derivative contracts in a particular commodity, or its products or its by-products, and a short position in one or more commodity derivative contracts in the same, or similar, commodity, or its products or its byproducts, on the same designated contract market.’’ The Commission expressed the view that the expanded definitions proposed in the 2016 Supplemental Position Limits Proposal would take into account that a market participant may take positions in multiple commodity derivative contracts to establish an intermarket spread position or an intramarket spread position. The expanded definitions would also take into account that such spread positions may be established by taking positions in derivative contracts in the same commodity, in similar commodities, or in the products or by-products of the same or similar commodities. By way of example, the Commission noted that the expanded definitions would include a short position in a crude oil derivative contract and long positions in a gasoline derivative contract and a diesel fuel derivative contract (collectively,
a reverse crack spread). Comments Received: The Commission did not receive any comments in response to the definitions of ‘‘intermarket spread position’’ and ‘‘intramarket spread position’’ proposed in the December 2013 Position Limits Proposal 315 or in response to the 2016 Supplemental Position Limits Proposal. Commission Reproposal: The Commission has determined to repropose the definitions of the terms ‘‘intermarket spread position’’ and ‘‘intramarket spread position’’ as proposed in the 2016 Supplemental Position Limits Proposal. k. Long Position Proposed Rule: The term ‘‘long position’’ is currently defined in § 150.1(g) to mean ‘‘a long call option, a short put option or a long underlying futures contract.’’ The Commission proposed to update the definition to make it also applicable to swaps such that a long position would include a long futures-equivalent swap. Commission Reproposal: Though no commenters suggested changes to the definition of ‘‘long position,’’ the Commission is concerned that the proposed definition does not clearly articulate that futures and options contracts are subject to position limits on a futures-equivalent basis in terms of the core referenced futures contract. Longstanding market practice has applied position limits on futures and options on a futures-equivalent basis, and the Commission believes that practice ought to be made explicit in the definition in order to prevent confusion. Thus, the Commission is reproposing an amended definition to clarify that a long position is ‘‘on a futures-equivalent basis, a long call option, a short put option, a long underlying futures contract, or a swap position that is equivalent to a long futures contract.’’ This clarification is consistent with the clarification to the definition of futuresequivalent basis proposed in the 2016 Supplemental Position Limits Proposal. Though the substance of the definition is fundamentally unchanged, the revised language should prevent unnecessary confusion over the application of futures-equivalency to different kinds of commodity derivative contracts.
l. Physical Commodity
Proposed Rule: The December 2013 Position Limits Proposal would amend § 150.1 by adding in a definition of the term ‘‘physical commodity’’ for position limit purposes. Congress used the term ‘‘physical commodity’’ in CEA sections 4a(a)(2)(A) and 4a(a)(2)(B) to mean commodities ‘‘other than excluded commodities as defined by the Commission.’’ Therefore, the Commission interprets ‘‘physical commodities’’ to include both exempt and agricultural commodities, but not excluded commodities, and proposes to define the term as such.316 Comments Received: The Commission received no comments on the proposed definition. Commission Reproposal: The Commission has determined to repropose the definition as originally proposed. m. Pre-enactment Swap and PreExisting Position Proposed Rule: The December 2013 Position Limits Proposal would amend § 150.1 by adding in new definitions of the terms ‘‘pre-enactment swap’’ and ‘‘pre-existing position’’ for position limit purposes. Under the definitions proposed in the December 2013 Position Limits Proposal, ‘‘pre-enactment swap’’ means any swap entered into prior to enactment of the Dodd-Frank Act of 2010 (July 21, 2010), the terms of which have not expired as of the date of enactment of that Act, while ‘‘preexisting position’’ means any position in a commodity derivative contract acquired in good faith prior to the effective date of any bylaw, rule, regulation or resolution that specifies an initial speculative position limit level or a subsequent change to that level. Comments Received: The Commission received no comments on the proposed definitions either of the terms ‘‘preenactment swap’’ or ‘‘pre-existing position.’’ Commission Reproposal: The Commission has determined to repropose both definitions as previously proposed. n. Referenced Contract Proposed Rule: Part 150 currently does not include a definition of the phrase ‘‘referenced contract,’’ which was introduced and adopted in vacated
part 151.317 As was noted when part 151
was adopted, the Commission identified 28 core referenced futures contracts and proposed to apply aggregate limits on a futures equivalent basis across all derivatives that met the definition of referenced contracts.318 The definition of referenced contract proposed in the December 2013 Position Limits Proposal was similar to that of vacated part 151,

319The commenters included AGA, APGA, Atmos, API, Better Markets, BG Group, Calpine, Citadel, CME, CMOC, COPE, DEU, EEI, EPSA, FIA, ICE, IECA, ISDA/SIFMA, GFMA, IATP, MFA, NEM, NFP, NGSA, OLAM, PAAP, SCS, and Vectra. 320CL–IECA–59713 at 4. 321CL–IECAssn–59679 at 31. 322See, e.g., CL–FIA–59595 at 4 and 19, CL–EEI– EPSA–59602 at 3, CL–ISDA/SIFMA–59611 at 3 and 34, CL–NEM–59620 at 2, CL–DEU–59627 at 7, CL– AGA–59632 at 4–5, CL–AGA–60382 at 10, CL– Olam–59658 at 3, CL–BG Group–59656 at 4, CL–BG Group–60383 at 4, CL–COPE–59662 at 5 and 8, CL– Calpine–59663 at 5, CL–PAAP–59664 at 4, CL– NGSA–59673 at 27–33, CL–ICE–59669 at 13, CL– EPSA–60381 at 4–5, CL–A4A–59714 at 5, CL–NFP– 59690 at 7–8, CL–Working Group–59693 at 55–58, CL–API–59694 at 7, CL–IECAssn–59679 at 22, CL– IECAssn–59957 at 6–9, CL–Atmos–59705 at 4, CL– APGA–59722 at 9, CL–EEI–59945 at 5–6, CL– EPSA–55953 at 6–7, and CL–SCS–60399 at 3. 323Trade Options, 81 FR 14966 (Mar. 21, 2016). 324 Id. at 14971. 325See, e.g., CL–CMC–59634 at 14, and CL– COPE–59662 at 7, n. 20 (stating ‘‘[i]t is one thing if the Commission means a reference to a contract that itself directly references a core referenced futures contract. It is more troubling and likely unworkable if the Commission means a more subjective economic link to a delivery location that is used in a core referenced futures contract. At a minimum, the Commission should provide examples of indirect linkage that triggers referenced contract status’’). 326See, e.g., CL–COPE–59662 at 7, and CL–BG Group–59656 at 4. 327See, e.g., CL–MFA–59606 at 4 and 15–16. 328CL–COPE–59950 at 7. but there were certain differences, including an exclusion of guarantees of swaps and the incorporation of other terms into the definition of referenced contract. In the December 2013 Position Limits Proposal, the term ‘‘referenced contract’’ was proposed to be defined in § 150.1 to mean, on a futures-equivalent basis with respect to a particular core referenced futures contract, a core referenced futures contract listed in § 150.2(d) of this part, or a futures contract, options contract, or swap, other than a guarantee of a swap, a basis contract, or a commodity index contract: (1) That is:
(a) Directly or indirectly linked, including being partially or fully settled on, or priced at a fixed differential to, the price of that particular core referenced futures contract; or (b) directly or indirectly linked, including being partially or fully settled on, or priced at a fixed differential to, the price of the same commodity underlying that particular core referenced futures contract for delivery at the same location or locations as specified in that particular core referenced futures contract; and (2) where: (a) Calendar spread contract means a cash-settled agreement, contract, or transaction that represents the difference between the settlement price in one or a series of contract months of an agreement, contract or transaction and the settlement price of another contract month or another series of contract months’ settlement prices for the same agreement, contract or transaction; (b) commodity index contract means an agreement, contract, or transaction that is not a basis or any type of spread contract, based on an index comprised of prices of commodities that are not the same or substantially the same; (c) spread contract means either a calendar spread contract or an intercommodity spread contract; and (d) intercommodity spread contract means a cash-settled agreement, contract or transaction that represents the difference between the settlement price of a referenced contract and the settlement price of another contract, agreement, or transaction that is based on a different commodity. Comments Received: The Commission received numerous comments 319 regarding various aspects of the definition of ‘‘referenced contract.’’ Some were generally supportive of the proposed definition while others suggested changes. One commenter expressly stated its support for speculative limits on futures, options, and swaps because each financial instrument ‘‘can be used to develop market power and increase volatility.’’ 320 Another commenter expressed its support for the exclusion of guarantees of swaps from the definition of referenced contract.321 These comments and the Commission’s response are detailed below. Commission Reproposal: The Commission is reproposing the definition of referenced contract with two substantive modifications from the original proposal, both of which are discussed further below. First, the Commission is now proposing to amend the definition of ‘‘referenced contract’’ to expressly exclude trade options. Second, the Reproposal would clarify the meaning of ‘‘indirectly linked.’’ The Reproposal also moves four definitions that were embedded in the proposed definition of referenced contract, specifically ‘‘calendar spread contract,’’ ‘‘commodity index contract,’’ ‘‘spread contract,’’ and ‘‘intercommodity spread contract,’’ to their own definitions in § 150.1, while otherwise retaining those definitions as proposed. In addition, the Reproposal makes non-substantive modifications to the definition of referenced contract to make it
easier to read. Comments Received: In response to a specific request for comment in the December 2013 Position Limits Proposal, many commenters recommended excluding trade options from the definition of referenced contract.322 Commission Reproposal: In response to numerous comments, the reproposed definition of ‘‘referenced contract’’ expressly excludes trade options that meet the requirements of § 32.3. The Commission notes that in its trade options final rule,323 the cross-reference to vacated part 151 position limits was deleted from § 32.3(c). At that time, the Commission stated its belief that federal speculative position limits should not apply to trade options, as well as its intention to address trade options in the context of the any final rulemaking on position limits.324 Therefore, the Commission is reproposing the definition of ‘‘referenced contract’’ to expressly exclude trade options that meet the requirements of § 32.3 of this
chapter.
Comments Received: Commenters asserted that certain aspects of the definition of referenced contract are unclear and/or unworkable. For example, commenters suggested that the concept of ‘‘indirectly linked’’ is unclear and so market participants may not know whether a particular contract is subject to limits.325 Some commenters believe that the definition is overbroad and captures products that they state do not affect price discovery or impair hedging and are not truly economicallyequivalent.326 Commenters request that the Commission support its determination regarding which contracts are economically equivalent by providing a description of the methodology used to determine the contracts considered to be economically-equivalent, including examples of over-the-counter (‘‘OTC’’) and FBOT contracts.327 One commenter stated that support is necessary because ‘‘mechanically assign[ing]’’ the label of economically-equivalent to any contract that references a core referenced futures contract does not make it equivalent.328 Commission Reproposal: The Commission agrees with commenters that there is a need to clarify the meaning of ‘‘indirectly linked.’’ The Commission notes that including contracts that are ‘‘indirectly linked’’ to the core referenced futures contract under the definition of referenced contract is intended to prevent the evasion of position limits through the creation of an economically equivalent contract that does not directly reference the core referenced futures contract price. Under the reproposed definition, ‘‘indirectly linked’’ means a contract that settles to a price based on another derivative contract that, either directly or through linkage to another derivative contract, has a settlement price based on

329The Commission notes that while the outright derivative contract would not be indirectly linked to the core referenced contract, a derivative contract that settles to the difference between the core referenced futures contract and the PRA index would be directly linked because it settles in part to the core referenced futures contract price. 330See, e.g., CL–Vectra–60369 at 3, and CL– Citadel–59717 at 9. 331CL–Vectra–60369 at 3. 332 Id. 333 Incorporated as Title XIII of the Food, Conservation and Energy Act of 2008, Pub. L. 110– 246, 122 Stat. 1624 (June 18, 2008), 334CEA section 2(h)(7) (2009). 335Under the reproposed definition, a cashsettled contract must be linked, directly or indirectly, to the core referenced futures contract or the same underlying commodity in the same delivery location in order to be considered a ‘‘referenced contract.’’ 336CL–Olam–59658 at 8–9. 337See, Further Definition of ‘‘Swap,’’ ‘‘SecurityBased Swap,’’ and ‘‘Security-Based Swap Agreement’’; Mixed Swaps; Security-Based Swap Agreement Recordkeeping; Final Rule (‘‘Swap Definition Rulemaking’’), 77 FR 48208, 48231 (Aug. 13, 2012). 338 Id. at 48237. 339See Commodity Options, 77 FR 25320, 75326 (Apr. 27, 2012); see also Trade Options, 81 FR 14966 (Mar. 21, 2016). the price of a core referenced futures contract or based on the price of the same commodity underlying that particular core referenced futures contract for delivery at the same location specified in that particular core referenced futures contract. Therefore, contracts that settle to the price of a referenced contract, for example, would be indirectly linked to the core referenced futures contract (e.g., a swap that prices to the ICE Futures US Henry LD1 Fixed Price Futures (H) contract, which is a referenced contract that settles directly to the price of the NYMEX Henry Hub Natural Gas (NG) core referenced futures contract). On the other hand, an outright derivative contract whose settlement price is based on an index published by a price reporting agency (‘‘PRA’’) that surveys cash market transaction prices (even if the cash market practice is to price at a differential to a futures contract) would not be directly or indirectly linked to the core referenced futures contract.329 Similarly, a derivative contract whose settlement price was based on the same underlying commodity at a different delivery location (e.g., ultra-low sulfur diesel delivered at L.A. Harbor) would not be linked, directly or indirectly, to the core referenced futures contract. The Commission is publishing an updated CFTC Staff Workbook of Commodity Derivative Contracts Under the Regulations Regarding Position Limits for Derivatives along with this release, which provides a non-exhaustive list of referenced contracts and may be helpful to market participants in determining categories of contracts that fit within the definition. Under the Reproposal, as always, market participants may request clarification from the Commission when
necessary. Regarding comments that the definition is overbroad and captures products that commenters state do not affect price discovery or are not truly economically-equivalent, the Commission notes that commenters seem to be confusing the statutory definitions of ‘‘significant price discovery function’’ (in CEA section 4a(a)(4)) and ‘‘economically equivalent’’ (in CEA section 4a(a)(5)). As a matter of course, contracts can be economically equivalent without serving a significant price discovery function. The Commission notes that there is no unpublished methodology used to determine which contracts are referenced contracts. Instead, the Commission proposed, and, following notice and comment, is now reproposing a definition for referenced contracts, and contracts that fit under that definition will be subject to federal speculative position limits. Comments Received: Several commenters suggested that cash-settled contracts should not be subject to position limits.330 One commenter asserted that non-deliverable cashsettled contracts are ‘‘fundamentally different’’ from deliverable commodity contracts and should not be subject to position limits.331 The commenter also asserted that subjecting penultimate-day contracts such as options to a limit structure would make managing an option portfolio ‘‘virtually impossible’’ and would result in confusion and uncertainty.332 Commission Reproposal: The Commission has determined not to make any changes in the Reproposal that would broadly exempt cash-settled contracts from position limits. Cashsettled contracts are economically equivalent to deliverable contracts, and Congress has required that the Commission impose limits on economically equivalent swaps. The Commission notes that Congress took action twice to address this issue. In CEA section 4a(a)(5)(A), Congress required the Commission to adopt position limits for swaps that are economically equivalent to futures or options on futures or commodities traded on a futures exchange, for which the Commission has adopted position limits. Previously, in the CFTC Reauthorization Act of 2008,333 Congress imposed a core principle for position limitations on swaps that are significant price discovery contracts.334 In addition, because cash-settled referenced contracts are economically equivalent to the physical delivery contract in the same commodity, a trader has an incentive to manipulate one contract in order to benefit the other.335 The Commission notes that a trader with positions in both the physically delivered and cash-settled referenced contracts would have, in the absence of position limits, increased ability to manipulate one contract to benefit positions in the other. Moreover, if speculators were incentivized to abandon physical delivery contracts for cash-settled contracts so as to avoid position limits, it could result in degradation of the physical delivery contract markets that position limits are intended and designed to protect. Comments
Received: One commenter asked the Commission to confirm that a non-transferable repurchase right granted in connection with a hedged commodity transaction does not count towards position limits, citing CME Group and ICE Futures rules to that effect. The commenter is concerned that such a transaction could be deemed a commodity option and therefore legally a swap, but that it believed the transaction satisfies the criteria for exemption from definition as a swap.336 Commission Reproposal: As the commenter notes, whether the contract is subject to position limits depends on whether it is a swap. The Commission points out that the release adopting the definition of swap noted the Commission’s belief that its forward contract interpretation ‘‘provides sufficient clarity with respect to the forward contract exclusion from the swap and future delivery definitions.’’ 337 Also in that release, the Commission noted that commodity options are swaps.338 Separately, the Commission adopted Commission § 32.3, providing an exemption from the commodity option definition for trade options; the exemption was recently further amended.339 The commenter should apply these rules to determine whether a given contract is a swap. In addition, the Commission notes that under Commission § 140.99, the commenter may request clarification or exemptive relief regarding whether a non-transferable repurchase right falls under the definition of a ‘‘swap.’’ To the extent the commenter seeks a clarification or change to the definition of a swap, the current rulemaking has not been expanded to revisit that definition.

340See, e.g., CL–MFA–59606 at 5 and 23. 341The Commission notes that it is discussing bids, offers, and indications of interest in the context of whether these would violate position limits, and is not addressing other issues such as whether or not their use may indicate spoofing in violation of CEA section 4(c)(a)(5). 342CL–NFP–59690 at 14–15. 343See the Between NFP Electrics Exemptive Order (Order Exempting, Pursuant to Authority of the Commodity Exchange Act, Certain Transactions Between Entities Described in the Federal Power Act, and Other Electric Cooperatives, 78 FR 19670 (Apr. 2, 2013) (‘‘Federal Power Act 201(f) Order’’). See also CL–NFP–59690 at 14–15. The Federal Power Act 201(f) Order exempted all ‘‘Exempt NonFinancial Energy Transactions’’ (as defined in the Federal Power Act 201(f) Order) that are entered into solely between ‘‘Exempt Entities’’ (also as defined in the Federal Power Act 201(f) Order, namely any electric facility or utility that is wholly owned by a government entity as described in the Federal Power Act (‘FPA’) section 201(f); (ii) any electric facility or utility that is wholly owned by an Indian tribe recognized by the U.S. government pursuant to section 104 of the Act of November 2, 1994; (iii) any electric facility or utility that is wholly owned by a cooperative, regardless of such cooperative’s status pursuant to FPA section 201(f), so long as the cooperative is treated as such under Internal Revenue Code section 501(c)(12) or 1381(a)(2)(C), and exists for the primary purpose of providing electric energy service to its member/ owner customers at cost; or (iv) any other entity that is wholly owned, directly or indirectly, by any one or more of the foregoing.). See Federal Power Act 201(f) Order at 19688. 344CL–GFMA–60314 at 4. 345 Id. 346 Id. 347CL–CMOC–59720 at 4. 348CL–IATP–59701 at 2. 349CL–Better Markets–59716 at 1–35, and particularly at 32. Comments Received: One commenter 340 requested clarification that a bid, offer, or indication of interest for an OTC swap that does not constitute a binding transaction will not count towards position limits, noting that current CME Rule 562 provides that such bids or offers would be in violation of the limit. Commission Reproposal: The Reproposal does not change the definition originally proposed in response to the comment requesting clarification that a bid, offer, or indication of interest for an OTC swap that does not constitute a binding transaction will not count towards position limits. Nevertheless, the Commission clarifies that under the Reproposal, such bids, offers, or indications of interest do not count toward position limits.341 Comments Received: One commenter requested that the Commission exclude from the definition of referenced contract any agreement, contract, and transaction exempted from swap regulations by virtue of an exemption order, interpretation, no-action letter, or other guidance; the commenter stated that it believes the Commission can use
its surveillance capacity and antimanipulation authority, along with its MOU with FERC, to monitor these nonfinancial commodity transactions as well as the market participants relying on the exemptive relief.342 Commission Reproposal: The Reproposal does not change the proposed definition in response to the comment requesting that the Commission exclude from the definition of referenced contract any agreement, contract, and transaction exempted from swap regulations by virtue of an exemption order, interpretation, noaction letter, or other guidance. The Commission notes that any contract that is not a commodity derivative contract, including one that has been excluded from the definition of swap, is not subject to position limits. The commenter is requesting a broad exclusion from the definition of referenced contract, based on other regulatory relief which may have been adopted for a variety of policy reasons unrelated to position limits. Consequently, in light of the many and varied policy reasons for issuing an exemption order, interpretation, noaction letter or other guidance from swap regulation, each such action would need to be considered in the context of the goals of the Commission’s position limits regime. Rather than issuing a blanket exemption from the definition of referenced contract for any agreement, contract, and transaction exempted from swap regulations, therefore, the Commission believes it would be better to consider each such action on its own merits prior to issuing an exemption from position limits. Under the Reproposal, if a market participant desires to extend a previously taken exemptive action by exempting certain agreements, contracts, and transactions from the definition of referenced contract, the market participant can request that the particular exemption order, interpretation, no-action letter, or other guidance be so extended. This would allow the Commission to consider the particular action taken and the merits of that particular exemption in the context of the position limits regime. The Commission notes that in the particular exemptive order cited by the commenter,343 certain delineated nonfinancial energy transactions between certain specifically defined entities were exempted, pursuant to CEA sections 4(c)(1) and 4(c)(6), from all requirements of the CEA and Commission regulations issued thereunder, subject to certain anti-fraud, anti-manipulation, and record inspection conditions. All entities that meet the requirements for the exemption provided by the Federal Power Act 201(f) Order are, therefore, already exempt from position limits compliance for all transactions that meet the Order’s conditions. Comments Received: Commenters were divided with respect to the exclusion of ‘‘commodity index contracts’’ from the definition of referenced contract. As a result of the exclusion, the position of a market participant who enters into a commodity index contract with a dealer will not be subject to position
limits. One commenter supported the exclusion of commodity index contracts from the definition of referenced contracts.344 The commenter was concerned, however, that a dealer who offsets his or her exposure in such contracts by purchasing futures contracts on the constituent components of the commodity index will be subject to position limits in the referenced contracts. The commenter urged the Commission to recognize as a bona fide hedge ‘‘the offsetting nature of the dealer’s position by exempting the futures contracts that a dealer acquires to hedge its commitments under commodity index contracts.’’ 345 Alternatively, the Commission should ‘‘modify the definition of ‘referenced contract’ and the definition of ‘commodity derivative contract’ by excluding core referenced futures contracts and related futures contracts, options contracts or swaps that are offset on an economically equivalent basis by the constituent portions of commodity index contracts.’’ 346 Another commenter supported the Commission’s proposal to exclude swaps that reference indices such as the Goldman Sachs Commodity Index (GSCI) from the definition of a referenced contract.347 One commenter asked that the Commission reconsider excluding commodity index contracts from the definition of referenced contract.348 Another commenter urged that commodity index contracts should be included in the definition of referenced contract in conjunction with (1) a class limit (as was proposed for vacated part 151, but not included in final part 151); and (2) a lower position limit set at a level ‘‘aimed to maintain no more than’’ 30 percent speculation in each commodity (based on COT report classifications) that is reset every 6 months.349 The same commenter noted that trading by passive, long only

350CL–Better Markets–59716 at 5, and CL–Better Markets–60401 at 4, 16–17. 351See also, December 2013 Position Limits Proposal, 78 FR at 75741. 352The Commission’s Series ’03 reports required large traders to classify how much of their position was speculative and how much was hedging and formed the basis of the earliest versions of the CFTC Commitments of Traders Reports. See ‘‘Reporting Requirements for Contract Markets, Futures Commission Merchants, Members of Exchanges and Large Traders,’’ 46 FR 59960 (Dec. 8, 1981) (eliminating the routine of Series ’03 reports by large traders). 353CL–ISDA/SIFMA–59611 at 3 and 32–33. 354CL–NFP–59690 at 9–12. 355CL–NFP–59690 at 13 (citing to Further Definition of ‘‘Swap,’’ ‘‘Security-Based Swap,’’ and ‘‘Security-Based Swap Agreement’’; Mixed Swaps; Security-Based Swap Agreement Recordkeeping, 77 FR 48208 (Aug. 13, 2012). commodity index fund speculators does not provide liquidity, but rather takes net liquidity, dilutes the pool of market information to be less reflective of fundamental forces, causes volatility, and causes an increased frequency of contango attributed to frequent rolls from selling a nearby contract and buying a deferred (second month) contract. The commenter noted that, broadly, speculators in commodity futures historically constituted between 15 and 30 percent of open interest without meaningfully disrupting the market and providing beneficial intermediation between hedging producers and hedging consumers.350 Commission Reproposal: The Commission is reproposing the provision excluding commodity index contracts from the definition of referenced contract as previously proposed. Regarding commenters who requested that the Commission alter the proposed definition to include commodity index derivative contracts, the Commission notes that if it were to include such contracts, the Commission’s rules would allow netting of such positions in commodity index contracts with other offsetting referenced contracts. The ability to net such commodity index derivative contracts positions with other offsetting referenced contracts would eliminate the need for a bona fide hedging exemption for such contracts. Thus, the Commission believes such netting would contravene Congressional intent, as expressed in CEA section 4a(c)(B)(i) in its requirement to permit a pass-thru swap offset only if the counterparty’s position would qualify as a bona fide hedge. Another commenter suggested including commodity index contracts under the definition of referenced contract in conjunction with a class limit (e.g., a separate limit for commodity index contracts compared to all other categories of derivative contracts). The commenter suggested that the limit be set at a level aimed at maintaining a particular ratio of speculative trading in the market. In response to this commenter, the Commission declines in this Reproposal to propose class limits because it believes any adoption of a class limit would require a rationing
scheme wherein unrelated legal entities would be limited by the positions of other unrelated legal entities. Further, the Commission is concerned that class limits (including the one proposed by the commenter) could impair liquidity in the relevant markets.351 The Commission also notes that it currently does not collect information to effectively enforce any ratio of speculative trading, and has not done so since the Commission eliminated Series ’03 reporting in 1981.352 The Reproposal does not make any changes to the definition of referenced contract pursuant to this comment. Finally, in response to the commenter who suggested that, in addition to excluding commodity index contracts as proposed, the Commission should recognize as bona fide hedge positions those positions that offset a position in a commodity index derivative contract by using the component futures contracts, the Commission observes that it still believes, as discussed in the December 2013 Position Limits Proposal, that financial products do not meet the temporary substitute test. As such, the offset of financial risks arising from financial products is inconsistent with the statutory definition of a bona fide hedging position. The Commission also declines in this Reproposal to accept the commenter’s request to exempt these offsetting positions using its authority under CEA section 4a(a)(7) because it does not believe that permitting the offset of financial risks furthers the purposes of the Commission’s position limits regime as described in CEA section 4a(a)(3)(B). Finally, the commenter suggested as an alternative that the Commission modify the definition of referenced contract to broadly exclude any derivative contracts that are used to offset commodity index exposure. However, the Commission believes such a broad exclusion would, at best, be too difficult to administer and, at worst, provide an easy vehicle for entities to evade position limits regulations. Comments Received: One commenter suggested that the Commission unnecessarily limited the scope of permissible netting by not recognizing cross-commodity netting, recommending either a threshold correlation factor of 60 percent or an approach that would permit pro rata netting to the extent of demonstrated correlation.353 Commission Reproposal: The Commission believes that recognizing cross-commodity netting as requested by the commenter would substantially expand the definition of referenced contract and, thus, may weaken: (1) The protection of the price discovery function in the core referenced futures contract; (2) the prevention of excessive speculation; and (3) the prevention of market manipulation. Therefore, this Reproposal does not change the definition of referenced contract to accommodate cross-commodity netting. Comments Received: One commenter requested that all ‘‘nonfinancial commodity derivatives’’ used by commercial end-users for hedging purposes be expressly excluded from the definition of referenced
contract (and so excluded from position limits). The commenter also suggested that the Commission allow an end-user to identify a swap as being used to ‘‘hedge or mitigate commercial risks’’ at the time the swap is executed and noted that such trades are highly-customized bilateral agreements that are difficult to convert into futures equivalents.354 The commenter also requested that ‘‘customary commercial agreements’’ be excluded from referenced contract definition. The commenter stated that these contracts may reference a core referenced futures contract or may be misinterpreted as directly or indirectly linking to a core referenced futures contract, but that the Commission has already determined that Congress did not intend to regulate such agreements as swaps.355 Commission Reproposal: This Reproposal does not amend the definition of referenced contract in response to the request that ‘‘nonfinancial commodity derivatives’’ used by commercial end-users for hedging purposes be expressly excluded from the definition of referenced contract. The Commission understands the comment to mean that when a particular transaction qualifies for the end-user exemption, it should also be exempt from position limits by excluding such transactions from the definition of ‘‘referenced contract.’’ The commenter quotes language from the end-user exemption definition, which was issued to provide relief from the clearing and trade execution mandates. The Commission notes that under the CEA’s statutory language, the commercial end user exemption

356 December 2013 Position Limits Proposal, 78 FR at 75825. 357 Id. at 75701. As noted in the December 2013 Position Limits Proposal, ‘‘the various regulations and defined terms included use of maximum amounts ‘net long or net short,’ which limited what any one person could ‘hold or control,’ ‘one grain on any one contract market’ (or in ‘in one commodity’ or ‘a particular commodity’), and ‘in any one future or in all futures combined.’ For example, in 1936, Congress enacted the CEA, which authorized the CFTC’s predecessor, the CEC, to establish limits on speculative trading. Congress empowered the CEC to ‘fix such limits on the amount of trading . . . as the [CEC] finds is necessary to diminish, eliminate, or prevent such burden.’ [CEA section 6a(1) (Supp. II 1936)] It also noted that the first speculative position limits were issued by the CEC in December 1938, 3 FR 3145, Dec. 24, 1938, and that those first speculative position limits rules provided, also in § 150.1, for limits on position and daily trading in grain for future delivery, and adopted a maximum amount ‘‘net long or net short position which any one person may hold or control in any one grain on any one contract market’’ as 2,000,000 bushels ‘‘in any one future or in all futures combined.’’ Id. 358For example, the December 2013 Position Limits Proposal noted that the Commission’s annual report for 1983 includes in its glossary ‘‘Position Limit: the maximum position, either net long or net short, in one commodity future combined which may be held or controlled by one person as prescribed by any exchange or by the CFTC.’’ Id. 359 December 2013 Position Limits Proposal, 78 FR at 75701–02; As noted in in the December 2013 Position Limits Proposal, the definition proposed would be an expansion upon the definition currently found in § 150.1, but greatly simplified from the definition adopted in vacated § 151.3 (in the Part 151 regulations, the ‘‘spot month’’ definition in § 151.1 simply cited to the ‘‘spot month’’ definition provided in § 151.3). definition is broader than the bona fide hedging definition. Under the canons of statutory construction, when Congress writes one section differently than another, the differences should be assumed to have different meaning. Thus, the Commission believes that the more restrictive language in the bona fide hedging definition should be applied here. The definition of bona fide hedging position, as proposed in the December 2013 Position Limits Proposal, as amended by the 2016 Supplemental Position Limits Proposal, and as reproposed here, would be consistent with the differences in the two definitions, as adopted by Congress. The Commission notes that under this Reproposal, commercial end-users may rely on any applicable bona fide hedge exemption. In response to the commenter’s concern regarding ‘‘customary commercial agreements,’’ the Commission reiterates its belief that contracts that are exempted or excluded from the definition of ‘‘swap’’ are
not considered referenced contracts and so are not subject to position limits. o. Short Position Proposed Rule: The term ‘‘short position’’ is currently defined in § 150.1(c) to mean a short call option, a long put option, or a short underlying futures contract. In the December 2013 Position Limits Proposal, the Commission proposed to amend the definition to state that a short position means a short call option, a long put option or a short underlying futures contract, or a short futures-equivalent swap. This proposed revision reflects the fact that under the Dodd-Frank Act, the Commission is charged with applying the position limits regime to swaps. Comments Received: The Commission received no comments regarding the proposed amendment to the definition of ‘‘short position.’’ Commission Reproposal: Though no commenters suggested changes to the definition of ‘‘short position,’’ the Commission is concerned that the proposed definition, like the proposed definition of ‘‘long position’’ described supra, does not clearly articulate that futures and options contracts are subject to position limits on a futuresequivalent basis in terms of the core referenced futures contract. Longstanding market practice has applied position limits to futures and options on a futures-equivalent basis, and the Commission believes that practice ought to be made explicit in the definition in order to prevent confusion. Thus, in this Reproposal, the Commission is proposing to amend the definition to clarify that a short position is on a futures-equivalent basis, a short call option, a long put option, a short underlying futures contract, or a swap position that is equivalent to a short futures contract. Though the substance of the definition is fundamentally unchanged, the revised language should prevent unnecessary confusion over the application of futures-equivalency to different kinds of commodity derivative contracts. p. Speculative Position Limit The term ‘‘speculative position limit’’ is currently not defined in § 150.1. In the December 2013 Position Limits Proposal, the Commission proposed to define the term ‘‘speculative position limit’’ to mean ‘‘the maximum position, either net long or net short, in a commodity derivatives contract that may be held or controlled by one person, absent an exemption, such as an exemption for a bona fide hedging position. This limit may apply to a person’s combined position in all commodity derivative contracts in a particular commodity (all-monthscombined), a person’s position in a single month of commodity derivative contracts in a particular commodity, or a person’s position in the spot-month of commodity derivative contacts in a particular commodity. Such a limit may be established under federal regulations or rules of a designated contract market or swap execution facility. An exchange may also apply other limits, such as a limit on gross long or gross short positions, or a limit on holding or controlling delivery
instruments.’’ 356 As explained in the December 2013 Position Limits Proposal, the proposed definition is similar to definitions for position limits used by the Commission for many years,357 as well as glossaries published by the Commission for many years.358 For example, the December 2013 Position Limits Proposal noted that the version of the staff glossary currently posted on the CFTC Web site defines speculative position limit as ‘‘[t]he maximum position, either net long or net short, in one commodity future (or option) or in all futures (or options) of one commodity combined that may be held or controlled by one person (other than a person eligible for a hedge exemption) as prescribed by an exchange and/or by the CFTC.’’ The Commission received no comments on the proposed definition, and is reproposing the definition without amendment. q. Spot-Month Proposed Rule: In the December 2013 Position Limits Proposal, the Commission proposed to adopt a definition of ‘‘spot-month’’ that expands upon the current § 150.1 definition.359 The definition, as proposed, specifically addressed both physical-delivery contracts and cash-settled contracts, and clarified the duration of ‘‘spot-month.’’ Under the proposed definition, the ‘‘spot-month’’ for physical-delivery commodity derivatives contracts would be the period of time beginning at of the close of trading on the trading day preceding the first day on which delivery notices could be issued or the close of trading on the trading day preceding the third-to-last trading day, until the contract was no longer listed for trading (or available for transfer, such as through exchange for physical transactions). The proposed definition included similar, but slightly different language for cash-settled contracts, providing that the spot month would begin at the earlier of the start of the period in which the underlying cashsettlement price was calculated or the close of trading on the trading day preceding the third-to-last trading day and would continue until the contract

360See id. at 75825–6.
361See, e.g., CL–FIA–59595 at 10, CL–NFP–59690 at 19, CL–NGSA–59673 at 44, and CL–ICE–59669 at 5–6. 362CL–FIA–59595 at 10. 363 Id. 364See, e.g., CL–NGSA–59673 at 44, CL–ICE– 59669 at 5–6. 365See, CL–ICE–59669 at 5–6. 366CL–NFP–59690 at 19. 367CL–FIA–59595 at 10–11. 368As noted above, this Reproposal does not address the three cash-settled contracts (Class III Milk, Feeder Cattle, and Lean Hogs) which, under the December 2013 Position Limits Proposal, were included in the list of core referenced futures contracts. Therefore, the reproposed spot month definition does not address those three contracts. 369While the Commission realized that Sugar 16 does not currently have a spot month, its delivery period takes place after the last trading day (similar to crude oil). Therefore, the Reproposal amends the spot month definition for Sugar No. 16 to mirror the three day period for other contracts that deliver after the end of trading. 370 In regard to the modifier ‘‘until the contract expires,’’ the Commission views ‘‘expires’’ as meaning the end of delivery period or until cashsettled. 371 In response to FIA’s comment, CL–FIA–59595 at 10, the Commission notes that the spot periods for exchange-set limits on COMEX products begin at the close of trading and not the close of business. See http://www.cmegroup.com/market-regulation/ position-limits.html. However, the Commission understands that CME Group staff determines compliance with spot month limits in conjunction with the receipt of futures large trader reports. In consideration of the practicality of this approach, and in light of the definition of reportable position, the Commission believes that it would be more practical, clear, and consistent with existing exchange practices, for the spot month to begin ‘‘at the close of the market.’’ See CFTC Regulation 15.00(p). 372As a note of clarification, in light of the confusion of some commenters, position limits apply to open positions; once the position isn’t open the limits don’t apply. 373See, e.g., Cotton No. 2. 374See ICE Rule 6.19. 375See, e.g., Cotton No. 2 Position Limits and Position Accountability information: ‘‘ICE (1) Delivery Month: Cocoa, Coffee ‘‘C’’, Cotton, World Cotton, FCOJ, Precious Metals—on and after First Notice Day Sugar#11 on and after the Second cash-settlement price was determined. In addition, the proposed definition included a proviso that, if the cashsettlement price was determined based on prices of a core referenced futures contract during the spot month period for that core referenced futures contract, then the spot month for that cash-settled contract would be the same as the spot month for that core referenced futures contract.360 Comments Received: The Commission received several comments regarding the definition of spot month.361 One commenter noted that the definition of the spot month for federal limits does not always coincide with the definition of spot month for purposes of any exchange limits and assumes that
the Commission did not intend for this to happen. For example, the commenter noted the proposed definition of spot month would commence at the close of trading on the trading day preceding the first notice day, while the ICE Futures US definition commences as of the opening of trading on the second business day following the expiration of regular option trading on the expiring futures contract. Regarding the COMEX contracts, the commenter stated that the exchange spot month commences at the close of business, rather than at the close of trading, which would allow market participants to incorporate exchange of futures for related position transactions (EFRPs) that occur after the close of trading, but before the close of business.362 Finally, the commenter requested the Commission ensure the definition of spot month for federal limits is the same as the definition of spot month for exchange limits for all referenced contracts.363 Two commenters urged the Commission to reconsider its proposed definition of spot month for cash-settled contracts that encompasses the entire period for calculation of the settlement price, preferring the current exchange practice which is to apply the spot month limit during the last three days before final settlement.364 One commenter noted its concern that the proposed definition would discourage use of calendar month average price contracts.365 Another commenter recommended that the Commission define ‘‘spot month’’ in relation to each core referenced futures contract and all related physically-settled and cashsettled referenced contracts, to assure that the definition works appropriately in terms of how each underlying nonfinancial commodity market operates, and to ensure that commercial end-users of such nonfinancial commodities can effectively use such referenced contracts to hedge or mitigate commercial risks.366 The Commission also received the recommendation from one commenter that the Commission should publish a calendar listing the spot month for each Core Referenced Futures Contract to provide clarity to market participants and reduce the cost of identifying and tracking the spot month.367 Commission Reproposal: For core referenced futures contracts, the Commission agrees with the commenter that the definition of spot month for federal limits should be the same as the definition of spot month for exchange limits. The Commission is therefore the definition of spot month in this Reproposal generally follows exchange practices. In the reproposed version, spot month means the period of time beginning at the earlier of the close of business on the trading day preceding the first day on which delivery notices can be issued by the clearing organization of a contract market, or the close of business on the trading day preceding the third-to-last trading day, until the contract expires for physical delivery core referenced futures contracts,368 except for the following: (a) ICE Futures U.S. Sugar No. 11 (SB)
referenced contract for which the spot month means the period of time beginning at the opening of trading on the second business day following the expiration of the regular option contract traded on the expiring futures contract; (b) ICE Futures U.S. Sugar No. 16 (SF) referenced contract,369 for which the spot month means the period of time beginning on the third-to-last trading day of the contract month until the contract expires 370 and (c) Chicago Mercantile Exchange Live Cattle (LC) referenced contract, for which the spot month means the period of time beginning at the close trading on the fifth business day of the contract month.371 As noted above, in the December 2013 Position Limits Proposal, spot month was proposed to be defined to begin at the earlier of: (1) ‘‘the close of trading on the trading day preceding the first day on which delivery notices can be issued to the clearing organization’’; or (2) ‘‘the close of trading on the trading day preceding the third-to-last trading day’’—based on the comment letters received, the proposed definition resulted in some confusion.372 The Commission observes that the current definition also seems to be a source of some confusion when it defines ‘‘spot month,’’ in current CFTC Regulation 150.1(a), to begin ‘‘at the close of trading on the trading day preceding the first day on which delivery notices can be issued to the clearing organization.’’ The Commission understands current DCM practice for physical-delivery contracts permitting delivery before the close of trading generally is that the spot month begins at the start of the first business day on which the clearing house can issue ‘‘stop’’ notices to a clearing member carrying a long position, or, at the close of business on the day preceding the first business day on which the clearing house can issue ‘‘stop’’ notices to a clearing member carrying a long position, but current DCM rules vary somewhat. For some ICE contracts,373 the spot month includes ‘‘any month for which delivery notices have been or may be issued,’’ 374 and begins at the open of trading; 375 the

Business Day following the expiration of the regular option contract traded on the expiring futures contract.’’ https://www.theice.com/products/254/ Cotton-No-2-Futures. 376See current § 15.00(p). 377CL–FIA–59595 at 10. 378The Commission notes that DCM determinations of allowable blocks, EFRPs, and transfer trades, in regards to position limits, must also consider compliance with DCM Core Principle 9; discussion of the interplay is beyond the scope of this Reproposal. 379See Section III.A.1.r (Spot-month, singlemonth, and all-months-combined position limits) above for a discussion of the proposed definition of ‘‘speculative position limit.’’ 380 7 U.S.C. 1a(47) and 1a(49); § 1.3(xxx) (‘‘swap’’) and § 1.3(ggg) (‘‘swap dealer’’). See Further Definition of ‘‘Swap Dealer,’’ ‘‘Security-Based Swap Dealer,’’ ‘‘Major Swap Participant,’’ ‘‘Major Security-Based Swap Participant’’ and ‘‘Eligible Contract Participant,’’ 77 FR 30596 (May 23, 2012); see also, Swap Definition Rulemaking. CME spot month, as noted above, begins at the close of trading. However, the Commission understands that the amended ‘‘spot month’’ definition, as reproposed herein, would be consistent with the existing spot month practices of exchanges when enforcing the start of the spot month limits in any of the 25 core referenced futures contracts, based on the timing of futures large trader reports, discussed below. Furthermore, based on Commission staff discussions with staff from several DCMs regarding exchange current practices, the Commission believes that the spot month should begin at the same time as futures large trader reports are submitted—that is, under the definition of reportable position, the spot month should begin ‘‘at the close of the market.’’ 376 The Commission views the ‘‘close of the market’’ as consistent with ‘‘the close of business.’’ In consideration of the practicality of this approach, and in light of the definition of ‘‘reportable position,’’ the Commission believes that it would be more practical, clear, and consistent with existing exchange practices, for the spot month to begin ‘‘at the close of business.’’ In addition, as noted by one commenter,377 when the exchange spot month commences at the close of business, rather than at the close of trading, it would allow market participants to incorporate exchange of futures for related position transactions (‘‘EFRPs’’) 378 that occur after the close of trading, but before the close of business. The Commission points out an additional correction made to the reproposed definition, changing it from ‘‘preceding the first day on which delivery notices can be issued to the clearing organization of a contract market’’ to ‘‘preceding the first day on which delivery notices can be issued by the clearing organization of a contract market’’ [emphasis added]. The Commission understands that the spot periods on the exchanges commence the day preceding the first day on which delivery notices can be issued by the clearing
organization of a contract market, not the first day on which notices can be issued to the clearing organization. The ‘‘spot month’’ definition in this Reproposal, therefore, has been changed to correct this error. The revisions included in the reproposed definition addresses the concerns of the commenter who suggested the Commission define the spot month according to each core referenced futures contract and for cashsettled and physical delivery referenced contracts that are not core referenced futures contracts, although for clarity and brevity the Commission has chosen to highlight contracts that are the exception to the general definition rather than list each of the 25 core referenced futures contracts and multitude of referenced contracts separately. In response to the commenters’ concern regarding cash-settled referenced contracts, the Reproposal changes the definition of spot month to agree with the limits proposed in § 150.2. In the December 2013 Position Limits Proposal, the Commission defined the spot month for certain cashsettled referenced contracts, including calendar month averaging contracts, to be a longer period than the spot month period for the related core referenced futures contract. However, the Commission did not propose a limit for such contracts in proposed § 150.2, rendering superfluous that aspect of the proposed definition of spot month, at this time. The Commission is reproposing the definition of spot month without this provision, thereby addressing the concerns of the commenters regarding the impact of the definition on calendar month averaging contracts outside of the spot month for the relevant core referenced futures contract. In order to make clearer the relevant spot month periods for referenced contracts other than core referenced futures contracts, the Commission has included subsection (3) of the definition that states that the spot month for such referenced contracts is the same period as that of the relevant core referenced futures contract. The Commission believes that the revised definition reproposed here sufficiently clarifies the applicable spot month periods, which can also be determined via exchange rulebooks and defined contract specifications, such that a defined calendar of spot months is not necessary. Further, a published calendar would need to be revised every year to update spot month periods for each contract and each expiration. The Commission believes this constant revision may lead to more confusion than it is meant to correct. r. Spot-Month, Single-Month, and AllMonths-Combined Position Limits Proposed Rule: In addition to a definition for ‘‘spot month,’’ current
part 150 includes definitions for ‘‘single
month,’’ and for ‘‘all-months’’ where ‘‘single month’’ is defined as ‘‘each separate futures trading month, other than the spot month future,’’ and ‘‘allmonths’’ is defined as ‘‘the sum of all futures trading months including the spot month future.’’ As noted in the December 2013 Position Limits proposal, vacated part 151 retained only the definition for spot month, and, instead, adopted a definition for ‘‘spot-month, singlemonth, and all-months-combined position limits.’’ The definition specified that, for Referenced Contracts based on a commodity identified in § 151.2, the maximum number of contracts a trader could hold was as provided in § 151.4. In the December 2013 Position Limits Proposal, as noted above, the Commission proposed to amend § 150.1 by deleting the definitions for ‘‘single month,’’ and for ‘‘all-months,’’ but, unlike the vacated part 151, the proposal did not include a definition for ‘‘spot-month, single-month, and allmonths-combined position limits.’’ Instead, it proposed to adopt a definition for ‘‘speculative position limits’’ that should obviate the need for these definitions.379 Comments Received: The Commission received no comments regarding the deletion of these definitions. Commission Reproposal: This Reproposal, consistent with the December 2013 Position Limits Proposal, eliminates the definitions for ‘‘single month,’’ and for ‘‘all-months,’’ for the reasons provided above. s. Swap and Swap Dealer Proposed Rule: While the terms ‘‘swap’’ and ‘‘swap dealer’’ are not currently defined in § 150.1, the December 2013 Position Limits Proposal amended § 150.1 to define these terms as they are defined in section 1a of the Act and as further defined in section 1.3 of this chapter.’’ 380 Comments Received: The Commission received no comments on these definitions.

381Those amendments to CEA section 4a(3), subsequently re-designated § 4a(c)(1), 7 U.S.C. 6a(c)(1), provide that no rule of the Commission shall apply to positions which are shown to be bona fide hedging positions, as such term is defined by the Commission. See, sec. 404 of the Commodity Futures Trading Commission Act of 1974, Pub. L. 93–463, 88 Stat. 1389 (Oct. 23, 1974). See 2013 Position Limits Proposal, 78 FR at 75703 for additional discussion of the history of the definition of a bona fide hedging position. 382 42 FR 42748 (Aug. 24, 1977). Previously, the Secretary of Agriculture, pursuant to section 404 of the Commodity Futures Trading Commission Act of 1974 (Pub. L. 93–463), promulgated a definition of bona fide hedging transactions and positions. 40 FR 111560 (March 12, 1975). That definition, largely reflecting the statutory definition previously in effect, remained in effect until the newlyestablished Commission defined that term. Id. 383 46 FR 50938 at 50945 (Oct. 16, 1981). 384 52 FR 34633 (Sept. 14, 1987) and 52 FR 27195 (July 20, 1987). 385See December 2013 Position Limits Proposal, 78 FR at 75704. 386Exchange rules for position accountability levels require a market participant whose position exceeds an accountability level to consent automatically to requests of the exchange: (1) To provide information about a position; and (2) to not increase or to reduce a position, if so ordered by the exchange. In contrast, a speculative position limit rule does not authorize an exchange to order a market participant to reduce a position. Rather, a position limit sets a maximum permissible size for a speculative position. The Commission notes that it may require a market participant to provide information about a position, for example, by issuing a special call under § 18.05 to a trader with a reportable position in futures contracts. 387 DCM Core Principle 5 is codified in CEA
section 5(d)(5), 7 U.S.C. 7(d)(5). See Section 111 of
the Commodity Futures Modernization Act of 2000, Pub. L. No. 106–554, 114 Stat. 2763 (Dec. 21, 2000) (CFMA). 388See § 13201 of the Food, Conservation and Energy Act of 2008, Pub. L. No. 110–246, 122 Stat. 1624 (June 18, 2008) (Farm Bill of 2008). These provisions were subsequently superseded by the Dodd-Frank Act. 389 66 FR 42270 (Aug. 10, 2001). Part 36 was removed and reserved to conform to the amendments to the CEA by the Dodd-Frank Act. 390 17 CFR part 36, App. B (2010). 391 It should be noted that a 2011 final rule of the Commission would have amended the definition of a bona fide hedging position in § 1.3(z), to be applicable only to excluded commodities, and would have added a new definition of a bona fide hedging position to Part 151, to be applicable to physical commodities. Position Limits for Futures and Swaps, 76 FR 71626 (Nov.18, 2011). However, prior to the compliance date for that 2011 rulemaking, a federal court vacated most provisions of that rulemaking, including the amendments to the definition of a bona fide hedging position. International Swaps and Derivatives Ass’n v. United State Commodity Futures Trading Comm’n, 887 F. Supp. 2d 259 (D.D.C. 2012). Because the Commission has not instructed Federal Register to roll back the 2011 changes to the CFR, the current definition of a bona fide hedging position is found in the 2010 version of the Code of Federal Regulations. 17 CFR 1.3(z) (2010). 392See December 2013 Position Limits Proposal, 78 FR at 75705. 393See December 2013 Position Limits Proposal, 78 FR at 75702–23. In doing so, the Commission proposed to remove and reserve § 1.3(z). Commission Reproposal: The Commission has determined to repropose these definitions as originally proposed, for the reasons provided above.
2. Bona Fide Hedging Definition
a. Bona Fide Hedging Position (BFH) Definition—Background Prior to the 1974 amendments to the CEA, the definition of a bona fide hedging position was found in the statute. The 1974 amendments authorized the newly formed Commission to define a bona fide hedging position.381 The Commission published a final rule in 1977, providing a general definition of a bona fide hedging position in § 1.3(z)(1).382 The Commission listed certain positions, meeting the requirements of the general definition of a bona fide hedging position, in § 1.3(z)(2) (i.e., enumerated bona fide hedging positions). The Commission provided an application process for market participants to seek recognition of non-enumerated bona fide hedging positions in §§ 1.3(z)(3) and 1.48. During the 1980’s, exchanges were required to incorporate the Commission’s general definition of bona fide hedging position into their exchange-set position limit regulations.383 While the Commission had established position limits on only a few commodity futures contracts in § 150.2, Commission rule § 1.61 (subsequently incorporated into § 150.5) required DCMs to establish limits on commodities futures not subject to federal limits. The Commission directed in § 1.61(a)(3) (subsequently incorporated into § 150.5(d)(1)) that no DCM regulation regarding position limits would apply to bona fide hedging positions as defined by a DCM in accordance with § 1.3(z)(1). In 1987, the Commission provided interpretive guidance regarding the bona fide hedging definition and risk management exemptions for futures in financial instruments (now termed excluded commodities).384 This guidance permitted exchanges, for purposes of exchange-set limits on excluded commodities, to recognize risk management exemptions.385 In the 1990’s, the Commission allowed exchanges to experiment with substituting position accountability levels for position limits.386 The CFMA, in 2000, codified, in DCM Core Principle 5, position accountability as an acceptable practice.387 The CFMA, however, did not address the definition of a bona fide hedging position. With the passing of the CFMA in 2000, the Commission’s requirements for exchanges to adopt position limits and associated bona fide hedging exemptions, in § 150.5, were rendered mere guidance. That is, exchanges were no longer required to establish limits and no longer required to use the Commission’s general definition of a bona fide hedging position. Nonetheless, the Commission continued to guide exchanges to adopt position limits, particularly for the spot month in physical-delivery physical commodity derivatives, and to provide for exemptions. The Farm Bill of 2008 authorized the Commission to regulate swaps traded on exempt commercial markets (ECM) that the Commission determined to be a significant price discovery contract (SPDC).388 The Commission implemented these provisions in part 36 of its rules.389 The Commission provided guidance to ECMs in complying with Core Principle IV regarding
position limitations or accountability.390 That guidance provided, as an acceptable practice for cleared trades, that the ECM’s position limit rules may exempt bona fide hedging positions. In 2010, the Dodd-Frank Act added a directive, for purposes of implementation of CEA section 4a(a)(2), for the Commission to define a bona fide hedging position for physical commodity derivatives consistent with, in the Commission’s opinion, the reasonably certain statutory standards in CEA section 4a(c)(2). Those statutory standards build on, but differ slightly from, the Commission’s general definition in rule 1.3(z)(1).391 The Commission interprets those statutory standards as directing the Commission to narrow the bona fide hedging position definition for physical commodities.392 The Commission discusses those differences, below. b. BFH Definition Summary Under the December 2013 Position Limits Proposal, the Commission proposed a new definition of bona fide hedging position, to replace the current definition in § 1.3(z), that would be applicable to positions in excluded commodities and in physical commodities.393 The proposed definition was organized into an opening paragraph and five numbered paragraphs. In the opening paragraph, for positions in either excluded commodities or physical commodities, the proposed definition would have applied two general requirements: The incidental test; and the orderly trading requirement. For excluded commodities, the Commission proposed in paragraph (1) a definition that conformed to the Commission’s 1987

394Section 140.99 sets out general procedures and requirements for requests to Commission staff for exemptive, no-action and interpretative letters. 395See December 2013 Position Limits Proposal, 78 FR 75719. 396See 2016 Supplemental Position Limits Proposal, 81 FR at 38462–64. 397 78 FR at 75706. 398 81 FR at 38462. 399See 2016 Supplemental Position Limits Proposal, 81 FR at 38462. 400See, e.g., CL–NCFC–60930 at 2, CL–FIA–60937 at 5 and 23, and CL–IECAssn–60949 at 5–7. 401See, e.g., CL–CME–58718 at 47, and CL– NGFA–60941 at 2. 402See, e.g., CL–IATP–60951 at 4, CL–AFR–60953 at 2, CL–Better Markets–60928 at 5, and CL– Rutkowski–60962 at 1. 403See CL–COPE–59662 at 13. 404See CL–DEU–59627 at 5–7. 405See, e.g., CL–FIA–59595 at 5, 33–34, CL–EEI– EPSA–59602 at 14–15, CL–ISDA/SIFMA–59611 at 4, 39, CL–CME–59718 at 67, and CL–ICE–59669 at 11. 406See CL–Working Group–59693 at 14. 407See CL–IATP–60951 at 4. interpretations permitting risk management exemptions in excluded commodity contracts. For physical commodities, the Commission proposed in paragraph (2) to amend the current general definition to conform to CEA
section 4a(c) and to remove the
application process in §§ 1.3(z)(3) and 1.48, that permits market participants to seek recognition of non-enumerated bona fide hedging positions. Rather, the Commission proposed that a market participant may request either a staff interpretative letter under § 140.99 394 or seek CEA section 4a(a)(7) exemptive relief.395 Paragraphs (3) and (4) listed enumerated exemptions. Paragraph (5) listed the requirements for crosscommodity hedges of enumerated exemptions. In response to comments on the December 2013 Position Limits Proposal, in the 2016 Supplemental Proposal, the Commission amended the proposed definition of bona fide hedging position.396 The amended definition proposed in the 2016 Supplemental Proposal would no longer apply the two general requirements (the incidental test and the orderly trading requirement). For excluded commodities, the Commission again proposed paragraph (1) of the definition, substantially as in 2013. For physical commodities, the Commission again proposed to conform paragraph (2) more closely to CEA section 4a(c), but also proposed an application process for market participants to seek recognition of non-enumerated bona fide hedging positions, without the need to petition the Commission. The Commission again proposed paragraphs (3) through (5). In response to comments on both the December 2013 Position Limits Proposal and the 2016 Supplemental Proposal, the Commission is now reproposing the definition of bona fide hedging position, generally as proposed in the 2016 Supplemental Proposal, but with a few further amendments. First, for excluded commodities, the Commission clarifies further the discretion of exchanges in recognizing risk management exemptions. Second, for physical commodities, the Commission: (a) Clarifies the scope of the general definition of a bona fide hedging position; (b) conforms that general definition more closely to CEA section 4a(c) by including recognition of positions that reduce risks attendant to a swap that was used as a hedge; and, (c) re-organizes additional requirements for enumerated hedges and requirements for other recognition as a non-enumerated bona fide hedging position, apart from the general definition.
c. BFH Definition Discussion—Remove
Incidental Test and Orderly Trading Requirement Proposed Rule: As noted above, the Commission proposed to retain, in its December 2013 Position Limits Proposal,397 then proposed to remove, in its 2016 Supplemental Position Limits Proposal,398 two general requirements contained in the § 1.3(z)(1) definition of bona fide hedging position:
the incidental test; and the orderly trading requirement. The incidental test requires, for a position to be recognized as a bona fide hedging position, that the ‘‘purpose is to offset price risks incidental to commercial cash, spot, or forward operations.’’ The orderly trading requirement mandates that ‘‘such position is established and liquidated in an orderly manner in accordance with sound commercial practices.’’ Comments Received: Commenters generally objected to retaining the incidental test and the orderly trading requirement in the definition of bona fide hedging position, as proposed in
2013.399 A number of commenters
supported the Commission’s 2016 Supplemental Proposal to remove the incidental test and the orderly trading requirement.400 Incidental Test: Commenters objected to the incidental test, because that test is not included in the standards in CEA
section 4a(c) for the Commission to
define a bona fide hedging position for physical commodities.401 However, other commenters noted their belief that eliminating the incidental test would permit swap dealers or purely financial entities to avail themselves of bona fide hedging exemptions, to the detriment of commercial hedgers.402 Orderly trading requirement: One commenter urged the Commission to eliminate the orderly trading requirement, because this requirement does not apply to over-the-counter markets, the Commission does not define orderly trading in a bi-lateral market, and this requirement imposes a duty on end users to monitor market activities to ensure they do not cause a significant market impact; additionally, the commenter noted the anti-disruptive trading prohibitions and polices apply regardless of whether the orderly trading requirement is imposed.403 Similarly, another commenter urged the Commission to exempt commercial endusers from the orderly trading requirement, arguing that an orderly trading requirement unreasonably requires commercial end-users to monitor markets to measure the impact of their activities without clear guidance from the Commission on what would constitute significant market impact.404 Other commenters to the 2013 Proposal requested the Commission interpret the orderly trading requirement consistently with the Commission’s disruptive trading practices interpretation (i.e., a standard of intentional or reckless conduct) and not to apply a negligence standard.405 Yet another commenter requested clarification on the process the Commission would use to determine whether a position has been established and liquidated in an orderly manner, whether any defenses may be available, and what would be the consequences of failing the requirement.406 However, one commenter is concerned that eliminating the orderly trading requirement for bona fide hedging for swaps positions would discriminate against market participants in the futures and options markets. The commenter noted that, if the Commission eliminates this requirement, the Commission could not use its authority effectively to review exchange-granted exemptions for swaps from position limits to prevent or diminish excessive speculation.407 Commission Reproposal: In the reproposed definition of bona fide hedging position, the Commission is eliminating the incidental test and the orderly trading requirement. Incidental Test: Under the Reproposal, the incidental test has been eliminated, because the Commission views the economically appropriate test (discussed below) as including the concept of the offset of price risks

408See December 2013 Position Limits Proposal, 78 FR at 75707. 409 40 FR 11560 (March 12, 1975). 410 39 FR 39731 (Nov. 11, 1974). 411 40 FR 11560 (Mar. 12, 1975). 412 December 2013 Position Limits Proposal, 78 FR at 75707; 2016 Supplemental Position Limits Proposal, 81 FR at 38505. 413CL–BG Group–59656 at 9. 414The Commission did not propose to apply to excluded commodities any of the additional standards in the general definition applicable to hedges of a physical commodity. incidental to commercial cash, spot, or forward operations. It was noted in the 2013 Position Limits Proposal that, ‘‘The Commission believes the concept of commercial cash market activities is also embodied in the economically appropriate test for physical commodities in [CEA section 4a(c)(2)].’’ 408 It should be noted the incidental test has been part of the regulatory definition of bona fide hedging since 1975,409 but that the requirement was not explained in the 1974 proposing notice (‘‘proposed definition otherwise deviates in only minor ways from the hedging definition presently contained in [CEA section 4a(3)]’’).410 The Commission is not persuaded by the commenters who believe eliminating the incidental test would permit financial entities to avail themselves of a bona fide hedging exemption, because the incidental test is essentially embedded in the economically appropriate test. In addition, for a physical-commodity derivative, the reproposed definition, in mirroring the statutory standards of CEA
section 4a(c), requires a bona fide
hedging position to be a substitute for a transaction taken or to be taken in the cash market (either for the market participant itself or for the market participant’s pass-through swap counterparty), which generally would preclude financial entities from availing themselves of a bona fide hedging exemption (in the absence of qualifying for a pass-through swap offset exemption, discussed below). Orderly Trading Requirement: The Reproposal also eliminates the orderly trading requirement. That provision has been a part of the regulatory definition of bona fide hedging since March 12, 1975 411 and previously was found in the statutory definition of bona fide hedging position prior to the 1974 amendment removing the statutory definition from CEA section 4a(3). However, the Commission is not aware of a denial of recognition of a position as a bona fide hedging position, as a result of a lack of orderly trading. Further, the Commission notes that the meaning of the orderly trading requirement is unclear in the context of the over-the-counter (OTC) swap market or in the context of permitted offexchange transactions (e.g., exchange of futures for physicals). In regard to the anti-disruptive trading prohibitions of CEA section 4c(a)(5), those prohibitions apply to trading on registered entities, but not to OTC transactions. It should be noted that the anti-disruptive trading prohibitions in CEA section 4c(a)(5) make it unlawful to engage in trading on a registered entity that ‘‘demonstrates intentional or reckless disregard for orderly execution of trading during the closing period’’ (emphasis added); however, the Commission has not, under the authority of CEA section 4c(a)(6), prohibited the intentional or reckless disregard for the orderly execution of transactions on a registered entity outside of the closing period. The Commission notes that an exchange may impose a general orderly trading on all market participants. Market participants may request clarification from exchanges on their trading rules. The Commission does not believe that the absence of an orderly trading requirement in the definition of bona fide hedging position would discriminate against any particular trading venue for commodity derivative contracts. d. BFH Definition Discussion— Excluded Commodities Proposed Rule: In both the 2013 Position Limits Proposal and the 2016 Supplement Proposal, the proposed definition of bona fide hedging position for contracts in an excluded commodity included a standard that the position is economically appropriate to the reduction of risks in the conduct and management of a commercial enterprise (the economically appropriate test) and also specified that such position should be either (i) specifically enumerated in paragraphs (3) through (5) of the definition of bona fide hedging position; or (ii) recognized as a bona fide hedging position by a DCM or SEF consistent with the guidance on risk management exemptions in proposed Appendix A to
part 150.412 As noted above, the 2016
Supplemental Proposal would eliminate the two additional general requirements (the incidental test and the orderly trading requirement). Comments Received: One commenter believed that, to avoid an overly restrictive definition due to the limited set of examples provided by the Commission, only the general definition of a bona fide hedging position should be applicable to hedges of an excluded commodity.413 Commission Reproposal: After consideration of comments and review of the record, the Commission has determined in the Reproposal to apply the economically appropriate test to enumerated exemptions, as proposed.414 However, the Reproposal amends the proposed definition of a bona fide hedging position for an excluded commodity, to clarify that an exchange may otherwise recognize risk management exemptions in an excluded commodity, without regard to the economically appropriate test. Regarding risk management exemptions, the Commission notes that Appendix A (which codifies the Commission’s two 1987 interpretations of the bona fide hedging definition in the context of excluded commodities) includes examples of risk altering transactions, such as a temporary increase in equity exposure relative to cash bond holdings. Such risk altering transactions appear inconsistent with the Commission’s interpretation of the economically appropriate test. Accordingly, the Reproposal removes the economically appropriate test from the guidance for exchange-recognized risk management exemptions in excluded commodities. Regarding an exchange’s obligation to comply with core principles pertaining to position limits on excluded commodities, as discussed further in § 150.5, the Commission clarifies that under the Reproposal, exchanges have reasonable discretion as to whether to adopt the Commission’s definition of a bona fide hedging position, including whether to grant risk management exemptions, such as those that would be consistent with, but not limited to, the examples in Appendix A to part 150. That is, the set of examples in Appendix A to part 150 is non-restrictive, as it is guidance. The Reproposal also makes minor wording changes in Appendix A to part 150, including to clarify an exchange’s reasonable discretion in granting risk management exemptions and to eliminate a reference to the orderly trading requirement which has been deleted, as discussed above, but otherwise is adopting Appendix A as proposed. e. BFH Definition Discussion—Physical Commodities General Definition As noted in its proposal, the core of the Commission’s approach to defining bona fide hedging over the years has focused on transactions that offset a

415 December 2013 Position Limits Proposal, 78 FR at 75702–3. 416 7 U.S.C. 6a(c)(1). 417The Reproposal provides for a phased approach to implementation of CEA section 4a(a)(2), to reduce the potential administrative burden on exchanges and market participants, and to facilitate adoption of monitoring policies, procedures and systems. See, e.g., December 2013 Position Limits Proposal, 78 FR at 75725. The first phase of implementation of CEA section 4a(a)(2), in this Reproposal, initially sets federal limits on 25 core referenced futures contracts and their associated referenced contracts. The Commission is establishing a definition of bona fide hedging position for physical commodities in connection with its implementation of CEA section 4a(a)(2), applicable to federal limits. However, the Reproposal does not mandate adoption of that definition of a bona fide hedging position for purposes of exchange-set limits in contracts that are not yet subject to a federal limit. See below regarding guidance and requirements under reproposed § 150.5 for exchange-set limits in physical commodities. 418See, e.g., CL–FIA–59595 at 5, 34–35; CL– AMG–59709 at 2, 12–15; and CL–CME–59718 at 67–69. 419See, e.g., CL–Sen. Levin–59637 at 8, and CL– Better Markets–60325 at 2. 420See December 2013 Position Limits Proposal, 78 FR at 75709. recognized price risk.415 Once a bona fide hedge is implemented, the hedged entity should be price insensitive because any change in the value of the underlying physical commodity is offset by the change in value of the entity’s physical commodity derivative position. Because a firm that has hedged its price exposure is price neutral in its overall physical commodity position, the hedged entity should have little incentive to manipulate or engage in other abusive market practices to affect prices. By contrast, a party that maintains a derivative position that leaves it with exposure to price changes is not neutral as to price and, therefore, may have an incentive to affect prices. Further, the intention of a hedge exemption is to enable a commercial entity to offset its price risk; it was never intended to facilitate taking on additional price risk. The Commission recognizes there are complexities to analyzing the various commercial price risks applicable to particular commercial circumstances in order to determine whether a hedge exemption is warranted. These complexities have led the Commission, from time to time, to issue rule changes, interpretations, and exemptions. Congress, too, has periodically revised the Federal statutes applicable to bona fide hedging, most recently in the DoddFrank Act. CEA section 4a(c)(1),416 as redesignated by the Dodd-Frank Act, authorizes the Commission to define bona fide hedging positions ‘‘consistent with the purposes of this Act.’’ CEA
section 4a(c)(2), as added by the DoddFrank Act, provides new requirements
for the Commission to define bona fide hedging positions in physical commodity derivatives ‘‘[f]or the purposes of implementation of [CEA
section 4a(a)(2)] for contracts of sale for
future delivery or options on the contracts of commodities [traded on DCMs].’’ 417 General Definition: The Commission’s proposed general definition for physical commodity derivative contracts, mirroring CEA section 4a(c)(2)(a), specifies a bona fide hedging position is one that:
(a) Temporary substitute test:
represents a substitute for transactions made or to be made or positions taken or to be taken at a later time in the physical marketing channel; (b) Economically appropriate test: is economically appropriate to the reduction of risks in the conduct and management of a commercial enterprise; and (c) Change in value requirement:
arises from the potential change in the value of assets, liabilities, or services, whether current or anticipated. In addition to the above, the Commission’s proposed general definition, mirroring CEA section 4a(c)(2)(B)(i), also recognizes a bona fide hedging position that:
(d) Pass-through swap offset: reduces risks attendant to a position resulting from a swap that was executed opposite a counterparty for which the transaction would qualify as a bona fide hedging transaction under the general definition above. The Commission proposed another provision, based on the statutory standards, to recognize as a bona fide a position that:
(e) Pass-through swap: is itself the swap executed opposite a pass-through swap counterparty, provided that the risk of that swap has been offset. The Commission received a number of comments on the December 2013 Position Limits Proposal and the 2016 Supplemental Proposal. Those concerning the incidental test and the orderly trading requirement are discussed above. Others are discussed below.
i. Temporary Substitute Test and Risk
Management Exemptions
Proposed Rule: The temporary substitute test is discussed in the 2013 Position Limits Proposal at 75708–9. As the Commission noted in the proposal, it believes that the temporary substitute test is a necessary condition for classification of positions in physical commodities as bona fide hedging positions. The proposed test mirrors the statutory test in CEA section 4a(c)(2)(a)(i). The statutory test does not include the adverb ‘‘normally’’ to modify the verb ‘‘represents’’ in the phrase ‘‘represents a substitute for transactions taken or to be taken at a later time in a physical marketing channel.’’ Because the definition in § 1.3(z)(1) includes the adverb ‘‘normally,’’ the Commission interpreted that provision to be merely a temporary substitute criterion, rather than a test. Accordingly, the Commission previously granted risk management exemptions for persons to offset the risk of swaps and other financial instruments that did not represent substitutes for transactions or positions to be taken in a physical marketing channel. However, given the statutory change in direction, positions that reduce the risk of such speculative swaps and financial instruments would no longer meet the requirements for a bona fide hedging position under the proposed definition in § 150.1. Comments Received: A number of commenters urged the Commission not to deny risk-management exemptions for financial intermediaries who utilize referenced contracts to offset the risks arising from the provision of diversified, commodity-based returns to the intermediaries’ clients.418 However, other commenters noted the ‘‘proposed rules properly refrain from providing a general exemption to financial firms seeking to hedge their financial risks from the sale of commodity-related instruments such as index swaps, Exchange Traded Funds (ETFs), and Exchange Traded Notes (ETNs),’’ because such instruments are inherently speculative and may overwhelm the price discovery function of the derivative market.419 Commission Reproposal: The Reproposal would retain the temporary substitute test, as proposed. The Commission interprets the statutory temporary substitute test as more stringent than the temporary substitute criterion in § 1.3(z)(1); 420 that is, the Commission views the statutory test as narrowing the standards for a bona fide hedging position. Further, the Commission believes that retaining a risk management exemption for swap intermediaries, without regard to the purpose of the counterparty’s swap, would fly in the face of the statutory restrictions on pass-through swap offsets (requiring the position of the pass-through swap counterparty to

421See CEA section 4a(c)(2)(B)(i).
422See December 2013 Position Limits Proposal, 78 FR at 75734–5 and 75739–41. 423See, e.g., CL–AMG–59709 at 2, 18. 424See, e.g., id. at 18–19. 425CL–FIA–59595 at 5,34–35; CL–AMG–59709 at 2, 12–15; and CL–CME–59718 at 67–69. 426CL–Sen. Levin–59637 at 8; and CL–Better Markets–60325 at 2. 427CL–CMOC–59720 at 4–5. 428See, e.g., CL–NCGA–NGSA–60919 at 4, CL– EEI–EPSA–60925 at 14, CL–API–60939 at 2, CL– CMC–60950 at 4–5, CL–NCFC–60930 at 2, CL– ADM–60934 at 2–6, CL–FIA–60937 at 5 and 20, CL– NGFA–60941 at 4, and CL–Associations–60972 at 2. 429See, e.g., CL–CMC–60950 at 4–5, and CL– Olam–59946 at 2–4. 430CL–ICE–60929 at 10. 431See, e.g., CL–ADM–60934 at 2–6, and CL– API–60939 at 2. 432See December 2013 Position Limits Proposal, 78 FR at 75709–10. 433 Id. at 75710. 434See, e.g., CL–MGEX–60936 at 11, CL–CMC– 60950 at 6, CL–Associations–60972 at 2. qualify as a bona fide hedging transaction).421 Proposed Rule on risk management exemption grandfather provisions: The Commission proposed in § 150.2(f) and § 150.3(f) to grandfather previously granted risk-management exemptions, as applied to pre-existing positions.422 Comments Received: Commenters requested that the Commission extend the grandfather relief to permit preexisting risk management positions to be increased after the effective date of a limit.423 Commenters also requested that the Commission permit the risk associated with a pre-existing position to be offset by a futures position in a deferred contract month, after the liquidation of an offsetting position in a nearby futures contract month.424 Some commenters urged the Commission not to deny riskmanagement exemptions for financial intermediaries who utilize referenced contracts to offset the risks arising from the provision of diversified commoditybased returns to the intermediaries’ clients.425 In contrast, other commenters noted that the proposed rules ‘‘properly refrain’’ from providing a general exemption to financial firms seeking to hedge their financial risks from the sale of commodity-related instruments such as index swaps, ETFs, and ETNs because such instruments are ‘‘inherently speculative’’ and may overwhelm the price discovery function of the derivative market.426 Another commenter noted, because commodity index contracts are speculative, the Commission should not provide a regulatory exemption for such contracts.427 Commission Reproposal: The Reproposal clarifies and expands the relief in § 150.3(f) (previously granted exemptions) by: (1) Clarifying that such previously granted exemptions may apply to pre-existing financial instruments that are within the scope of existing § 1.47 exemptions, rather than only to pre-existing swaps; and (2) recognizing exchange-granted nonenumerated exemptions in non-legacy commodity derivatives outside of the spot month (consistent with the Commission’s recognition of risk management exemptions outside of the spot month), and provided such exemptions are granted prior to the compliance date of the
final rule, once adopted, and apply only to pre-existing financial instruments as of the effective date of that final rule. These two changes are intended to reduce the potential for market disruption by forced liquidations, since a market intermediary would continue to be able to offset risks of pre-effective-date financial instruments, pursuant to previously-granted federal or exchange risk management exemptions. The Reproposal clarifies that the Commission will continue to recognize the offset of the risk of a pre-existing financial instrument as bona fide using a derivative position, including a deferred derivative contract month entered after the effective date of a final rule, provided a nearby derivative contract month is liquidated. However, under the Reproposal, such relief will not be extended to an increase in positions after the effective date of a limit, because that appears contrary to Congressional intent to narrow the definition of a bona fide hedging position, as discussed above.
ii. Economically Appropriate Test
Commission proposal: The economically appropriate test is discussed in the 2013 Position Limits Proposal at 75709–10. The proposed economically appropriate test mirrors the statutory test, which, in turn, mirrors the test in current § 1.3(z)(1). Comments received: Several commenters requested that the Commission broadly interpret the phrase ‘‘economically appropriate’’ to include more than just price risk, stating that there are other types of risk that are economically appropriate to address in the management of a commercial enterprise including operational risk, liquidity risk, credit risk, locational risk, and seasonal risk.428 Commenters suggested that if the Commission objected to expanding its interpretation of ‘‘economically appropriate’’ risks, then the Commission should allow the exchanges to utilize discretion in their interpretations of the economically appropriate test.429 Another commenter believed that the Commission should provide ‘‘greater flexibility’’ in the various bona fide hedging tests, because hedging that reduces all the various types of risk should be deemed ‘‘economically appropriate.’’ 430 Commenters suggested that a broader view of the types of risks considered to be ‘‘economically appropriate’’ should not be perceived as being at odds with the Commission’s view of ‘‘price risk’’ because all of these risks can inform and determine price, noting that firms evaluate different risks and determine a price impact based on a combination of their likelihood of occurrence and the price impact in the event of occurrence.431 Commission Reproposal: The Reproposal does not broaden the interpretation of the phrase ‘‘economically appropriate.’’ The Commission notes that it has provided interpretations and guidance over the years as to the meaning of ‘‘economically appropriate.’’ 432 The Commission reiterates its view that, to satisfy the economically appropriate test and the change in value requirement of CEA section 4a(c)(2)(A)(iii), the purpose of a bona fide hedging position must be to offset price risks incidental to a commercial enterprise’s cash operations.433 The Commission notes that an exchange is permitted to recognize nonenumerated bona fide hedging positions under the process of § 150.9, discussed below, subject to assessment of the particular facts and circumstances, where price risk arises from other types of risk. The Reproposal does not, however, allow the exchanges to utilize unbounded discretion in interpreting ‘‘economically appropriate’’ in such recognitions. The Commission believes that such a broad delegation is not authorized by the CEA and, in the Commission’s view, would be contrary to the reasonably certain statutory standard of the economically appropriate test. Further, as explained in the discussion of § 150.9, exchange determinations will be subject to the Commission’s de novo review. Comments on gross vs. net hedging: A number of commenters requested that the Commission recognize as bona fide both
‘‘gross hedging’’ and ‘‘net hedging,’’ without regard to overall risk.434 Commenters generally requested, as ‘‘gross hedging,’’ that an enterprise should be permitted the flexibility to use either a long or short derivative to offset the risk of any cash position, identified at the discretion of

435See, e.g., CL–Olam–59658 at 4–6.
436CL–FIA–59595 at 20–21.
437CL–Working Group–60947 at 15.
438CL–CMC–60950 at 5.
439See, e.g., instructions to Form 204. 440 42FR 14832 at 14834 (Mar. 16, 1977). 441 Id. 442 Id. 443See, Letter from Roger R. Kauffman, Adm’r, Commodity Exchange Authority, to Reid Bondurant, Cotton Exchange (Feb. 13, 1959) (emphasis added), cited in CL–Olam–59658 at 5. 444See, e.g., CL–API–59694 at 4, CL–IECAssn– 59679 at 10–11, CL–APGA–59722 at 9–10, CL– NCFC–59942 at 5, CL–EEI–EPSA–59602 at 15, and CL–EEI-Sup–60386 at 7. 445CL–CMC–60950 at 5. 446CEA section 4a(c)(2)(A)(ii). the commercial enterprise, irrespective of the commercial enterprise’s net cash market position.435 For example, a commenter contended that a commercial enterprise should be able to hedge fixed-price purchase contracts (e.g., with a short futures position), without regard to the enterprise’s fixedprice sales contracts, even if such a short derivative position may increase the enterprise’s risk.436 One commenter stated that the ‘‘new proposed interpretation’’ of the ‘‘economically appropriate’’ test requires a commercial enterprise to include, and consider for purposes of bona fide hedging, portions of its portfolio it would not otherwise consider in managing risk.437 Another commenter did not agree that market participants should be required to calculate risk on a consolidated basis, because this approach would require commercial entities to build out new systems. As an alternative, that commenter requests the Commission recognize current risk management tools.438 Commission Reproposal: The Reproposal retains the Commission’s interpretation, as proposed, of economically appropriate gross hedging:
that in circumstances where net hedging does not measure all risk exposures, an enterprise may appropriately enter into, for example, a calendar month spread position as a gross hedge. A number of comments misconstrued the Commission’s historical interpretation of gross and net hedging. The Commission has not recognized selective identification of cash positions to justify a position as bona fide; rather, the Commission has permitted a regular practice of excluding certain commodities, products, or by-products, in determining an enterprise’s risk position.439 As proposed, the Reproposal requires such excluded commodities to be de minimis or difficult to measure, because a market participant should not be permitted to ignore material cash market positions and enter into derivative positions that increase risk while avoiding a position limit restriction; rather, such a market participant’s speculative activity must remain below the level of the speculative position limit. Note, however, under a partial reading of a preamble to a 1977 proposal, the Commission has appeared to recognize gross hedging, without regard to net risk, as bona fide; the Commission noted in 1977 that: ‘‘The previous statutory definition of bona fide hedging transactions or positions contained in section 4a of the Act before amendment by the CFTC Act and the present definition permit persons to classify as hedging any purchase or sale for future delivery which is offset by their gross cash position irrespective of their net cash position.’’ 440 However, under a full reading of that 1977 proposal, the Commission made clear that gross hedging was appropriate in circumstances where ‘‘net cash positions do not necessarily measure total risk exposure due to differences in the timing of cash commitments, the location of stocks, and differences in grades or types of the cash commodity.’’ 441 Thus, the 1977 proposal noted the Commission ‘‘does not intend at this time to alter the provisions of the present definition with respect to the hedging of gross cash position.’’ 442 At the time of the 1977 proposal, the ‘‘present definition’’ had been promulgated in 1975 by the Administrator of the Commodity Exchange Authority based on the statutory definition; and the Administrator had interpreted the statutory definition to recognize gross hedging as bona fide in the context of a merchant who ‘‘may hedge his fixedprice purchase commitments by selling futures and at the same time hedge his fixed-price sale commitments by buying futures,’’ rather than hedging only his net position.443 Comments on specific, identifiable risk: Commenters requested the Commission consider as economically appropriate any derivative position that a business can reasonably demonstrate reduces or mitigates one or more specific, identifiable risks related to individual or aggregated positions or transactions, based on its own business judgment and risk management policies, whether risk is managed enterprisewide or by
legal entity, line of business, or profit center.444 One commenter disagreed with what it called a ‘‘onesize-fits-all’’ risk management paradigm that requires market participants to calculate risk on a consolidated basis because this approach would require commercial entities to build out new systems in order to manage risk this way. The commenter requests that the Commission instead recognize that current risk management tools are used effectively for positions that are below current limits and those tools remain effective above position limit levels as well.445 Commission Reproposal: The Reproposal declines to assess the bona fides of a position based solely on whether a commercial enterprise can identify any particular cash position within an aggregated person, the risks of which such derivative position offsets. The Commission believes that such an approach would run counter to the aggregation rules in § 150.4 and would permit an enterprise to cherry pick cash market exposures to justify exceeding position limits, with either a long or short derivative position, even though such derivative position increases the enterprise’s risk. The Commission views a derivative position that increases an enterprise’s risk as contrary to the plain language of CEA section 4a(c) and the Commission’s bona fide hedging definition, which requires that a bona fide hedging position ‘‘is economically appropriate to the reduction of risks in the conduct and management of a commercial enterprise.’’ 446 If a transaction that increases a commercial enterprise’s overall risk should be considered a bona fide hedging position, this would result in position limits not applying to certain positions that should be considered speculative. For example, assume an enterprise has entered into only two cash forward transactions and has no inventory. The first cash forward transaction is a purchase contract (for a particular commodity for delivery at a particular later date). The second cash forward transaction is a sales contract (for the same commodity for delivery on the same date as the purchase contract). Under the terms of the cash forward contracts, the enterprise may take delivery on the purchase contract and re-deliver the commodity on the sales contract. Such an enterprise does not have a net cash market position that exposes it to price risk, because it has both purchased and sold the same commodity for delivery on the same date (such as cash forward contracts for the same cargo of Brent crude oil). The enterprise could establish a short derivative position that would offset the risk of the purchase contract; however, that would increase the enterprise’s price risk. Alternatively, the enterprise

447See discussion under section II.B.3 (Criteria for Aggregation Relief in Rule 150.4(b)(2)(i)) of the 2016 Final Aggregation Rule. 448CL–Cargill–59638 at 2–4. 449 December 2013 Position Limits Proposal, 78 FR at 75709. 450See, e.g., CL–Cargill–59638 at 2–4. 451 17 CFR 1.3(z)(2) and 1.48 (2010). 452 December 2013 Position Limits Proposal, 78 FR at 75720. 453 Id. at 75719. 454 Id. at 75710. 455 17 CFR 1.3(z) (2010). 456As noted in the December 2013 Position Limits Proposal, 78 FR at 75710, CEA section 4a(c)(2)(A)(iii)(II) uses the phrase ‘‘liabilities that a person owns or anticipates incurring.’’ The Commission interprets the word ‘‘owns’’ to be a typographical error, and interprets the word ‘‘owns’’ to be ‘‘owes.’’ A person may owe on a liability, and may anticipate incurring a liability. If a person ‘‘owns’’ a liability, such as a debt instrument issued by another, then such person owns an asset. Because assets are included in CEA
section 4a(c)(2)(A)(iii)(I), the Commission interprets
‘‘owns’’ to be ‘‘owes.’’
457CL–PMAA–NEFI–60952 at 2. could establish a long derivative position that would offset the risk of the sales contract; however, that would increase the enterprise’s price risk. If price risk reduction at the level of the aggregate person is not a requirement of a bona fide hedging position, such an enterprise could establish either a long or short derivative position, at its election, and claim an exemption from position limits for either derivative position, ostensibly as a bona fide hedging position. If either such position could be recognized as bona fide, position limits would simply not apply to such an enterprise’s derivative position, even though the enterprise had no price risk exposure to the commodity prior to establishing such derivative position and created price risk exposure to the commodity by establishing the derivative position. Based on the Commission’s experience and expertise, it believes that such a result (entering either a long or short derivative position, whichever the market participant elects) simply cannot be recognized as a legitimate risk reduction that should be exempt from position limits; rather, such a position should be considered speculative for purposes of position limits. The Commission notes that a commercial enterprise that wishes to separately manage its operations, in separate legal entities, may, under the aggregation requirements of § 150.4, establish appropriate firewalls and file a notice for an aggregation exemption, because separate legal entities with appropriate firewalls are treated as separate persons for purposes of position limits. The Commission explained that an aggregation exemption was appropriate in circumstances where the risk of coordinated activity is mitigated by firewalls.447 Comments on processing hedge: A commenter requested the Commission recognize, as bona fide, a long or short derivative position that offsets either inputs or outputs in a processing operation, based on the business judgment of the commercial enterprise that it might not be an appropriate time to hedge both inputs and outputs, and requested the Commission withdraw the processing hedge example on pages 75836–7 of the 2013 Position Limits Proposal (proposed example 5 in
Appendix C to part 150).448
Commission Reproposal: For the reasons discussed above regarding gross hedging and specific, identifiable risks, the Reproposal does not recognize as a bona fide hedging position a derivative position that offsets either inputs or outputs in a processing operation, absent additional facts and circumstances. The Commission reiterates its view that, as explained in the Commission’s 2013 Position Limits Proposal, by way of example, processing by a soybean crush operation or a fuel blending operation may add relatively little value to the price of the input commodity. In such circumstances, it would be economically appropriate for the processor or blender to offset the price risks of both the unfilled anticipated requirement for the input commodity and the unsold anticipated production; such a hedge would, for example, fully lock in the value of soybean crush processing.449 However, under such circumstances, merely entering an outright derivative position (i.e., either a long position or a short position, at the processor’s election) appears to be risk increasing, since the price risk of such outright position appears greater than, and not offsetting of, the price risk of anticipated processing and, thus, such outright position would not be economically appropriate to the reduction of risks. Comments on economically appropriate anticipatory hedges:
Commenters requested the Commission recognize derivative positions as economically appropriate to the reduction of certain anticipatory risks, such as irrevocable bids or offers.450 Commission Reproposal: The Commission has a long history of providing for the recognition, in § 1.3(z)(2), as enumerated bona fide hedging positions, of anticipatory hedges for unfilled anticipated requirements and unsold anticipated production, under the process of § 1.48.451 The Reproposal continues to enumerate those two anticipatory hedges, along with two new anticipatory hedges for anticipated royalties and contracts for services, as discussed below. The Commission did not propose an enumerated exemption for binding, irrevocable bids or offers as the Commission believes that an analysis of the facts and circumstances would be necessary prior to recognizing such an exemption. Consequently, the Reproposal does not provide for such an enumerated exemption. However, the Commission withdraws the view that a binding, irrevocable bid or offer fails to meet the economically appropriate test.452 Rather, the Commission will permit exchanges, under § 150.9, to make a facts-and-circumstances determination as to whether to recognize such and other anticipatory hedges as non-enumerated bona fide hedges, consistent with the Commission’s recognition ‘‘that there can be a gradation of probabilities that an anticipated transaction will occur.’’ 453
iii. Change in Value Requirement
Commission proposal: To satisfy the change in value requirement, the hedging position must arise from the potential change in the value of: (I) Assets that a person owns, produces, manufactures, processes, or merchandises or anticipates owning, producing, manufacturing, processing, or merchandising; (II) liabilities that a person owes or anticipates incurring; or (III) services that a person provides, purchases, or anticipates providing or purchasing.454 The proposed definition incorporated the potential change in value requirement in current § 1.3(z)(1).455 This provision largely mirrors the provision of CEA section 4a(c)(2)(A)(iii).456 Comments on change in value: One commenter urged a more narrow definition of bona fide hedging that restricts exemptions to ‘‘commercial entities that deal exclusively in the production, processing, refining, storage, transportation, wholesale or retail distribution, or consumption of physical commodities.’’ 457 However, numerous commenters urged the Commission to enumerate new exemptions consistent with the change in value requirement, such as for merchandising, as discussed below. Commission Reproposal: The Reproposal retains the change in value requirement as proposed, which mirrors CEA section 4a(c)(2)(A)(iii). Rather than further restrict the types of commercial entities who may avail themselves of a

458See, e.g., CL–FIA–59595 at 30–31, CL–FIA– 60303 at 6, CL–EEI–EPSA–59602 at 17–18, CL–EEI– 59945 at 6, CL–CMC–60950 at 6, CL–CMC–60391 at 4–5, CL–CMC–60318 at 5, CL–CMC–59634 at 3, 20– 22, CL–Cargill–59638 at 2–4, CL–ADM–59640 at 2– 3, CL–Olam–59946 at 4, CL–BG Group–59656 at 10–11, CL–ASCA–59667 at 2, CL–NGSA–60379 at 5, CL–NGSA–59674 at 2, 18–24, CL–Working Group–60383 at 15, CL–Working Group–59937 at 5–6, 10–12, CL–Working Group–59656 at 16–18, 21–23, 26, CL–API–59694 at 5–6, CL–MSCGI–59708 at 2–3, 18–20, CL–CME–59718 at 56–57, 59, CL– Armajaro–59729 at 1, CL–AFBF–59730 at 2, CL– NCFC–59942 at 2–4, CL–ICE–60310 at 4, CL–ICE– 60387 at 9, CL–ISDA/SIFMA–59611 at 37–38, CL– COPE–59662 at 15–16, and CL–GSC–59703 at 3–4. 459See, e.g., CL–Cargill–59638 at 2–4, CL–CME– 59718 at 57–58, CL–NEM–59586 at 4, CL–FIA– 59595 32–33, CL–ISDA/SIFMA–59611 at 4, CL– CMC–59634 at 5, CL–LDC–59643 at 2, CL–BG Group-59656 at 10, CL–COPE–59950 at 5, CL– COPE–59662 at 14–15, CL—Working Group–59693 at 23–26, CL–GSC–59703 at 2–3, CL–AFBF–59730 at 2, CL–SEMP–59926 at 6–7, CL–EDF–60398 at 8– 9, CL–EDF–59961 at 2–3, CL–Andersons–60256 at 1–3, and CL–SEMP–60384 at 4–5. 460CL–ISDA/SIFMA–59611, Annex B at 7. 461CL–EEI–EPSA–60925 at 13. 462 December 2013 Position Limits Proposal, 78 FR at 75718. 463See, e.g., CL–Olam–59946 at 4, and CL–NCFC –59942 at 2–4. 464CL–NCGA–NGSA–60919 at 4–5. 465CL–NGFA–60941 at 4. 466CL–NCGA–NGSA–60919 at 5. bona fide hedging exemption under the change in value requirement, the Commission notes that the reproposed definition also reflects the statutory requirement under the temporary substitute test, that the hedging position be a substitute for a position taken or to be taken in a physical marketing channel, either by the market participant or the market participant’s pass-through swap counterparty. Comments on anticipatory merchandising or storage: Numerous commenters asserted the Commission should recognize anticipatory merchandising as a bona fide hedge, as included in CEA section 4a(c)(A)(iii), such as (1) a merchant desiring to lock in the price differential between an unfixed price forward commitment and an anticipated offsetting unfixed price forward commitment, where there is a reasonable basis to infer that an offsetting transaction was likely to occur (such as in anticipation of shipping), (2) a bid or offer, where there is a reasonably anticipated risk that such bid or offer will be accepted, or (3) an anticipated purchase and/or anticipated storage of a commodity, prior to anticipated merchandising (or usage).458 Commenters recommended the Commission recognize unfilled storage capacity as the basis of a bona fide hedge of, either (1) anticipated rents (e.g., a type of anticipated asset or liability), (2) anticipated merchandising, or (3) anticipated purchase and storage prior to usage.459 By way of example, one commenter contended anticipated rent on a storage asset is like an option and the appropriate hedge position should be
dynamically adjusted.460 Also by way of example, another commenter suggested enumerated hedges should include (1) offsetting long and short positions in commodity derivative contracts as hedges of storage or transportation of the commodity underlying such contracts; and (2) positions that hedge the value of assets owned, or anticipated to be owned, used to produce, process, store or transport the commodity underlying the derivative.461 Commission Reproposal: The Commission notes that an exchange, under reproposed § 150.9, as discussed below, is permitted to recognize anticipated merchandising or anticipated purchase and storage, as potential non-enumerated bona fide hedging positions, subject to assessment of the particular facts and circumstances, including such information as the market participant’s activities (taken or to be taken) in the physical marketing channel and arrangements for storage facilities. While the Commission previously discussed its doubt that storage hedges generally will meet the economically appropriate test, because the value fluctuations in a calendar month spread in a commodity derivative contract will likely have at best a low correlation with value fluctuations in expected returns (e.g., rents) on unfilled storage capacity,462 the Commission now withdraws that discussion of doubt and, as reproposed, would review exchangegranted non-enumerated bona fide hedging exemptions for storage with an open mind. The Commission does not express a view as this time on one commenter’s assertion that the anticipated rent on a storage asset is like an option; the commenter did not provide data regarding the relationship between calendar spreads and the ‘‘profitability of filling storage.’’ The Commission notes that, under the Reproposal, an exchange could evaluate the particulars of such a situation in an application for a non-enumerated hedging position. Similarly, as reproposed, an exchange could evaluate the particulars of other situations, such as a commenter’s example of storage or transportation hedges. The Commission notes that it is not clear from the comments how the value fluctuations of calendar month or location differentials are related to the fluctuations in value of storage or transportation. Regarding a commenter’s examples of assets owned or anticipated to be owned, it is not clear how the value fluctuations of whatever would be the relevant hedging position (e.g., long, short, or calendar month spread) are related to the fluctuations in value of whatever would be the particular assets (e.g., tractors, combines, silos, semitrucks, rail cars, pipelines) to be used to produce, process, store or transport the commodity underlying the derivative. Comments on unfixed price commitments: Commenters recommended the Commission recognize, as a bona fide hedge, the fixing of the price of an unfixed price commitment, for example, to reduce the merchant’s operational risk and potentially to acquire a commodity through the
delivery process on a physical-delivery futures contract.463 Another commenter provided an example of a preference to shift unfixedprice exposure on cash commitments from daily index prices to the first-ofmonth price under the NYMEX Henry Hub Natural Gas core referenced futures contract.464 A commenter suggested that the interpretation of a fixed price contract should include ‘‘basis priced contracts which are purchases or sales with the basis value fixed between the buyer and the seller against a prevailing futures’’ contract; the commenter noted such basis risk could be hedged with a calendar month spread to lock in their purchase and sale margins.465 Another commenter requested the Commission explicitly recognize index price transactions as appropriate for a bona fide hedging exemption, citing concerns that the price of an unfixed price forward sales contract may fall below the cost of production.466 Commission Reproposal: The Commission affirms its belief that a reduction in a price risk is required under the economically appropriate test of CEA section 4a(c)(2)(A)(ii); consistent with the economically appropriate test, a potential change in value (i.e., a price risk) is required under CEA section 4a(c)(2)(A)(iii). In both the reproposed and proposed definitions of bona fide hedging position, the incidental test would require a reduction in price risk. Although the Reproposal deletes the incidental test from the first paragraph of the bona fide hedging position definition (as discussed above), the Commission notes that it interprets risk in the economically appropriate test as price risk, and does not interpret risk to include operational risk. Interpreting risk to include operational risk would broaden the scope of a bona fide hedging position beyond the Commission’s historical interpretation

467The Commission distinguishes operational risk, which may arise from a potential failure of a counterparty to a cash market forward transaction, from price risks in the conduct and management of a commercial enterprise. 468 42 FR 14832 at 14833 (March 16, 1977) (proposed definition). The Commission also adopted the incidental test (requiring that the ‘‘purpose is to offset price risks incidental to commercial cash or spot operations’’). 42 FR 42748 at 42751 (Aug. 24, 1977) (final definition). Previously, the Secretary of Agriculture promulgated a definition of bona fide hedging position that required a purpose ‘‘to offset price risks incidental to commercial cash or spot operations.’’ 40 FR 11560 at 11561 (Mar. 12, 1975). 469See, e.g., CL–Armajaro–59729 at 2. 470 2016 Supplemental Position Limits Proposal, 81 FR at 38479. 471 December 2013 Position Limits Proposal, 78 FR at 75710. 472CL–NCGA–NGSA–60919 at 8–9. 473For example, assume a market participant entered a swap as a bona fide hedging position and, subsequently, offset (that is, lifted) that hedge using a futures contract. The Commission’s original proposal would not have recognized the lifting of the hedge as a bona fide hedging transaction, although the statute does. and may have adverse impacts that are inconsistent with the policy objectives of limits in CEA section 4a(a)(3)(B). The Commission has consistently required a bona fide hedging position to be a position that is shown to reduce price risk in the conduct and management of a commercial enterprise.467 By way of background, the Commission notes, in promulgating the definition of bona fide hedging position in § 1.3(z), it explained that a bona fide hedging position ‘‘must be economically appropriate to risk reduction, such risks must arise from operation of a commercial enterprise, and the price fluctuations of the futures contracts used in the transaction must be substantially related to fluctuations of the cash market value of the assets, liabilities or services being hedged.’’ 468 As noted above, the Dodd-Frank Act added CEA section 4a(c)(2), which copied the economically appropriate test from the Commission’s definition in § 1.3(z)(1). Thus, the Commission believes it is reasonable to interpret that statutory standard in the context of the Commission’s historical interpretation of § 1.3(z). While the Commission has enumerated a calendar month spread as a bona fide hedge of offsetting unfixedprice cash commodity sales and purchases, the Reproposal will permit an exchange, under reproposed § 150.9, to conduct a facts-and-circumstances, case-by-case review to determine whether a calendar month spread is appropriately recognized as a bona fide hedging position for only a cash commodity purchase or sales contract. For example, assume a merchant enters into an unfixed-price sales contract (e.g., priced at a fixed differential to a deferred month futures contract), and immediately enters into a calendar month spread to reduce the
risk of the fixed basis moving adversely. It may not be economically appropriate to recognize as bona fide a long futures position in the spot (or nearby) month and a short futures position in a deferred calendar month matching the merchant’s cash delivery obligation, in the event the spot (or nearby) month price is higher than the deferred contract month price (referred to as backwardation, and characteristic of a spot cash market with supply shortages), because such a calendar month futures spread would lock in a loss and may be indicative of an attempt to manipulate the spot (or nearby) futures price. Regarding the risk of an unfixed price forward sales contract falling below the cost of production, the Reproposal enumerates a bona fide hedging exemption for unsold anticipated production; the Commission clarifies, as discussed below, that such an enumerated hedge is available regardless of whether production has been sold forward at an unfixed (that is, index) price. Comments on cash and carry:
Commenters requested the Commission enumerate, as a bona fide hedging position, a ‘‘cash and carry’’ trade, where a market participant enters a nearby long futures position and a deferred short futures position, with the intention to take delivery and carry the commodity for re-delivery.469 Commission Reproposal: The Reproposal does not propose to enumerate a cash and carry trade as a bona fide hedging position. A cash and carry trade appears to fail the temporary substitute test, since such market participant is not using the derivative contract as a substitute for a position taken or to be taken in the physical marketing channel. The long futures position in the cash and carry trade is in lieu of a purchase in the cash market. In the 2016 Supplemental Proposal, the Commission asked whether, and subject to what conditions (e.g., potential facilitation of liquidity for a bona fide hedger of inventory), a cash and carry position might be recognized by an exchange as a spread exemption under § 150.10, subject to the Commission’s de novo review.470 This issue is discussed under § 150.10, regarding exchange recognition of spread exemptions.
iv. Pass-Through Swap Offsets and
Offsets of Hedging Swaps
Commission proposal: The
Commission proposed to recognize as bona fide a commodity derivative contract that reduces the risk of a position resulting from a swap executed opposite a counterparty for which the position at the time of the transaction would qualify as a bona fide hedging position.471 This proposal mirrors the requirements in CEA section 4a(c)(B)(i). The proposal also clarified that the swap itself is a bona fide hedging position to the extent it is offset. However, the Commission proposed that it would not recognize as bona fide hedges an offset in physical-delivery contracts during the shorter of the last five days of trading or the time period for the spot month in such physicaldelivery commodity derivative contract (the ‘‘five-day’’ rule, discussed further below). Comments received: As noted above, commenters recommended that the Commission’s bona fide hedging definition should reflect the standards in CEA section 4a(c). One commenter suggested that the Commission broaden the pass-through swap offset provisions to accommodate secondary pass-through transactions among affiliates within a corporate organization to make ‘‘the most efficient and effective use of their existing corporate structures.’’ 472 Commission Reproposal: The Commission agrees that the bona fide hedging definition, in general, and the pass-through swap provision, in particular, should more closely reflect the statutory standards in CEA section 4a(c). Under the proposed definition, a market participant who reduced the risk of a swap, where such swap was a bona fide hedging position for that market participant, would not have received recognition for the swap offset as a bona fide hedging position, as this provision in CEA section 4a(c)(2)(B)(ii) was not mirrored in the proposed definition.473 To adhere more closely to the statutory standards, the Reproposal recognizes such offset as a bona fide hedging position. Consistent with the proposal for offset of a pass-through swap, the Reproposal imposes a five-day rule restriction on the offset in a physicaldelivery contract of a swap used as a bona fide hedge; however, as reproposed, an exchange listing a physical-delivery contract may recognize, on a case-by-case basis, such offset as a non-enumerated bona fide hedging position pursuant to the process in reproposed § 150.9. The Reproposal retains and clarifies in subparagraph (ii)(A) that the bona fides of a pass-through swap may be

474 December 2013 Position Limits Proposal, 78 FR at 75711. 475 2016 Supplemental Position Limits Proposal, 81 FR at 38505. 476See, e.g., CL–CME–59718 at 47–53, and CL– BG Group–59656 at 9. 477See, e.g., CL–FIA–59595 at 32, CL–FIA–60303 at 6, CL–API–60939 at 3, CL–AGA–60943 at 4, CL– CMC–60950 at 6–9, CL–EEI–EPSA–60925 at 13, and CL–FIA–60937 at 5 and 21. 478However, as noted above, as reproposed, an exchange listing a physical-delivery contract may recognize, on a case-by-case basis, a pass-through swap offset, or the offset of a swap used as a bona fide hedge, during the last five days of trading in a spot month, as a non-enumerated bona fide hedge pursuant to the process in reproposed § 150.9. 479 December 2013 Position Limits Proposal, 78 FR at 75713. 480See, e.g., Ex Parte No-869, notes of Feb. 25, 2015 ex parte meeting with The Hershey Company, The J.M. Smucker Co., Louis Dreyfus Commodities, Noble Americans Corp., et al. 481See, e.g., CL–NGFA–60941 at 8. determined at the time of the transaction by the intermediary. The clarification is intended to reduce the burden on such intermediary of otherwise needing to confirm the continued bona fides of its counterparty over the life of the pass-through swap. In addition, the Reproposal retains, as proposed, application of the five-day rule to pass-through swap offsets in a physical-delivery contract. However, the Commission notes that under the Reproposal, an exchange listing a physical-delivery contract may recognize, on a case-by-case basis, a pass-through swap offset (in addition to the offset of a swap used as a bona fide hedge), during the last five days of trading in a spot month, as a nonenumerated bona fide hedge pursuant to the process in reproposed § 150.9. Further, the Reproposal retains the recognition of a pass-through swap itself that is offset, not just the offsetting position (and, thus, permitting the intermediary to exclude such passthrough swap from position limits, in addition to excluding the offsetting position). Regarding the request to broaden the pass-through swap offset provisions to accommodate secondary pass-through transactions among affiliates, the Commission declines in this Reproposal to broaden the pass-through swap offset exemption beyond the provisions in CEA section 4a(c)(2)(B)(i). However, the Commission notes that a group of affiliates under common ownership is required to aggregate positions under the Commission’s requirements in § 150.4, absent an applicable aggregation exemption. In the circumstance of aggregation of positions, recognition of a secondary pass-through swap transaction would not be necessary among such an aggregated group, because the group is treated as one person for purposes of position limits.
v. Additional Requirements for
Enumeration or Other Recognition Commission proposal: In 2013, the Commission proposed in subparagraph (2)(i)(D) of the definition of a bona fide hedging position, that, in addition to satisfying the general definition of a bona fide hedging position, a position would not be recognized as bona fide unless it was enumerated in paragraph (3), (4), or (5)(discussed below), or recognized as a pass-through swap offset or pass-through swap.474 In 2016, in response to comments on the 2013 proposed definition, the Commission proposed, in subparagraph (2)(i)(D)(2) of the definition, to also recognize as bona fide any position that has been otherwise recognized as a nonenumerated bona fide hedging position by either a designated contract market or a swap execution facility, each in accordance with § 150.9(a), or by the Commission.475 Comments received: Commenters objected to the requirement for a position to be specifically enumerated in order to be recognized as bona fide, noting that the enumerated requirement is not supported by the legislative history of the Dodd-Frank Act, conflicts with longstanding Commission practice and precedent, and may be overly restrictive due to the limited set of specific enumerated hedges.476 Other commenters recommended that the Commission expand the list of enumerated bona fide hedge positions, to encompass all transactions that reduce risks in the conduct and management of a commercial enterprise, such as anticipatory merchandising hedges and other general examples.477 Commission Reproposal: In response to comments, the Reproposal retains, as proposed in 2016, a proposed definition that recognizes as bona fide, in addition to enumerated positions, any position that has been otherwise recognized as a non-enumerated bona fide hedging position by either a designated contract market or a swap execution facility, each in accordance with reproposed § 150.9(a), or by the Commission. These provisions for recognition of nonenumerated positions are included in re-designated subparagraph (2)(iii)(C) of the reproposed definition of a bona fide hedging position. The Commission notes that it is not possible to list all positions that would meet the general definition of a bona fide hedging position. However, the Commission observes that the commenters’ many general examples, which they recommended be included in the list of enumerated bona fide hedging positions, generally did not provide sufficient context or facts and circumstances to permit the Commission to evaluate whether recognition as a non-enumerated bona fide hedging position would be warranted. Context would be supplied, for instance, by the provision of the particular market participant’s historical activities in the physical marketing channel and such participant’s estimate, in good faith, of its reasonably expected activities to be taken in the physical marketing channel. In a clarifying change, the Commission notes that the Reproposal has re-designated the provisions
proposed in subparagraph (2)(i)(D), in new subparagraph 2(iii), regarding the additional requirements for recognition of a position in a physical commodity contract as a bona fide hedging position. Concurrent with this re-designation, the Commission notes the Reproposal reorganizes, also for clarity, the application of the five-day rule to passthrough swaps and hedging swaps in subparagraph (2)(iii)(B), as discussed above.478
3. Enumerated Hedging Positions
a. Proposed Enumerated Hedges In paragraph (3) of the proposed definition of a bona fide hedging position, the Commission proposed four enumerated hedging positions: (i) Hedges of inventory and cash commodity purchase contracts; (ii) hedges of cash commodity sales contracts; (iii) hedges of unfilled anticipated requirements; and (iv) hedges by agents.479 Comments received: Numerous commenters objected to the provision in proposed subparagraph (3)(iii)(A) that would have limited recognition of a hedge for unfilled anticipated requirements to one year for agricultural commodities. For example, commenters noted a need to hedge unfilled anticipated requirements for sugar for a time period longer than twelve months.480 Similarly, other commenters noted there may be a need to offset risks arising from investments in processing capacity in agricultural commodities for a period in excess of twelve months.481 Other commenters recommended the Commission (1) remove the restriction that unfilled anticipated requirement hedges by a utility be ‘‘required or encouraged to hedge by its public utility commission’’ because most public utility commissions do not require or encourage such hedging, (2) expand the reach beyond utilities, by including

482See, e.g., CL–Working Group–59693 at 27–28, CL–EEI–EPSA–55953 at 19. CFTC Staff Letter No. 12–07 notes that unfilled anticipated requirements may be recognized as the basis of a bona fide hedging position or transaction under Commission Regulation 151.5(a)(2)(ii)(C) when a commercial enterprise has entered into long-term, unfixed-price supply or requirements contracts as the price risk of such ‘‘unfilled’’ anticipated requirements is not offset by an unfixed price forward contract as the price risk remains with the commercial, even though the commercial enterprise has contractually assured a supply of the commodity. Instead, the price risk continues until the forward contract’s price is fixed; once the price is fixed on the supply contract, the commercial enterprise no longer has price risk and the derivative position, to the extent the position is above an applicable speculative position limit, must be liquidated in an orderly manner in accordance with sound commercial practices. 483 December 2013 Position Limits Proposal, 78 FR at 75714. 484See, e.g., CL–NGFA–60941 at 8. 485 December 2013 Position Limits Proposal, 78 FR at 75716. 486See, e.g., CL–ICE–60929 at 16, CL–NCGA– NGSA–60919 at 6–7, CL–NCFC–60930 at 2–3, CL– API–60939 at 2, CL–NGFA–60941 at 8, CL–EEI– EPSA–60925 at 10, and CL–IECAssn–60949 at 5–7. 487CL–CME–60926 at 6. entities designated as providers of last resort who serve the same role as utilities, and (3) clarify the meaning of unfilled anticipated requirements, consistent with CFTC Staff Letter No. 12–07.482 Commission Reproposal: The Reproposal retains the enumerated exemptions as proposed, with two amendments. First, the Commission agrees with the commenters’ request to remove the twelve month constraint on hedging unfilled anticipated requirements for agricultural commodities, as that provision appears no longer to be a necessary prudential constraint. Second, the Commission agrees with the commenters’ request to remove the condition that a utility be ‘‘required or encouraged to hedge by its public utility commission.’’ Accordingly, the condition that a utility be ‘‘required or encouraged to hedge by its public utility commission’’ is omitted from the reproposed definition. The Commission notes that under the Reproposal, a market participant, who is not a utility, may request that an exchange consider recognizing a nonenumerated exemption, as it is not clear who would be appropriately identified as a ‘‘provider of last resort’’ and under what circumstance such person would reasonably estimate its unfilled requirements. Consistent with CFTC Staff Letter No. 12–07, the Commission affirms its belief that unfilled anticipated requirements are those anticipated inputs that are estimated in good faith and that have not been filled. Under the Reproposal, an anticipated requirement may be filled, for example, by fixed-price purchase commitments, holdings of commodity inventory by the market participant, or unsold anticipated
production of the market participant. However, an unfixed-price purchase commitment does not fill an anticipated requirement, in that the market participant’s price risk to the input has not been fixed. b. Proposed Other Enumerated Hedges Subject to the Five-Day Rule In paragraph (4) of the proposed definition of a bona fide hedging position, the Commission proposed four other enumerated hedging positions: (i) Hedges of unsold anticipated production; (ii) hedges of offsetting unfixed-price cash commodity sales and purchases; (iii) hedges of anticipated royalties; and (iv) hedges of services.483 The Commission proposed to apply the five-day rule to all such positions. Comments received on the five-day rule: Numerous commenters requested that the five-day rule be removed from the Commission’s other enumerated bona fide hedging positions, as that condition is not included in CEA
section 4a(c).
Commission Reproposal on the fiveday rule: The Commission is retaining the prudential condition of the five-day rule in the other enumerated hedging positions. The Commission has a long history of applying the five-day rule, in its legacy agricultural federal position limits, to hedges of unsold anticipated production and hedges of offsetting unfixed-price cash commodity sales and purchases. However, as discussed in relation to reproposed § 150.9, the Commission will permit an exchange, in effect, to remove the five-day rule on a case-by-case basis in physical-delivery contracts, as a non-enumerated bona fide hedging position, by applying the exchange’s experience and expertise in protecting its own physical-delivery market. Comments on other enumerated exemptions: As noted above, commenters recommended removing the twelve-month limitation on agricultural production, as unnecessarily short in comparison to the expected life of investment in production facilities.484 Commission Reproposal on other enumerated exemptions: The Reproposal removes the twelve-month limitations on unsold anticipated agricultural production and hedges of services for agricultural commodities. As noted above, that provision appears no longer to be a necessary prudential constraint. Otherwise, the Reproposal retains the other enumerated exemptions, as proposed.
c. Proposed Cross-Commodity Hedges
In paragraph (5) of the proposed definition of a bona fide hedging position, the Commission proposed to recognize as bona fide cross-commodity hedges.485 Cross-commodity hedging would be conditioned on: (i) The fluctuations in value of the position in the commodity derivate contract (or the commodity underlying the commodity derivative contract) being substantially related to the fluctuations in value of the actual or anticipated cash position or pass-through swap (the substantially related test); and (ii) the five-day rule being applied to positions in any physical-delivery commodity derivative contract. The Commission proposed a non-exclusive safe harbor for crosscommodity hedges that would have two factors: A qualitative factor; and a quantitative factor. Comments on cross-commodity hedges: Numerous commenters requested the Commission withdraw the safe harbor quantitative ‘‘test,’’ and noted such test is impracticable where there is no relevant cash market price series for the commodity being hedged.486 Some commenters requested the Commission retain a qualitative approach to assessing whether the fluctuations in value of the position in the commodity derivate contract are substantially related to the fluctuations in value of the actual or anticipated cash position. One commenter urged the Commission to clarify that market participants need not treat as enumerated cross-commodity hedges strategies where the cash position being hedged is the same cash commodity as the commodity underlying the futures contract even if the cash commodity is not deliverable against the contract. The commenter believes that this clarification would verify that nondeliverable grades of certain commodities could be deemed as the same cash commodity and thus not be deemed a cross-commodity hedge subject to the five-day rule.487 Commenters requested the Commission not apply a five-day rule to cross-commodity hedges or, alternatively, permit exchanges to determine the appropriate facts and circumstances where a market participant may be permitted to hold such positions into the spot month,

488See, e.g., CL–FIA–60937 at 22, CL–CCI–60935 at 8–9. 489 December 2013 Position Limits Proposal, 78 FR at 75711. The Commission also requested comment on whether it would be appropriate to exclude commodity trade options from the definition of referenced contract. As discussed above, the Commission has determined to exclude trade options from the definition of referenced contract. Previous to this reproposed rule, the Commission observed that federal position limits should not apply to trade options. 81 FR 14966 at 14971 (Mar. 21, 2016). 490See, e.g., CL–EEI–EPSA–60925 at 15. 491See the discussion of the definition of futuresequivalent in reproposed § 150.1, above. 492 December 2013 Position Limits Proposal, 78 FR at 75739, 75828. 493CL–FIA–59595 at 35, CL–FIA–59566 at 3–7, citing December 2013 Position Limits Proposal, 78 FR at 75837. noting that a cross-commodity hedge in a physical-delivery contract may be the best hedge of its commercial exposure.488 Commission Reproposal: The Reproposal retains the cross-commodity hedge provision in paragraph (5) of the definition of a bona fide hedging position as proposed. However, for the reasons requested by commenters and because of confusion regarding application of a safe harbor, the Reproposal does not include the safe harbor quantitative test. If questions arise regarding the bona fides of a particular cross-commodity hedge, it would, as reproposed, be reviewed based on facts and circumstances, including a market participant’s qualitative review of a particular crosscommodity hedge. The Reproposal retains the five-day rule, because a market participant who is hedging the price risk of a nondeliverable cash commodity has no need to make or take delivery on a physical-delivery contract. However, the Commission notes that an exchange may consider, on a case-by-case basis in physical-delivery contracts, whether to recognize such cross-commodity positions as non-enumerated bona fide hedges during the shorter of the last five days of trading or the time period for the spot month, by applying the exchange’s experience and expertise in protecting its own physical-delivery market, under the process of § 150.9.
4. Commodity Trade Options Deemed
Cash Equivalents
Commission proposal: The
Commission requested comment as to whether the Commission should use its exemptive authority under CEA section 4a(a)(7) to provide that the offeree of a commodity option would be presumed to be a pass-through swap counterparty for purposes of the offeror of the trade option qualifying for the pass-through swap offset exemption.489 Alternatively, the Commission, noting that forward contracts may serve as the basis of a bona fide hedging position exemption, proposed that it may similarly include trade options as one of the enumerated bona fide hedging exemptions. The Commission noted, for example, such an exemption could be similar to the enumerated exemption for the offset of the risk of a fixed-price forward contract with a short futures position. Comments on trade option exemptions: Commenters requested that the Commission clarify that hedges of commodity trade options be recognized as bona fide hedges, as would be available for other cash positions.490 Commission Reproposal: The Commission agrees with the commenters and has determined to address the request that commodity trade options should be recognized as the basis for a bona fide hedging position, as would be available for other cash positions. The reproposed definition of a bona fide hedging position adds new paragraph (6), specifying that a commodity trade option meeting the requirements of § 32.3 may be deemed a cash commodity purchase or sales contract, as the case may be, provided that such option is adjusted on a futuresequivalent basis. The reproposed definition also provides non-exclusive guidance on making futures-equivalent adjustments to a commodity trade option. For example, the guidance provides that the holder of a trade option, who has the right, but not the obligation, to call the commodity at a fixed price, may deem that trade option, converted on a futures-equivalent basis, to be a position in a cash commodity purchase contract, for purposes of showing that the offset of such cash commodity purchase contract is a bona fide hedging position. Because the price risk of an option, including a trade option with a fixed strike price, should be measured on a futures-equivalent basis,491 the Commission has determined that under the reproposed definition, a trade option should be deemed equivalent to a cash commodity purchase or sales contract only if adjusted on a futures-equivalent basis. The Commission notes that it may not be possible to compute a futuresequivalent basis for a trade option that does not have a fixed strike price. Thus, under the reproposed definition, a market participant may not use a trade option as a basis for a bona fide hedging position until a fixed strike price reasonably may be determined.
5. App. C to Part 150—Examples of
Bona Fide Hedging Positions for Physical Commodities Commission proposal: The Commission proposed a non-exhaustive list of examples meeting the requirements of the proposed definition of a bona fide hedging position, noting that market participants could see whether their practices fall within the list.492 Comments on examples: Comments regarding the processing hedge example number 5 of proposed Appendix C to
part 150 are discussed above. Another
commenter requested the Commission affirm that aggregation is required pursuant to an express or implied agreement when that agreement is to trade referenced contracts, and that aggregation is not triggered by the condition in example number 7 of proposed Appendix C to part 150, where a Sovereign grants an option to a farmer at no cost, conditioned on the farmer entering into a fixed-price forward sale.493 Commission Reproposal: The Commission agrees with the commenter that aggregation is required pursuant to an express or implied agreement when that agreement is to trade referenced contracts. Proposed example number 7 was focused on recognizing the legitimate public policy objectives of a sovereign furthering the development of a cash spot and forward market in agricultural commodities. To avoid confusion regarding the aggregation policy under rule 150.4, in the Reproposal, the Commission has revised example number 7, and has provided an interpretation that a farmer’s synthetic position of a long put option may be deemed a pass-through swap, for purposes of a sovereign who has granted a cash-settled call option at no cost to such farmer in furtherance of a public policy objective to induce such farmer to sell production in the cash market. The Commission notes the combination of a farmer’s forward sale agreement and a granted call option is approximately equivalent to a purchased put option. A farmer anticipating production or holding inventory may use such a long position in a put option as a bona fide hedging position. The Reproposal also includes a number of conforming amendments and corrections of typographical errors. Specifically, it conforms example number 4 regarding a utility to the

494See generally December 2013 Position Limits Proposal, 78 FR at 75725. The 28 core referenced futures contracts for which initial limit levels were proposed are: Chicago Board of Trade (‘‘CBOT’’) Corn, Oats, Rough Rice, Soybeans, Soybean Meal, Soybean Oil and Wheat; Chicago Mercantile Exchange Feeder Cattle, Lean Hog, Live Cattle and Class III Milk; Commodity Exchange, Inc., Gold, Silver and Copper; ICE Futures U.S. Cocoa, Coffee C, FCOJ–A, Cotton No. 2, Sugar No. 11 and Sugar No. 16; Kansas City Board of Trade Hard Winter Wheat (on September 6, 2013, CBOT and the Kansas City Board of Trade (‘‘KCBT’’) requested that the Commission permit the transfer to CBOT, effective December 9, of all contracts listed on the KCBT, and all associated open interest); Minneapolis Grain Exchange Hard Red Spring Wheat; and New York Mercantile Exchange (‘‘NYMEX’’) Palladium, Platinum, Light Sweet Crude Oil, NY Harbor ULSD, RBOB Gasoline and Henry Hub Natural Gas. 495 December 2013 Position Limits Proposal, 78 FR at 75727. Several commenters supported establishing the initial levels of spot month speculative position limit levels at the levels then established by DCMs and listed in Appendix D to
part 150, December 2013 Position Limits Proposal,
78 FR at 75739–40 (generally stating that the then current levels are high enough and raising them could cause problems with contract performance. E.g., CL–WGC–59558 at 1–2; CL–Sen. Levin–59637 at 7; CL–AFBF–59730 at 3; CL–NGFA–59956 at 2; CL–NGFA–60312 at 3; CL–NCBA–59624 at 3; CL– Bakers–59691 at 1. Several commenters expressed the view that DCMs are best able to determine appropriate spot month limits and the Commission should defer to their expertise. E.g., CL–NCBA– 59624 at 3; CL–Cactus–59660 at 3; CL–TCFA–59680 at 3; CL–NGFA–59610 at 2; CL–MGEX–59635 at 2; CL–MGEX–59932 at 2; CL–MGEX–60380 at 1; CL– ICE–60311 at 1; CL–Thornton–59729 at 1. 496 December 2013 Position Limits Proposal, 78 FR at 75727. The CME July 1, 2013 deliverable supply estimates are available on the Commission’s Web site at http://www.cftc.gov/idc/groups/public/ @swaps/documents/file/ cmegroupdeliverable070113.pdf; see also December 2013 Position Limits Proposal, 78 FR at 75727, n.
406. Several commenters supported using the
alternative level of spot-month position limits based on CME’s deliverable supply estimates as listed in
Table 9 of the December 2013 Position Limits
Proposal, generally stating that the alternative estimates are more up to date than the deliverable supply estimates underlying the spot month speculative position limits currently established by the DCMs, and therefore more appropriate for use in setting federal limits. E.g., CL–FIA–59595 at 3, 8; CL–EEI–EPSA–59602 at 9; CL–CMC–59634 at 14; CL–Olam–59658 at 1, 3; CL–BG Group–59656 at 6; CL–COPE–59662 at 21; CL–Calpine–59663 at 3; CL– NGSA–59673 at 37; CL–NGSA–59900 at 11; CL– Working Group–59693 at 58–59; CL–CME–60406 at 2–3 and App. A; CL–CME–60307 at 4; CL–CME– 59718 at 3, 20–23; CL–Sempra–59926 at 3–4; CL– BG Group–59937 at 2–3; CL–EPSA–59953 at 2–3; CL–ICE–59966 at 5–6; CL–ICE–59962 at 5; CL–US Dairy–59597 at 4; CL–Rice Dairy–59601 at 1; CL– NMPF–59652 at 4; CL–FCS–59675 at 5. 497 December 2013 Position Limits Proposal, 78 FR at 75727. The U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness commented that the CFTC must update estimates of deliverable supply, rather than relying on existing exchange-set spot month limit levels. CL–Chamber– 59684 at 6–7. 498 December 2013 Position Limits Proposal, 78 FR at 75728. 499CL–CME–61007 at 5. See also CL–CME– 61011; CL–CME–61012; CL–CME–60785 (earlier submission of deliverable supply estimates); CL– CME–60435 (earlier submission of deliverable supply estimates); CL–CME–60406 (earlier submission of deliverable supply estimates). The Commission did not receive an estimate for Live Cattle (LC). 500CL–ICE–60786. ICE also submitted an estimate for Henry Hub natural gas. CL–ICE–60684. 501CL–MGEX–61038 at Exhibit A; see also CL– MGEX–60938 at 2 (earlier submission of deliverable supply estimate). changes to paragraph (3)(iii)(B) of the bona fide hedging position definition, as discussed above. The references in the examples to a 12-month restriction on hedges of agricultural commodities have also been removed because the Reproposal eliminates those proposed restrictions from the reproposed enumerated bona fide hedging positions, as discussed above. In addition, based on discussions with cotton merchants, example number 6, regarding agent hedging, has been amended from a generic example to a specific illustration of the hedge of cotton equities purchased by a cotton merchant from a producer, under the USDA loan program. Finally, the Reproposal corrects typographical errors in example number 12, regarding the hedge of copper inventory and the cross-hedge of copper wire inventory, to correctly reflect the 25,000 pound unit of trading in the Copper core referenced futures contract, and deletes the unnecessary reference to the price relationship between the nearby and deferred Copper futures contracts. B. § 150.2—Position Limits

Setting Levels of Spot Month Limits
In the December 2013 Position Limits Proposal, the Commission proposed to establish speculative position limits on 28 core referenced futures contracts in physical commodities.494 As stated in the December 2013 Position Limits Proposal, the Commission proposed to set the initial spot month position limit levels for referenced contracts at the existing DCM-set levels for the core referenced futures contracts because the Commission believed this approach to be consistent with the regulatory objectives of the Dodd-Frank Act amendments to the CEA and many market participants are already used to those levels.495 The Commission also stated that it was considering setting initial spot month limits based on estimated deliverable supplies submitted by CME Group Inc. (‘‘CME’’) in 2013.496 The Commission suggested that it might use the exchange’s estimated deliverable supplies if it could verify that they are reasonable.497 The Commission further stated that it was considering another alternative of using, in the Commission’s discretion, the recommended level, if any, of the spot month limit as submitted by each DCM listing a core referenced futures contract (if lower than 25 percent of estimated deliverable supply).498
Verification of Estimated Deliverable
Supply
The Commission received comment letters from CME, Intercontinental Exchange (‘‘ICE’’) and Minneapolis Grain Exchange, Inc. (‘‘MGEX’’) containing estimates of deliverable supply. CME submitted updated estimates of deliverable supply for CBOT Corn (C), Oats (O), Rough Rice (RR), Soybeans (S), Soybean Meal (SM), Soybean Oil (SO), Wheat (W), and KC HRW Wheat (KW); COMEX Gold (GC), Silver (SI), Platinum (PL), Palladium (PA), and Copper (HG); NYMEX Natural Gas (NG), Light Sweet Crude Oil (CL), NY Harbor ULSD (HO), and RBOB Gasoline (RB).499 ICE submitted estimates of deliverable supply for Cocoa (CC), Coffee C (KC), Cotton No. 2 (CT), FCOJ–A (OJ), Sugar No. 11 (SB), and Sugar No. 16 (SF).500 MGEX submitted an estimate of deliverable supply for Hard Red Spring Wheat (MWE).501 The Commission is verifying that the estimates for C, O, RR, S, SM, SO, W, and KW submitted by CME are reasonable. The Commission is verifying that the estimate for MWE submitted by MGEX is reasonable. The Commission is verifying that the estimates for CC, KC, CT, OJ, SB, and SF submitted by ICE are reasonable. The Commission is verifying that the estimates for GC, SI, PL, PA, and HG submitted by CME are reasonable. Finally, the Commission is verifying that the estimates for NG, CL, HO, and RB submitted by CME are reasonable. In verifying that all of these estimates of deliverable supply are reasonable, Commission staff reviewed the exchange submissions and conducted its own research. Commission staff reviewed the data submitted, confirmed that the data submitted accurately reflected the source data, and considered whether the data sources were authoritative. Commission staff considered whether the assumptions made by the exchanges in the submissions were acceptable, or whether alternative assumptions would lead to similar results. In response to Commission staff questions about the exchange submissions, the Commission received revised estimates from exchanges. In some cases, Commission staff conducted trade source interviews. Commission staff replicated the calculations included in the submissions.

502 17 CFR part 38, Appendix C.
503 December 2013 Position Limits Proposal, 78 FR at 75729. The Commission currently sets the single-month and all-months-combined limits based on total open interest for a particular commodity futures contract and options on that futures contract, on a futures-equivalent basis. 504 December 2013 Position Limits Proposal, 78 FR at 75730. 505 Id. 506 December 2013 Position Limits Proposal, 78 FR at 75733. Thus, the initial levels as proposed in the December 2013 Position Limits Proposal represented the lower bounds for the initial levels that the Commission would establish in final rules. 507 December 2013 Position Limits Proposal, 78 FR at 75734. The Commission also stated that it was considering using data from swap data repositories, as practicable. Id. The Commission has determined that it is not yet practicable to use data from swap data repositories. 508 2016 Supplemental Position Limits Proposal, 81 FR at 38459. 509E.g., CL–FIA–59595 at 3, 14; CL–EEI–EPSA– 59602 at 10–11; CL–MFA–60385 at 4–7; CL–MFA– 59606 at 22–23; CL–ISDA/SIFMA–59611 at 28–29; CL–CMC–59634 at 13; CL–Olam–59658 at 3; CL– COPE–59662 at 22; CL–Calpine–59663 at 4; CL– CCMC–59684 at 4–5; CL–NFP–59690 at 20; CL–Just Energy–59692 at 4; CL–Working Group–59693 at 62. 510Where relevant and practicable, Commission staff consulted and followed the Office of Management and Budget Standards and Guidelines for Statistical Surveys, September 2006, available at https://www.whitehouse.gov/sites/default/files/ omb/inforeg/statpolicy/standards_stat_surveys.pdf. 511There is no part 20 swaps data for Sugar No. 16 (SF). 512A reporting entity is a clearing member or a swap dealer required to report large trader position data for physical commodity swaps, as defined in 17 CFR 20.1. 513Because there may be missing data, using open contracts for each business day in the time period that a reporting entity submits a report may overestimate open interest, compared to taking a straight average of the open contracts over all business days in the time period. However, the Commission believes it is reasonable to assume that the open position in swaps for a reporting entity failing to report for a particular business day is more accurately reflected by that reporting entity’s average reported open swaps for the month, rather than zero. Hence, in choosing this approach, the Commission chooses to repropose higher non-spot month limit levels. 514This adjustment may have removed fewer than all of the reported positions in swaps that do not satisfy the definition of referenced contract as adopted, and therefore may have resulted in a higher level of open interest (which would result in a higher limit level). For instance, swaps reported under part 20 include trade options, and the Commission is reproposing an amended definition of ‘‘referenced contract’’ to expressly exclude trade options. See the discussion of the defined term ‘‘referenced contract’’ under § 150.1, above. Because part 20 does not require
trade options to be identified, the Commission could not exclude records of trade options from open interest or position size. In verifying the exchange estimates of deliverable supply, the Commission is not endorsing any particular methodology for estimating deliverable supply beyond what is already set forth in Appendix C to part 38 of the Commission’s regulations.502 As circumstances change over time, exchanges may need to adjust the methodology, assumptions and allowances that they use to estimate deliverable supply to reflect then current market conditions and other relevant factors. The Commission anticipates that it will base initial spotmonth position limits on the current verified exchange estimates as and to the extent described below, unless an exchange provides additional updates during the Reproposal comment period that the Commission can verify as reasonable.
3. Single-Month and All-MonthsCombined Limits
Commission Proposal: In the December 2013 Position Limits Proposal, the Commission proposed to set the level of single-month and allmonths-combined limits (collectively, non-spot month limits) based on total open interest for all referenced contracts in a commodity.503 The Commission also proposed to estimate average open interest based on the largest annual average open interest computed for each of the past two calendar years, using either month-end open contracts or open contracts for each business day in the time period, as the Commission finds in its discretion to be reliable.504 For setting the levels of initial non-spot month limits, the Commission proposed to use open interest for calendar years 2011 and 2012 in futures contracts, options thereon, and in swaps that are significant price discovery contracts that are traded on exempt commercial markets.505 The Commission explained that it had reviewed preliminary data submitted to it under part 20, but preliminarily decided not to use it for purposes of setting the initial levels of single-month and all-months-combined position limits because the data prior to January 2013 was less reliable than data submitted later.506 The Commission noted that it was considering using part 20 data, should it determine such data to be reliable, in order to establish higher initial levels in a final rule.507 In the June 2016 Supplemental Proposal, the Commission noted that, since the December 2013 Position Limits Proposal, the Commission worked with industry to improve the quality of swap position data reported to the Commission under part 20.508 The Commission also noted that, in light of the improved quality of such swap position data reporting, the Commission intended to rely on part 20 swap position data, given adjustments for obvious errors (e.g., data reported based on a unit of measure, such as an ounce, rather than a futures-equivalent number of contracts), to establish initial levels of federal non-spot month limits on futures and swaps in a final rule. Comments Received: Commenters requested that the Commission delay the imposition of hard non-spot month limits until it has collected and evaluated complete open interest data.509 Commission Reproposal: The Commission has determined that certain
part 20 large trader position data, after
processing and editing by Commission staff as described below,510 is reliable. The Commission has determined to repropose the initial non-spot month position limit levels based on the combination of such adjusted part 20 swaps data and data on open interest in physical commodity futures and options from the relevant exchanges, as described below. The Commission is using two 12-month periods of data, covering a total of 24 months, rather than two calendar years of data, as is practicable, in reproposing the initial non-spot month position limit levels. Data Editing Commission staff analyzed and evaluated the quality of part 20 data for the period from July 1, 2014 through June 30, 2015 (‘‘Year 1’’), and the period from July 1, 2015 through June 30, 2016 (‘‘Year 2’’).511 The Commission used open contracts as reported for each business day in the time periods, rather than month-end open contracts, primarily because it lessens the impact of missing data. Averaging generally also smooths over errors in reporting when there is both under- and overreporting, both of which the Commission observed in the part 20 data. By calculating a daily average for each month for each reporting entity,512 one calculates a reporting entity’s open contracts on a ‘‘representative day’’ for each month. The Commission then summed the open contracts for each reporting entity on this representative day, to determine the average open interest for a particular month.513 First, for each of Year 1 and Year 2, Commission staff identified all reported positions in swaps that do not satisfy the definition of referenced contract as proposed in the December 2013 Position Limits Proposal 514 and removed those positions from the data set. For example, swaps settled using the price of the LME Gold PM Fix contract do not meet the definition of referenced contract for the gold core referenced futures contract (GC) but positions reported based on these types of swaps represented 14% of records submitted

under part 20 by reporting entities for gold swaps. The percentage of average daily open interest excluded from the adjusted part 20 swaps data resulting from this deletion are set forth in Table 1 below. Other adjustments to the data are described below. Because not all commodities required exclusion of nonreferenced contracts, the Commission reports only the 11 commodities that required this type of exclusion.
TABLE III–B–1—PERCENT OF ADJUSTED AVERAGE DAILY OPEN INTEREST EXCLUDED AS NOT MEETING THE DEFINITION
OF REFERENCED CONTRACT
Core referenced futures contract Year 1 percent of excluded adjusted open interest (%) Year 2 percent of excluded adjusted open interest (%) Cotton No. 2 (CT) .................................................................................................................................................... 0.22 0.00 Sugar No. 11 (SB) ................................................................................................................................................... 0.05 0.00 Gold (GC) ................................................................................................................................................................ 42.59 0.00 Silver (SI) ................................................................................................................................................................. 48.10 0.00 Platinum (PL) ........................................................................................................................................................... 9.12 5.36 Palladium (PA) ......................................................................................................................................................... 56.87 6.87 Copper (HG) ............................................................................................................................................................ 37.58 0.25 Natural Gas (NG) ..................................................................................................................................................... 12.49 12.52 Light Sweet Crude (CL) ........................................................................................................................................... 3.60 0.83 New York Harbor ULSD (HO) ................................................................................................................................. 0.96 1.74 RBOB Gasoline (RB) ............................................................................................................................................... 1.34 1.30 Second, Commission staff checked and edited the remaining data to mitigate certain types of errors. Commission staff identified three general types of reporting errors and made edits to adjust the data for:
(i) Positions that were clearly reported in units of a commodity when they should have been reported in the number of gross futures-equivalent contracts. For example, a position in gold (GC) with a futures contract unit of trading of 100 ounces might be reported as 480,000 contracts, when other available information, reasonable assumptions, consultation with reporting entities and/or Commission expertise indicate that the position should have been reported as 4,800 contracts (that is, 480,000 ounces divided by 100 ounces per contract). Commission staff corrected such reported swaps position data and included the corrected data in the data set. (ii) Positions that are not obviously reported in units of a commodity but appear to be off by one or more decimal places (e.g., a position is overstated, but not by a multiple of the contract’s unit of trading). For example, a position in COMEX gold is reported as 100,000 and the notional value might be reported as $13,000,000, when the price of gold is $1300 and the COMEX gold contract is for 100 ounces, indicating that the position should have been reported as 100 futures-equivalent contracts. Staff corrected such reported swaps position data and included the corrected data in the data set. (iii) Positions reported multiple times per day or otherwise extremely different from surrounding days’ reported open interest. In some cases, reporting entities submitted the same report using different reporting identifiers, for the same day. In other cases, a position would inexplicably spike for one day, to a multiple of other days’ reported open interest. When Commission staff checked with the reporting entity, the reporting entity confirmed that the reports were, indeed, erroneous. Commission staff did not include such incorrectly reported duplicative swaps position data in its analysis. In other cases, positions that were clearly reported incorrectly, but for which Commission staff could discern neither a reason nor a reasonable adjustment, were not included. For example, Commission staff deleted all swap position data reports submitted by one swap dealer from its analysis because the reports were inexplicably anomalous in light of other available information, reasonable assumptions and Commission expertise. As another example, one reporting entity reported extremely large values for only certain types of positions. After speaking with the reporting entity, Commission staff determined that there was no systematic adjustment to be made, but that the actual positions were, in fact, small. Hence, Commission staff did not include such reported swaps position data in its analysis. The number of principal records edited, resulting from the edits relating to the three types of edits to erroneous position reports noted above, is set forth in Table 2 below. A principal record is a report of a swaps open position where the reporting entity is a principal to the swap, as opposed to a counterparty record.
TABLE III–B–2—PERCENTAGE OF PRINCIPAL RECORDS ADJUSTED BY EDIT TYPE AND UNDERLYING COMMODITY,
REFERENCED CONTRACTS ONLY Edit type Number of records adjusted year 1 (%) Number of records adjusted year 2 (%) Corn (C) ....................................................................................................................................... (i) .................... 0.00 0.0001 (iii) .................. 0.00 0.66 Oats (O) ....................................................................................................................................... (iii) .................. 0.00 0.20 Rough Rice (RR) ......................................................................................................................... (iii) .................. 0.38 0.00

TABLE III–B–2—PERCENTAGE OF PRINCIPAL RECORDS ADJUSTED BY EDIT TYPE AND UNDERLYING COMMODITY,
REFERENCED CONTRACTS ONLY—Continued Edit type Number of records adjusted year 1 (%) Number of records adjusted year 2 (%) Soybeans (S) ............................................................................................................................... (i) .................... 0.00 0.03 (iii) .................. 2.38 1.46 Soybean Meal (SM) ..................................................................................................................... (iii) .................. 0.00 0.41 Soybean Oil (SO) ........................................................................................................................ (iii) .................. 9.15 4.93 Wheat (W) ................................................................................................................................... (i) .................... 0.00 0.01 (iii) .................. 1.77 0.71 Wheat (MWE) .............................................................................................................................. (iii) .................. 0.043 0.002 Wheat (KW) ................................................................................................................................. (iii) .................. 1.34 0.68 Cocoa (CC) .................................................................................................................................. (i) .................... 0.001 0.0005 (iii) .................. 1.79 0.25 Coffee C (KC) .............................................................................................................................. (i) .................... 0.00 0.01 (iii) .................. 5.33 0.60 Cotton No. 2 (CT) ........................................................................................................................ (iii) .................. 16.76 5.59 FCOJ–A (OJ) ............................................................................................................................... (iii) .................. 13.30 17.43 Sugar No. 11 (SB) ....................................................................................................................... (i) .................... 0.00 0.0009 (iii) .................. 1.21 0.54 Live Cattle (LC) ........................................................................................................................... (i) .................... 0.002 0.00 (iii) .................. 45.65 15.50 Gold (GC) .................................................................................................................................... (i) .................... 1.99 0.02 (ii) ................... 0.32 0.00 (iii) .................. 91.45 89.04 Silver (SI) ..................................................................................................................................... (i) .................... 3.01 0.19 (iii) .................. 93.08 89.52 Platinum (PL)
............................................................................................................................... (i) .................... 2.75 0.01 (ii) ................... 0.33 0.01 (iii) .................. 23.51 21.11 Palladium (PA) ............................................................................................................................. (i) .................... 0.62 0.00 (ii) ................... 0.30 0.00 (iii) .................. 32.97 22.29 Copper (HG) ................................................................................................................................ (i) .................... 4.94 0.48 (iii) .................. 20.80 16.82 Natural Gas (NG) ........................................................................................................................ (i) .................... 0.01 1.03 (iii) .................. 7.68 3.80 Light Sweet Crude (CL) ............................................................................................................... (i) .................... 0.001 0.003 (iii) .................. 9.53 8.43 New York Harbor ULSD (HO) ..................................................................................................... (i) .................... 0.01 0.0006 (iii) .................. 29.58 4.33 RBOB Gasoline (RB) ................................................................................................................... (i) .................... 0.22 0.60 (iii) .................. 30.46 24.62 Some records also appeared to contain errors attributable to other factors that Commission staff could detect and for which Commission staff can correct. For example, there were instances where the reporting entity misreported the ownership of the position, i.e., principal vs. counterparty. Commission staff corrected the misreported ownership data and included the corrected data in the data set. Such corrections are important to ensure that data is not double counted. In Year 1, eight reporting entities required an adjustment to the reported position ownership information. In Year 2, five reporting entities required an adjustment to the reported position ownership information. Third, in the part 20 large trader swap data, staff checked and adjusted the average daily open interest for positions resulting from inter-affiliate transactions and duplicative reporting of positions due to transactions between reporting entities. For an example of duplicative reporting by reporting entities (which is reporting in terms of futures-equivalent contracts), assume Swap Dealer A and Swap Dealer B have an open swap equivalent to 50 futures contracts, Swap Dealer A also has a swap equivalent to 25 futures contracts with End User X, and Swap Dealer B has a swap equivalent to 200 futures contracts with End User Y. The total open swaps in this scenario is equivalent to 275 futures contracts. However, Swap Dealer A will report a gross position of 75 contracts and Swap Dealer B
will report a gross position of 250 contracts. Simply summing these two gross positions would overestimate the open swaps as 325 contracts—50 contracts more than there actually should be. For this reason, Commission staff used the counterparty accounts of each reporting entity to flag counterparty accounts of other reporting entities. Commission staff then used the daily average of the gross positions for these accounts to reduce the amount of average daily open swaps. Similarly, Commission staff flagged the counterparty accounts for entities that are affiliates of each reporting entity in order to adjust the amount of average daily open swaps. These adjustments to the Year 1 data are reflected in Table 3 below, and the corresponding adjustments to the Year 2 data are reflected in Table 4 below.

TABLE III–B–3—AVERAGE DAILY OPEN INTEREST IN YEAR 1 ADJUSTED FOR DUPLICATE AND AFFILIATE REPORTING BY
UNDERLYING COMMODITY
Paired swaps for
Average adjusted daily open interest Average adjusted daily open interest reporting entity duplication removed Average adjusted daily open interest reporting entity duplication & affiliates removed Corn (C) ............................................................................................................... 655,492 522,566 359,715 Oats (O) ............................................................................................................... 684 667 646 Rough Rice (RR) ................................................................................................. 916 640 362 Soybeans (S) ....................................................................................................... 157,017 139,608 109,858 Soybean Meal (SM) ............................................................................................. 125,444 99,795 71,887 Soybean Oil (SO) ................................................................................................ 74,831 64,854 55,265 Wheat (W) ............................................................................................................ 272,839 229,453 162,999 Wheat (MGE) ....................................................................................................... 3,430 3,021 1,944 Wheat (KW) ......................................................................................................... 14,918 14,213 9,436 Cocoa (CC) .......................................................................................................... 15,207 13,792 11,257 Coffee C (KC) ...................................................................................................... 31,540 28,539 24,164 Cotton No. 2 (CT) ................................................................................................ 51,442 42,806 35,102 FCOG–A (OJ) ...................................................................................................... 160 142 121 Sugar No. 11 (SB) ............................................................................................... 279,355 256,887 211,994 Live Cattle (LC) .................................................................................................... 46,361 36,999 23,626 Gold (GC) ............................................................................................................ 79,778 64,363 47,727 Silver (SI) ............................................................................................................. 19,373 14,678 9,867 Platinum (PL) ....................................................................................................... 25,145 24,530 21,566 Palladium (PA) ..................................................................................................... 2,044 1,939 1,929 Copper (HG) ........................................................................................................ 31,143 28,718 22,859 Natural Gas (NG)
................................................................................................. 4,100,419 3,603,368 2,866,128 Light Sweet Crude (CL) ....................................................................................... 2,039,963 1,875,660 1,587,450 NY Harbor ULSD (HO) ........................................................................................ 178,978 161,617 138,360 RBOB Gasoline (RB) ........................................................................................... 103,586 100,021 81,822
TABLE III–B–4—AVERAGE DAILY OPEN INTEREST IN YEAR 2 ADJUSTED FOR DUPLICATE AND AFFILIATE REPORTING BY
UNDERLYING COMMODITY
Paired swaps for
Average adjusted daily open interest Average adjusted daily open interest reporting entity duplication removed Average adjusted daily open interest reporting entity duplication & affiliates removed Corn (C) ............................................................................................................... 1,265,639 960,088 641,014 Oats (O) ............................................................................................................... 1,029 858 480 Rough Rice (RR) ................................................................................................. 396 250 4 Soybeans (S) ....................................................................................................... 453,419 351,279 235,679 Soybean Meal (SM) ............................................................................................. 282,123 209,023 134,399 Soybean Oil (SO) ................................................................................................ 282,207 198,744 125,106 Wheat (W) ............................................................................................................ 437,711 334,136 222,420 Wheat (MWE) ...................................................................................................... 15,167 9,511 3,079 Wheat (KW) ......................................................................................................... 65,533 47,722 29,563 Cocoa (CC) .......................................................................................................... 141,526 100,564 56,853 Coffee C (KC) ...................................................................................................... 97,128 74,739 51,846 Cotton No. 2 (CT) ................................................................................................ 137,295 99,496 60,477 FCOJ–A (OJ) ....................................................................................................... 1,137 640 5 Sugar No. 11 (SB) ............................................................................................... 717,967 558,423 382,816 Live Cattle (LC) .................................................................................................... 102,131 77,783 52,330 Gold (GC) ............................................................................................................ 62,804 50,054 36,029 Silver (SI) ............................................................................................................. 9,306 6,207 3,510 Platinum (PL) ....................................................................................................... 2,575 2,507 2,285 Palladium (PA) ..................................................................................................... 889 857 823 Copper (HG) ........................................................................................................ 82,479 65,187 47,365 Natural Gas (NG)
................................................................................................. 4,239,581 3,828,739 3,331,141 Light Sweet Crude (CL) ....................................................................................... 2,318,074 2,050,270 1,744,137 NY Harbor ULSD (HO) ........................................................................................ 170,316 117,004 65,721 RBOB Gasoline (RB) ........................................................................................... 102,094 66,560 30,477 Staff made numerous significant adjustments to the part 20 data for natural gas, due to numerous reports in units rather than the number of gross futures-equivalent contracts and the large number of reports of swaps that did not meet the definition of referenced contract.

515See, e.g., CFTC Staff Advisory No. 15–66, available at http://www.cftc.gov/idc/groups/public/ @lrlettergeneral/documents/letter/15-66.pdf (reminding swap dealers and major swap participants of their swap data reporting obligations); Remarks of Chairman Timothy Massad before the ABA Derivatives and Futures Law Committee, 2016 Winter Meeting, Jan. 22, 2016, available at http://www.cftc.gov/PressRoom/ SpeechesTestimony/opamassad-37 (improving data reporting). 516 December 2013 Position Limits Proposal, 78 FR at 75734. 517The CFTC announced its first case enforcing the Reporting Rules in September 2015. See Order:
Australia and New Zealand Banking Group Ltd. (‘‘ANZ’’), available at http://www.cftc.gov/idc/ groups/public/@lrenforcementactions/documents/ legalpleading/enfaustraliaorder091715.pdf (the Order finds that during the period from at least March 1, 2013 through November 30, 2014, ANZ filed large trader reports that routinely contained errors). 518 December 2013 Position Limits Proposal, 78 FR at 75727. One commenter urged the Commission to retain the legacy speculative limits for enumerated agricultural products. The ‘‘enumerated’’ agricultural products refer to the list of commodities contained in the definition of ‘‘commodity’’ in CEA section 1a; 7 U.S.C. 1a. This list of agricultural contracts includes nine currently traded contracts: Corn (and Mini-Corn), Oats, Soybeans (and Mini-Soybeans), Wheat (and Miniwheat), Soybean Oil, Soybean Meal, Hard Red Spring Wheat, Hard Winter Wheat, and Cotton No.
2. See 17 CFR 150.2. The position limits on these
agricultural contracts are referred to as ‘‘legacy’’ limits because these contracts on agricultural commodities have been subject to federal positions limits for decades. This commenter stated, ‘‘There is no appreciable support within our industry or, as far as we know, from the relevant exchanges to move beyond current levels . . . . Changing current limits, as proposed in the rule, will have a negative impact on futures-cash market convergence and will compromise contract performance.’’ CL–AFBF– 59730 at 3. Contra CL–ISDA/SIFMA–59611 at 32 (setting initial spot-month limits at the existing exchange-set levels would be arbitrary because the exchange-set levels have not been calibrated to apply as ‘‘a ceiling on the spot-month positions that a trader can hold across all exchanges for futures, options and swaps’’); CL–ICE–59966 at 6 (‘‘the Proposed Rule . . . effectively halves the present position limit in the spot month by aggregating across trading venues and uncleared OTC swaps’’). See also CL–ISDA/SIFMA–59611 at 3 (the spot month limit methodology is ‘‘both arbitrary and unjustified’’). 519 December 2013 Position Limits Proposal, 78 FR at 75727. The Commission also stated that if the Commission could not verify an exchange’s estimate of deliverable supply for any commodity as reasonable, the Commission might adopt the existing DCM-set level or a higher level based on the Commission’s own estimate, but not greater than would result from the exchange’s estimated deliverable supply for a commodity. One commenter was unconvinced that estimated deliverable supply is ‘‘the appropriate metric for determining spot month position limits’’ and opined that the ‘‘real test’’ should be whether limits ‘‘allow convergence of cash and futures so that futures markets can still perform their price discovery and risk management functions.’’ CL– NGFA–60941 at 2. Another commenter stated, ‘‘While 25% may be a reasonable threshold, it is based on historical practice rather than contemporary analysis, and it should only be used as a guideline, rather than formally adopted as a hard rule. Deliverable supply is subject to numerous environmental and economic factors, and is inherently not susceptible to formulaic calculation on a yearly basis.’’ CL–MGEX–60301 at

Another commenter expressed the view that the
25 percent formula is not ‘‘appropriately calibrated to achieve the statutory objective’’ set forth in
section 4a(a)(3)(B)(i) of the CEA, 7 U.S.C.
6a(a)(3)(B)(i). CL–CME–60926 at 3. Another commenter opined that because the Commission ‘‘has not established a relationship between ‘estimated deliverable supply’ and spot-month potential for manipulation or excessive speculation,’’ the 25 percent formula is arbitrary. CL–ISDA/SIFMA–59611 at 31. Several commenters opined that 25 percent of deliverable supply is too high. E.g., CL–AFR–59685 at 2; CL-Tri-State Coalition for Responsible Investment-59682 at 1; CL–CMOC–59720 at 3; CL– WEED–59628 (‘‘Only a lower limit would ensure market stability and prevent market manipulation.’’); CL–Public Citizen-60313 at 1 (‘‘There is no good reason for a single firm to take 25% of a market.’’); CL–IECA–59964 at 3 (25 percent of deliverable supply ‘‘is a lot of market power in the hands of speculators’’). One commenter stated that ‘‘position limits should be set low enough to restore a commercial hedger majority in open interest in each core referenced contract,’’ CL–IATP–60323 at 5 (suggesting in a later submission that position limits at 5–10 percent of estimated deliverable supply in each covered contract applied on an aggregated basis might ‘‘enable commercial hedgers to regain for all covered contracts their pre-2000 average share of 70 percent of agricultural contracts’’). CL–IATP–60394 at 2. One commenter supported expanding position limits ‘‘to ensure rough or approximate convergence of futures and underlying cash at expiration.’’ CL– Thornton–59702 at 1. Several commenters supported setting limits based on updated estimates of deliverable supply which reflect current market conditions. E.g., CL– ICE–59966 at 5; CL–FIA–59595 at 8; CL–EEI–EPSA– 59602 at 9; CL–MFA–59606 at 5; CL–CMC–59634 at 14; CL-Olam-59658 at 3; CL–CCMC–59684 at 6– 7. 520 December 2013 Position Limits Proposal, 78 FR at 75728. 521CEA section 5(d)(1)(B), 7 U.S.C. 7(d)(1)(B). 522 December 2013 Position Limits Proposal, 78 FR at 75729. 523CEA section 15(a)(2)(B), 7 U.S.C. 19(a)(2)(B). The Commission continues to be concerned about the quality of data submitted in large trader reports pursuant to part 20 of the Commission’s regulations. Commissioners and staff have expressed concerns about data reporting publicly on a variety of occasions.515 Nevertheless, the Commission anticipates that over time
part 20 submissions will become more
reliable and intensive efforts by Commission staff to process and edit raw data will become less necessary. As stated in the December 2013 Position Limits Proposal, for setting subsequent levels of non-spot month limits, the Commission proposes to estimate average open interest in referenced contracts using data reported pursuant to parts 16, 20, and/or 45.516 It is crucial, therefore, that market participants make sure they submit accurate data to the Commission, and resubmit data discovered to be erroneous, because subsequent limit levels will be based on that data. Reporting is at the heart of the Commission’s market and financial surveillance programs, which are critical to the Commission’s mission to protect market participants and promote market integrity. Failure to meet reporting obligations to the Commission by submitting reports and data that contain errors and omissions in violation of the part 20 regulations may subject reporting entities to enforcement actions and remedial sanctions.517
Setting Levels of Spot-Month Limits
In the December 2013 Position Limits Proposal, the Commission proposed to set the initial spot month speculative position limit levels for referenced contracts at the existing DCM-set levels for the core referenced futures contracts.518 As an alternative, the Commission stated that it was considering using 25 percent of an exchange’s estimate of deliverable supply if the Commission verified the estimate as reasonable.519 As a further alternative, the Commission stated that it was considering setting initial spot month position limit levels at a recommended level, if any, submitted by a DCM (if lower than 25 percent of estimated deliverable supply).520 In determining the levels at which to repropose the initial speculative position limits, the Commission considered, without limitation, the recommendations of the exchanges as well as data to which the exchanges do not have access. In considering these and other factors, the Commission became very concerned about the effect of alternative limit levels on traders in the cash-settled referenced contracts. A DCM has reasonable discretion in establishing the manner in which it complies with core principle 5 regarding position limits.521 As the Commission observed in the December 2013 Position Limits Proposal, ‘‘there may be a range of spot month limits, including limits set below 25 percent of deliverable supply, which may serve as practicable to maximize . . . [the] policy objectives [set forth in section 4a(a)(3)(B) of the CEA].’’ 522 The Commission must also consider the competitiveness of futures markets.523 Thus, the Commission accepts the recommendations of the exchanges and has determined to repropose federal limits below 25 percent of deliverable supply, where setting a limit level at less than 25 percent of deliverable supply does not appear to restrict unduly positions in the cash-settled referenced contracts. The exchanges retain the ability to adopt lower exchange-set limit levels than the initial

524CL–CME–61007 at 5.
525The Commission noted in the December 2013 Position Limits Proposal ‘‘that DCMs historically have set or maintained exchange spot month limits at levels below 25 percent of deliverable supply.’’ December 2013 Position Limits Proposal, 78 FR at 75729. 526See CL–CME–61007 (specifying lower exchange-set limit levels for W and RR in certain circumstances). 527 December 2013 Position Limits Proposal, 78 FR at 75727. 528 December 2013 Position Limits Proposal, 78 FR at 75839 (Appendix D to Part 150—Initial Position Limit Levels). 529Rounded up to the next 100 contracts. 530The W core referenced futures contract refers to soft red winter wheat, the KW core reference futures contract refers to hard red winter wheat, and the MWE core reference futures contract refers to hard red spring wheat; i.e., the contracts are for different products. 531CL–MGEX–61038 at 2; see also CL–MGEX– 60938 at 2 (earlier submission of deliverable supply estimate). 532The difference is due to rounding. The MGEX estimate of 4,005 contract equivalents for MWE deliverable would have supported a spot-month limit level of 1,100 contracts (rounded up to the next 100 contracts). The Commission noted in the December 2013 Position Limits Proposal ‘‘that DCMs historically have set or maintained exchange spot month limits at levels below 25 percent of deliverable supply.’’ December 2013 Position Limits Proposal, 78 FR at 75729. 533Most commenters who supported establishing the same level of speculative limits for each of the three wheat core referenced futures contracts focused on parity in the non-spot months. However, some commenters did support wheat party in the spot month. See, e.g., CL–CMC–59634 at 15; CL– NCFC–59942 at 6. 534The difference between an estimate of 4,000 contracts, which would result in a limit level of 1,000, and 4,005 contracts, which results in a limit level of 1,100 contracts, is small enough that the Commission’s prior statements regarding the 25% formula are instructive. As stated in the December 2013 Position Limits Proposal, the 25 percent formula ‘‘is consistent with the longstanding acceptable practices for DCM core principle 5 which provides that, for physical-delivery contracts, the spot-month limit should not exceed 25 percent of the estimated deliverable supply.’’ December 2013 Position Limits Proposal, 78 FR at
75729. The Commission continues to believe, based
on its experience and expertise, that the 25 percent formula is an ‘‘effective prophylactic tool to reduce the threat of corners and squeezes, and promote convergence without compromising market liquidity.’’ December 2013 Position Limits Proposal, 78 FR at 75729. speculative position limit levels that the Commission reproposes today. a. CME and MGEX Agricultural Contracts As explained above, the Commission has verified that the estimates of deliverable supply for each of the CBOT Corn (C), Oats (O), Rough Rice (RR), Soybeans (S), Soybean Meal (SM), Soybean Oil (SO), Wheat (W) core referenced futures contract, the Hard Red Winter Wheat (KW) core referenced futures contract submitted by CME, and the Hard Red Spring Wheat (MWE) core referenced futures contract submitted by MGEX are reasonable. Nevertheless, the Commission has determined to repropose the initial speculative spot month position limit levels for C, O, RR, S, SM, SO, W and KW at the recommended levels submitted by CME,524 all of which are lower than 25 percent of estimated deliverable supply.525 As is evident from the table set forth below, this also means that the Commission is reproposing the initial speculative position limit levels for these eight contracts as proposed in the December 2013 Position Limits Proposal. These initial levels track the existing DCM-set levels for the core referenced futures contracts; 526 therefore, as noted in the December 2013 Position Limits Proposal, many market participants are already used to these levels.527 The Commission continues to believe this approach is consistent with the regulatory objectives of the Dodd-Frank Act amendments to the CEA.
TABLE III–B–5—CME AGRICULTURAL CONTRACTS—SPOT MONTH LIMIT LEVELS
Contract
Previously proposed limit level 528 25% of estimated deliverable supply 529 Reproposed speculative limit level C .......................................................................................................................... 600 900 600 O .......................................................................................................................... 600 900 600 RR ........................................................................................................................ 600 2,300 600 S ........................................................................................................................... 600 1,200 600 SM ........................................................................................................................ 720 2,000 720 SO ........................................................................................................................ 540 3,400 540 W 530 .................................................................................................................... 600 1,000 600 KW ....................................................................................................................... 600 3,000 600 The Commission has also determined to repropose the initial speculative spot month position limit level for MWE at 1,000 contracts, which is the level requested by MGEX 531 and just slightly lower than 25 percent of estimated deliverable supply.532 This is an increase from the previously proposed level of 600 contracts and is greater than the reproposed speculative spot month position limit levels for W and KW.533 Upon deliberation, the Commission accepts the recommendation of MGEX.534
TABLE III–B–6—CME AND MGEX AGRICULTURAL CONTRACTS—SPOT MONTH
Core referenced futures contract Basis of spot-month level Limit level Unique persons over spot month limit Reportable persons spot Cash settled month only contracts Physical delivery contracts Corn (C) ............................................ CME recommendation ..................... † 600 0 36 1,050 25% DS ............................................ 900 0 20 Oats (O) ............................................ CME recommendation ..................... † 600 33
25% DS ............................................ 900
Soybeans (S) .................................... CME recommendation ..................... † 600 0 22 929 25% DS ............................................ 1,200 0 14 Soybean Meal (SM) .......................... CME recommendation ..................... † 720 0 14 381 25% DS ............................................ 2,000 0 *

535Four or fewer traders.
536Contra CL–ISDA/SIFMA–59611 at 55 (proposed spot month limits ‘‘are almost certainly far smaller than necessary to prevent corners or squeezes’’). 537 December 2013 Position Limits Proposal, 78 FR at 75729. 538One commenter supported considering ‘‘tropicals (sugar/coffee/cocoa) . . . separately from those agricultural crops produced in the US domestic market.’’ CL–Thornton–59702 at 1; see also CL–Armajaro–59729 at 1. 539CL–IFUS–60807. 540 December 2013 Position Limits Proposal, 78 FR at 75729. The Commission also noted ‘‘that DCMs historically have set or maintained exchange spot month limits at levels below 25 percent of deliverable supply.’’ December 2013 Position Limits Proposal, 78 FR at 75729. 541 December 2013 Position Limits Proposal, 78 FR at 75729.
TABLE III–B–6—CME AND MGEX AGRICULTURAL CONTRACTS—SPOT MONTH—Continued
Core referenced futures contract Basis of spot-month level Limit level Unique persons over spot month limit Reportable persons spot Cash settled month only contracts Physical delivery contracts Soybean Oil (SO) .............................. CME recommendation ..................... † 540 0 21 397 25% DS ............................................ 3,400 Wheat (W) ......................................... CME recommendation ..................... † 600 0 11 444 25% DS ............................................ 1,000 0 6 Wheat (MWE) ................................... Parity w/CME recommendation ....... † 600 0 * 102 25% DS ............................................ †† 1,000 0 * Wheat (KW) ...................................... CME recommendation ..................... † 600 0 4 250 25% DS (MW) .................................. 1,000 0 * 25% DS (KW) ................................... 3,000 0 * Rough Rice (RR) .............................. CME recommendation ..................... † 600 91 25% DS ............................................ 2,300 Reproposed speculative position limit levels are shown in bold. ‘‘25% DS’’ means 25 percent of the deliverable supply as estimated by the exchange listing the core referenced futures contract. † Denotes existing limit level. †† Limit level requested by MGEX.

Denotes fewer than 4 persons.
The Commission’s impact analysis reveals no traders in cash settled contracts in any of C, O, S, SM, SO, W, MWE, KW, or RR, and no traders in physical delivery contracts for O and RR, above the initial speculative limit levels for those contracts. The Commission found varying numbers of traders in the C, S, SM, SO, W, MWE, KW physical delivery contracts over the initial levels, but the numbers were very small for MWE and KW.535 Because the levels that the Commission reproposes today for C, O, S, SM, SO, W, KW, and RR maintain the status quo for those contracts, the Commission assumes that some or possibly all of such traders over the initial levels are hedgers. Hedgers may have to file for an applicable exemption, but hedgers with bona fide hedging positions should not have to reduce their positions as a result of speculative position limits per se. Thus, the number of traders in the C, S, SM, SO, W and KW physical delivery contracts who would need to reduce speculative positions below the initial limit levels should be lower than the numbers indicated by the impact analysis. The Commission believes that setting initial speculative levels at 25 percent of deliverable supply would, based upon logic and the Commission’s impact analysis, affect fewer traders in the C, S, SM, SO, W and KW physical delivery contracts. Consistent with its statement in the December 2013 Position Limits Proposal, the Commission believes that accepting the recommendation of the DCM to set these lower levels of initial spot month limits will serve the objectives of preventing excessive speculation, manipulation, squeezes and corners,536 while ensuring sufficient market liquidity for bona fide hedgers in the view of the listing DCM and ensuring that the price discovery function of the market is not disrupted.537 b. Softs As explained above, the Commission has verified that the estimates of deliverable supply for each of the IFUS Cocoa (CC), Coffee ‘‘C’’ (KC), Cotton No. 2 (CT), FCOJ–A (OJ), Sugar No. 11 (SB), and Sugar No. 16 (SF) core referenced futures contracts submitted by ICE are reasonable. The Commission has determined to repropose the initial speculative spot month position limit levels for the CC, KC, CT, OJ, SB, and SF 538 core referenced futures contracts at 25 percent of estimated deliverable supply, based on the estimates of deliverable supply submitted by ICE.539 As is evident from the table set forth below, this also means that the Commission is reproposing initial speculative position limit levels that are significantly higher than the levels for these six contracts as previously proposed. As stated in the December 2013 Position Limits Proposal, the 25 percent formula ‘‘is consistent with the longstanding acceptable practices for DCM core principle 5 which provides that, for physical-delivery contracts, the spotmonth limit should not exceed 25 percent of the estimated deliverable supply.’’ 540 The Commission continues to believe, based on its experience and
expertise, that the 25 percent formula is an ‘‘effective prophylactic tool to reduce the threat of corners and squeezes, and promote convergence without compromising market liquidity.’’ 541
TABLE III–B–7—IFUS SOFT AGRICULTURAL CONTRACTS—SPOT MONTH LIMIT LEVELS
Contract
Previously proposed limit level 542 25% of estimated deliverable supply 543 Reproposed speculative limit level CC ........................................................................................................................ 1,000 5,500 5,500

542 December 2013 Position Limits Proposal, 78 FR at 75839–40 (Appendix D to Part 150—Initial Position Limit Levels). 543Rounded up to the next 100 contracts. 544CL–CME–61007 at 5. 545The Commission noted in the December 2013 Position Limits Proposal ‘‘that DCMs historically have set or maintained exchange spot month limits at levels below 25 percent of deliverable supply.’’ December 2013 Position Limits Proposal, 78 FR at 75729. 546One commenter cautioned against raising limit levels for GC to 25 percent of deliverable supply, and expressed concern that higher federal limits would incentivize exchanges to raise their own limits. CL–WGC–59558 at 2–4.
TABLE III–B–7—IFUS SOFT AGRICULTURAL CONTRACTS—SPOT MONTH LIMIT LEVELS—Continued
Contract
Previously proposed limit level 542 25% of estimated deliverable supply 543 Reproposed speculative limit level KC ........................................................................................................................ 500 2,400 2,400 CT ........................................................................................................................ 300 1,600 1,600 OJ ........................................................................................................................ 300 2,800 2,800 SB ........................................................................................................................ 5,000 23,300 23,300 SF ........................................................................................................................ 1,000 7,000 7,000 The Commission did not receive any estimate of deliverable supply for the CME Live Cattle (LC) core referenced futures contract from CME, nor did CME recommend any change in the limit level for LC. In the absence of any such update, the Commission is reproposing the initial speculative position limit level of 450 contracts. Of 616 reportable persons, the Commission’s impact analysis did not reveal any unique person trading cash settled or physical delivery spot month contracts who would have held positions above this level for LC. With respect to the IFUS CC, KC, CT, OJ, SB, and SF core referenced futures contracts, the Commission’s impact analysis did not reveal any unique person trading cash settled spot month contracts who would have held positions above the initial levels that the Commission adopts today; as illustrated below, lower levels would mostly have affected small numbers of traders in physical delivery contracts.
TABLE III–B–8—IFUS SOFT AGRICULTURAL CONTRACTS—SPOT MONTH
Core referenced futures contract Basis of spot-month level Limit level Unique persons over spot month limit Reportable persons spot Cash settled month only contracts Physical delivery contracts Cocoa (CC) ....................................... 15% DS ............................................ 3,300 164 25% DS ............................................ †† 5,500 Coffee ‘‘C’’ (KC) ................................ 15% DS ............................................ 1,440 0 * 336 25% DS ............................................ †† 2,400 0 * Cotton No. 2 (CT) ............................. 15% DS ............................................ 960 0 * 122 25% DS ............................................ †† 1,600 FCOJ–A (OJ) .................................... 15% DS ............................................ 1,680 38 25% DS ............................................ †† 2,800 Sugar No. 11 (SB) ............................ 15% DS ............................................ 13,980 * 10 443 25% DS ............................................ †† 23,300 0 * Sugar No. 16 (SF) ............................ 15% DS ............................................ 4,200 12 †† 25% DS ....................................... †† 7,000 Reproposed speculative position limit levels are shown in bold. ‘‘15% DS’’ means 15 percent of the deliverable supply as estimated by the exchange listing the core referenced futures contract and is included to provide information regarding the distribution of reportable traders. ‘‘25% DS’’ means 25 percent of the deliverable supply as estimated by the exchange listing the core referenced futures contract. †† Limit level requested by ICE.

Denotes fewer than 4 persons.
c. Metals
As explained above, the Commission has verified that the estimates of deliverable supply for each of the COMEX Gold (GC), COMEX Silver (SI), NYMEX Platinum (PL), NYMEX Palladium (PA), and COMEX Copper (HG) core referenced futures contracts submitted by CME are reasonable. Nevertheless, the Commission has determined to repropose the initial speculative spot month position limit levels for GC, SI, and HG at the recommended levels submitted by CME,544 all of which are lower than 25 percent of estimated deliverable supply.545 In the case of GC and SI, this is a doubling of the current exchange-set limit levels.546 In the case of HG, the initial level is the same as the existing DCM-set level for the core referenced futures contract and lower than the level previously proposed.
TABLE III–B–9—CME METALS CONTRACTS—SPOT MONTH LIMIT LEVELS
Contract
Previously proposed limit level 547 25% of estimated deliverable supply 548 Reproposed speculative limit level GC ........................................................................................................................ 3,000 11,200 6,000

547 December 2013 Position Limits Proposal, 78 FR at 75840 (Appendix D to Part 150—Initial Position Limit Levels). 548Rounded up to the next 100 contracts. 549Fewer than four unique persons. 550Contra CL–ISDA/SIFMA–59611 at 55 (proposed spot month limits ‘‘are almost certainly far smaller than necessary to prevent corners or squeezes’’). 551 In this regard, the Commission notes that CME did not have access to the Commission’s impact analysis when CME recommended levels for its physical-delivery core referenced futures contracts.
TABLE III–B–9—CME METALS CONTRACTS—SPOT MONTH LIMIT LEVELS—Continued
Contract
Previously proposed limit level 547 25% of estimated deliverable supply 548 Reproposed speculative limit level SI .......................................................................................................................... 1,500 5,600 3,000 PL ......................................................................................................................... 500 900 100 PA ........................................................................................................................ 650 900 ¥500 HG ........................................................................................................................ 1,200 1,100 1,000 The Commission has also determined to repropose the initial speculative spot month position limit level for PL at 100 contracts and PA at 500 contracts, which are the levels recommended by CME. In the case of PL and PA, the reproposed level is the same as the existing DCM-set level for the core referenced futures contract, and a decrease from the previously proposed levels of 500 and 650 contracts, respectively. The Commission found varying numbers of traders in the GC, SI, PL, PA, and HG physical delivery contracts over the initial levels, but the numbers were very small except for PA.549 Because the levels that the Commission reproposes today for PL, PA, and HG maintain the status quo for those contracts, the Commission assumes that some or possibly all of such traders over the reproposed levels are hedgers. The Commission reiterates the discussion above regarding agricultural contracts:
hedgers may have to file for an applicable exemption, but hedgers with bona fide hedging positions should not have to reduce their positions as a result of speculative position limits per se. Thus, the number of traders in the metals physical delivery contracts who would need to reduce speculative positions below the reproposed limit levels should be lower than the numbers indicated by the impact analysis. And, while setting initial speculative levels at 25 percent of deliverable supply would, based upon logic and the Commission’s impact analysis, affect fewer traders in the metals physical delivery contracts, consistent with its statement in the December 2013 Position Limits Proposal, the Commission believes that setting these lower levels of initial spot month limits will serve the objectives of preventing excessive speculation, manipulation, squeezes and corners,550 while ensuring sufficient market liquidity for bona fide hedgers in the view of the listing DCM and ensuring that the price discovery function of the market is not disrupted.
TABLE III–B–10—CME METAL CONTRACTS—SPOT MONTH
Core referenced futures contract Basis of spot-month level Limit level Unique persons over spot month limit Reportable persons spot Cash settled month only contracts Physical delivery contracts Gold (GC) .......................................... CME recommendation ..................... 6,000 * * 518 25% DS ............................................ 11,200 Silver (SI) .......................................... CME recommendation ..................... 3,000 311 25% DS ............................................ 5,600 Platinum (PL) .................................... CME recommendation ..................... † 500 13 * 235 25% DS ............................................ 900 10 * 50% DS ............................................ 1,800 * 0 Palladium (PA) .................................. CME recommendation ..................... † 100 6 14 164
25% DS ............................................ 900
Copper (HG) ..................................... CME recommendation ..................... † 1,000 0 * 493 25% DS ............................................ 1,100 0 * Reproposed speculative position limit levels are shown in bold. ‘‘25% DS’’ means 25 percent of the deliverable supply as estimated by the exchange listing the core referenced futures contract. ‘‘50% DS’’ means 50 percent of the deliverable supply as estimated by the exchange listing the core referenced futures contract and is included to provide information regarding the distribution of reportable traders. † Denotes existing exchange-set limit level.

Denotes fewer than 4 persons.
The Commission’s impact analysis reveals no unique persons in the SI and HG cash settled referenced contracts, and very few unique persons in the cash settled GC referenced contract, whose positions would have exceeded the initial limit levels for those contracts. Based on the Commission’s impact analysis, setting the initial federal spot month limit levels for PL and PA at the lower levels recommended by CME would impact a few traders in PL and PA cash settled contracts. The Commission has carefully considered the numbers of unique persons that would be impacted by each of the cash-settled and physical-delivery spot month limits in the PL and PA referenced contracts. The Commission notes those limits would appear to impact more traders in the physicaldelivery PA contract than in the cashsettled PA contract, while fewer traders would be impacted in the physicaldelivery PL contract than in the cashsettled PL contract (in any event, few traders would appear to be affected).551

552CL–CME–61007 at 5. One commenter opined that 25 percent of deliverable supply would result in a limit level that is too high for natural gas, and suggest 5 percent as an alternative that ‘‘would provide ample liquidity and significantly reduce the potential for excessive speculation.’’ CL– Industrial Energy Consumers of America–59964 at
3. Another commenter supported increasing ‘‘the
spot-month position limit levels for Henry Hub Natural Gas referenced contracts to be consistent with CME Group’s or ICE’s estimates of deliverable supply and more generally the significant new sources of natural gas.’’ CL–NGSA–59674 at 3. 553 December 2013 Position Limits Proposal, 78 FR at 75729. 554 December 2013 Position Limits Proposal, 78 FR at 75729. 555 December 2013 Position Limits Proposal, 78 FR at 75840 (App. D to part 150—Initial Position Limit Levels). 556Rounded up to the next 100 contracts. 557One commenter expressed concern about setting the spot month limit for natural gas swaps at the same level as for the physically settled futures contract, because some referenced contracts cease to be economically equivalent ‘‘during the limited window at expiry.’’ CL–BG Group–59937 at 3. 558This exemption for up to 10,000 contracts would be five times the spot month limit of 2,000 contracts, consistent with the December 2013 Position Limits Proposal. See December 2013 Position Limits Proposal, 78 FR at 75736–8. Under vacated § 151.4, the Commission would have applied a spot-month position limit for cash-settled contracts in natural gas at a level of five times the level of the limit for the physical delivery core referenced futures contract. See Position Limits for Futures and Swaps, 76 FR 71626, 71687 (Nov. 18, 2011). 559Some commenters supported retaining a conditional spot month limit in natural gas. E.g., CL–ICE–60929 at 12 (‘‘Any changes to the current terms of the Conditional Limit would disrupt present market practice for no apparent reason. Furthermore, changing the limits for cash-settled contracts would be a significant departure from current rules, which have wide support from the broader market as evidenced by multiple public comments supporting no or higher cash-settled limits.’’). Contra CL-Sen. Levin–59637 at 7 (‘‘The proposed higher limit for cash settled contracts is ill-advised. It would not only raise the affected position limits to levels where they would be effectively meaningless, it would also introduce market distortions favoring certain contracts and certain exchanges over others, and potentially disrupt important markets, including the U.S. natural gas market that is key to U.S. manufacturing.’’); CL-Public Citizen–59648 at 5 (‘‘Congress, in allowing an exemption for bona fide hedgers but not pure speculators, could not possibly have intended for the Commission to implement position limits that allow market speculators to hold 125 percent of the estimated deliverable supply. Once again, while this exception for cash-settled contracts would avoid market manipulations such as corners and squeezes (since cash-settled contracts give no direct control over a commodity), it does not address the problem of undue speculative influence on futures prices.’’); CL-Better Markets-60401 at 17 (‘‘There is no justification for treating cash and physically-settled contracts differently in any month, and settlement characteristics
should not be a determinant of the ability to exceed the limits in any month.’’). One commenter urged the Commission ‘‘to eliminate the requirement that traders hold no physical-delivery position in order to qualify for the conditional spotmonth limit exemption’’ in order to maintain liquidity in the NYMEX natural gas futures contract. CL–BG Group–59656 at 6–7. See also CL– NGSA–59674 at 38–39 (supporting the higher conditional spot month limit in natural gas without restricting positions in the underlying physical delivery contract); CL–EEI–EPSA–59602 at 10 (the Commission should permit ‘‘market participants to rely on higher speculative limits for cash-settled contracts while still holding a position in the physical-delivery contract’’); CL–APGA–59722 at 8 (the Commission should condition the spot month limit exemption for cash settled natural gas contracts by precluding a trader from holding more than one quarter of the deliverable supply in physical inventory). Cf. CL–CME–59971 at 3 (eliminate the five times natural gas limit because it ‘‘encourages participants to depart from, or refrain from establishing positions in, the primary physical delivery contract market and instead opt for the cash-settled derivative contract market, especially during the last three trading days when the five times limit applies. By encouraging departure from the primary contract market, the five The Commission also observed the distribution of those cash-settled traders over time; as reflected in the open interest table discussed below regarding setting non-spot month limits, it can be readily observed that open interest in each of the cash-settled PL and PA referenced contracts was markedly lower in the second 12-month period (year 2) than in the prior 12-month period (year 1). Accordingly, the Commission accepts the CME recommended levels in PL and PA referenced contracts. d. Energy As explained above, the Commission has verified that the estimates of deliverable supply for each of the NYMEX Natural Gas (NG), Light Sweet Crude (CL), NY Harbor ULSD (HO), and RBOB Gasoline (RB) core referenced futures contracts submitted by CME are reasonable. The Commission has determined to repropose the initial speculative spot month position limit levels for the NG, CL, HO, and RB core referenced futures contracts at 25 percent of estimated deliverable supply which, in the case of CL, HO, and RB is higher than the levels recommended by CME.552 As is evident from the table set forth below, this also means that the Commission is reproposing speculative position limit levels that are significantly higher than the levels for these four contracts as previously proposed. As stated in the December 2013 Position Limits Proposal, the 25 percent formula ‘‘is consistent with the longstanding acceptable practices for DCM core principle 5 which provides that, for physical-delivery contracts, the spotmonth limit should not exceed 25 percent of the estimated deliverable supply.’’ 553 The
Commission continues to believe, based on its experience and expertise, that the 25 percent formula is an ‘‘effective prophylactic tool to reduce the threat of corners and squeezes, and promote convergence without compromising market liquidity.’’ 554
TABLE III–B–11—CME ENERGY CONTRACTS—SPOT MONTH LIMIT LEVELS
Contract
Previously proposed limit level 555 25% of estimated deliverable supply 556 Reproposed speculative limit level NG ........................................................................................................................ 1,000 2,000 2,000 CL ........................................................................................................................ 3,000 10,400 10,400 HO ........................................................................................................................ 1,000 2,900 2,900 RB ........................................................................................................................ 1,000 6,800 6,800 The levels that CME recommended for NG, CL, HO, and RB are twice the existing exchange-set spot month limit levels. Nevertheless, the Commission is reproposing speculative spot month limit levels at 25 percent of deliverable supply for CL, HO, and RB because the Commission believes that higher levels will lessen the impact on a number of traders in both cash settled and physical delivery contracts. For NG, the Commission is reproposing the physical delivery limit at 25% of deliverable supply, as recommended by CME; 557 the Commission is also reproposing a conditional spot month limit exemption of 10,000 for cash-settled contracts in natural gas only.558 This exemption would to some degree maintain the status quo in natural gas because each of the NYMEX and ICE cash-settled natural gas contracts, which settle to the final settlement price of the physical delivery contract, include a conditional spot month limit exemption of 5,000 contracts (for a total of 10,000 contracts).559 However, neither the

times limit encourages a process of de-liquefying the benchmark physically delivered futures market and directly affects the determination of the final settlement price for the NYMEX NG contract- the very same price that a position representing five times the physical limit will settle against.’’). 560As noted in the December 2013 Position Limits Proposal, the Commission has used the 10,
2.5 percent formula in administering the level of the
legacy all-months position limits since 1999. December 2013 Position Limits Proposal, 78 FR at 75729–30. Several commenters did not support establishing non-spot month limits. See, e.g., CL–ISDA/SIFMA– 59611 at 27 (‘‘There is no justification whatsoever for non-spot-month limits.’’); CL–EEI–EPSA–59602 at 10 (‘‘limits outside the spot month are not necessary’’); CL–AMG–59709 at 10 (the Commission should ‘‘decline to adopt non-spotmonth position limits’’); CL–CME–59718 at 39 (the Proposal’s non-spot-month position limit formula should be withdrawn’’); CL–CAM–60097 at 2 (‘‘Non-spot month limits are neither necessary nor appropriate.’’); CL–BG Group–60383 at 2 (‘‘Any final rule should be limited to a federally mandated spot-month limit (not any/all month limits).’’). Some of these same commenters supported position accountability in the non-spot months rather than limits. See, e.g., CL–EEI–EPSA–59602 at 10, CL– FIA–59595 at 3, CL–MFA–60385 at 5, CL–ISDA/ SIFMA–59611 at 29, CL–Calpine–59663 at 3–4, CL– Working Group-60396 at 10, CL–EDF–60398 at 4, CL–ICE–59966 at 8, CL–BG Group-60383 at 2, CL– CMC–59634 at 11. Some commenters also urged the Commission to wait until it has reliable data before establishing non-spot month limits. See, e.g., CL– EEI–EPSA–59602 at 11; CL–FIA–59595 at 3, 14; CL– MFA–60385 at 5; CL–ISDA/SIFMA–59611 at 29; CL–Olam–59658 at 1, 3. See also discussion of part 20 data adjustments under § 150.2, below. Contra CL–O SEC–59972 (‘‘corners and other supply fluctuations can occur during non-spot months’’). A commenter who did not support adopting nonspot month limits suggested a fall-back position of adopting ‘‘any months limits’’ but not ‘‘all months limits,’’ and suggested an alternative 10, 5 percent formula in specified circumstances. CL-Working Group–59693 at 62. See also CL–CME–59718 at 44 (supporting a 10, 5 percent formula). One commenter supported abolishing single month limits ‘‘in favor of an ‘‘all months’’ or gross position that would effectively allow the player to adapt their position to the realities of an agricultural crop that doesn’t flow in equal monthly chunks.’’ CLThornton–59702 at 1. Another commenter stated that ‘‘[p]osition limits should be a function of the liquidity of the market,’’ CL–MFA–59606 at 21, and asserted that applying the 10, 2.5 percent formula will result in ‘‘a self-reinforcing cycle of lower open interest and lower position limits in successive years.’’ CL–MFA–59696 at 22. Another commenter supported ‘‘tying the overall non-spot month position limits to an acceptable aggregate (marketwide) level of speculation, and tying individual trader limits to that aggregate level.’’ CL-Public Citizen–59648 at 4. Another commenter expressed the belief that the 10, 2.5 percent formula would result in non-spot month limits that ‘‘are much too high to adequately regulate excessive speculation that might lead to price fluctuations.’’ CL–Tri-State– 59682 at 1. To ‘‘address the cumulative, disruptive effect
of traders who hold large, but not dominant positions,’’ one commenter suggested basing nonspot month position limits on ‘‘an acceptable total level of speculation that approximates the historic ratio of hedging to investor/speculative trading.’’ CL–A4A–59714 at 4. See CL-Better Markets–60401 at 4 (‘‘Historically, speculators in commodity futures have constituted between 15%–30% of market activity, and within this range speculators productively facilitated effective hedging without meaningfully disrupting or independently shaping the market’s behavior.’’). 561 December 2013 Position Limits Proposal, 78 FR at 75730. 562One commenter expressed concern ‘‘that proposed all-months-combined speculative position limits based on open interest levels is not necessarily the appropriate methodology and could lead to contract performance problems.’’ This commenter urged ‘‘that all-months-combined limits be structured to ‘telescope’ smoothly down to legacy spot-month limits in order to ensure continued convergence.’’ CL–NGFA–60312 at 4. 563One commenter supported a higher limit for KW than proposed to promote growth and to enable liquidity for Kansas City hedgers who often use the Chicago market. CL-Citadel-59717 at 8. Another Continued NYMEX and ICE penultimate contracts, which settle to the daily settlement price on the next to last trading day of the physical delivery contract, nor OTC swaps, are currently subject to any spot month position limit. In addition, the Commission’s impact analysis suggests that a conditional spot month limit exemption greater than 25% of deliverable supply for cash settled contracts in natural gas would potentially benefit many traders.
TABLE III–B–12—ENERGY CONTRACTS—SPOT MONTH
Core referenced futures contract Basis of spot-month level Limit level Unique persons over spot month limit Reportable persons spot Cash settled month only contracts Physical delivery contracts Natural Gas (NG) .............................................. CME recommendation ...................................... 2,000 131 16 1,400 50% DS ............................................................. 4,000 77 * Conditional Exemption ...................................... 10,000 20 0 Light Sweet Crude (CL) ..................................... CME recommendation ...................................... †† 6,000 19 8 1,733 25% DS ............................................................. 10,400 16 * 50% DS ............................................................. 20,800 * 0 NY Harbor ULSD (HO) ...................................... CME recommendation ...................................... 2,000 24 11 470 25% DS ............................................................. 2,900 15 5 50% DS ............................................................. 5,800 5 0 RBOB Gasoline (RB) ......................................... CME recommendation ...................................... 2,000 23 14 463 25% DS ............................................................. 6,800 * 0 50% DS ............................................................. 13,600 Reproposed speculative position limit levels are shown in bold. ‘‘25% DS’’ means 25 percent of the deliverable supply as estimated by the exchange listing the core referenced futures contract. ‘‘50% DS’’ means 50 percent of the deliverable supply as estimated by the exchange listing the core referenced futures contract and is included to provide information regarding the distribution of reportable traders. †† CME recommended a step-down spot month limit of 6,000/5,000/4,000 contracts in the last three days of trading.

Denotes fewer than 4 persons.

Setting Levels of Single-Month and
All-Months-Combined Limits The Commission has determined to use the futures position limits formula, 10 percent of the open interest for the first 25,000 contracts and 2.5 percent of the open interest thereafter, to repropose the non-spot month speculative position limits for referenced contracts, subject to the details and qualifications set forth in this Notice.560 The Commission continues to believe that ‘‘the non-spot month position limits would restrict the market power of a speculator that could otherwise be used to cause unwarranted price movements.’’ 561 a. CME and MGEX Agricultural Contracts The Commission is reproposing the non-spot month speculative position limit levels for the Corn (C), Oats (O), Rough Rice (RR), Soybeans (S), Soybean Meal (SM), Soybean Oil (SO), and Wheat (W) core referenced futures contracts based on the 10, 2.5 percent open interest formula.562 Based on the Commission’s experience since 2011 with non-spot month speculative position limit levels for the Hard Red Winter Wheat (KW) and Hard Red Spring Wheat (MWE) core referenced futures contracts, the Commission is reproposing the limit levels for those two commodities at the current level of 12,000 contracts rather than reducing them to the lower levels that would result from applying the 10, 2.5 percent formula.563

commenter supported setting ‘‘a non-spot month and combined position limit of no less than 12,000 for all three wheat contracts.’’ CL–MGEX–60301 at

Contra CL–O SEC–59972 at 7–8 (commending
‘‘the somewhat more restrictive limitations . . . on wheat trading’’). 564The W core referenced futures contract refers to soft red winter wheat, the KW core reference futures contract refers to hard red winter wheat, and the MWE core reference futures contract refers to hard red spring wheat; i.e., the contracts are for different products. 565Several commenters supported adopting equivalent non-spot month position limits for the three existing wheat referenced contracts traders. See, e.g., CL–FIA–59595 at 4, 15; CL–CMC–60391 at 8; CL–CMC–60950 at 11; CL–CME–59718 at 44; CL–AFBF–59730 at 4; CL–MGEX–59932 at 2; CL– MGEX–60301 at 1; CL–MGEX–59610 at 2–3; CL– MGEX–60936 at 2–3; CL–NCFC–59942 at 6; CL– NGFA–59956 at 3. 566Revision of Speculative Position Limits, 57 FR 12770, 12766 (Apr. 13, 1992). See also Revision of Speculative Position Limits and Associated Rules, 63 FR 38525, 38527 (July 17, 1998). Cf. December 2013 Position Limits Proposal, 78 FR at 75729 (there may be range of spot month limits that maximize policy objectives). 567One commenter expressed concern that too high non-spot month limit levels could lead to a repeat of convergence problems experienced by certain contracts and that ‘‘the imposition of all months combined limits in continuously produced non-storable commodities such as livestock . . . will reduce the liquidity needed by hedgers in deferred months who often manage their risk using strips comprised of multiple contract months.’’ CL– AFBF–59730 at 3–4. One commenter requested that the Commission withdraw its proposal regarding non-spot month limits, citing, among other things, the Commission’s previous approval of exchange rules lifting all-months-combined limits for live cattle contracts ‘‘to ensure necessary deferred month liquidity.’’ CL–CME–59718 at 4. Another commenter expressed concern that non-spot month limits would have a negative impact on live cattle market liquidity. CL–CMC–59634 at 12–13. See also CL–CME–59718 at 41.
TABLE III–B–13—CME AND MGEX AGRICULTURAL CONTRACTS—NON-SPOT MONTH LIMIT LEVELS
Contract Current limit level Previously proposed limit level Reproposed speculative limit level C .................................................................................................................................................. 33,000 53,500 62,400 O .................................................................................................................................................. 2,000 1,600 5,000 RR ................................................................................................................................................ 1,800 2,200 5,000 S ................................................................................................................................................... 15,000 26,900 31,900 SM ................................................................................................................................................ 6,500 9,000 16,900 SO ................................................................................................................................................ 8,000 11,900 16,700 W 564 ............................................................................................................................................ 12,000 16,200 32,800 KW ............................................................................................................................................... 12,000 6,500 12,000 MWE ............................................................................................................................................ 12,000 3,300 12,000 Maintaining the status quo for the non-spot month limit levels for the KW and MWE core referenced futures contracts means there will be partial wheat parity.565 The Commission has determined not to raise the reproposed limit levels for KW and MWE to the limit level for W, as 32,800 contracts appears to be extraordinarily large in comparison to open interest in the KW and MWE markets, and the limit levels for KW and MWE are already larger than a limit level based on the 10, 2.5 percent formula. Even when relying on a single criterion, such as percentage of open interest, the Commission has historically recognized that there can ‘‘result . . . a range of acceptable position limit levels.’’ 566
TABLE III–B–14—CME AND MGEX AGRICULTURAL CONTRACTS—NON-SPOT MONTHS
Core-referenced futures contract Open interest Initial limit level Unique persons above limit level Reportable persons in market— all months Year Futures Swaps Total All months Single month Corn (C) ............................ 1 1,829,359 359,715 2,189,074 62,400 * * 2,606 2 1,779,977 641,014 2,420,991 Oats (O) ............................ 1 10,097 646 10,743 5,000 173 2 11,223 480 11,703 Rough Rice (RR) ............... 1 10,585 362 10,948 5,000 281 2 12,769 4 12,773 Soybeans (S) .................... 1 973,037 109,858 1,082,895 31,900 6 4 2,503 2 962,636 235,679 1,198,315 Soybean Meal (SM) .......... 1 422,611 71,887 494,498 16,900 5 4 978 2 463,549 134,399 597,948 Soybean Oil (SO) .............. 1 421,114 55,265 476,379 16,700 5 4 1,034 2 464,373 125,106 589,478 Wheat (W) ......................... 1 1,072,107 162,999 1,235,105 32,800 * * 1,867 2 1,010,342 222,420 1,232,762 Wheat (MWE) .................... 1 67,653 1,944 69,596 † 5,000 10 7 342 2 66,608 3,079 69,687 12,000 Wheat (KW) ....................... 1 169,059 9,436 178,495 † 8,100 9 8 718 2 216,236 29,563 245,799 12,000 * * Year 1 = July 1, 2014 to June 30, 2015 Year 2 = July 1, 2015 to June 30, 2016 Reproposed speculative position limit levels are shown in bold. † Application of the 10, 2.5 percent formula would result in a level lower than the level adopted by the Commission in 2011.

Denotes fewer than 4 persons.
b. Softs
The Commission is reproposing nonspot month speculative position limit levels for the CC, KC, CT, OJ, SB, SF and LC567 core referenced futures contracts based on the 10, 2.5 percent open interest formula.

568 December 2013 Position Limits Proposal, 78 FR at 75839–40 (App. D to part 150—Initial Position Limit Levels). 569One commenter was concerned that applying the 10, 2.5 percent formula to open interest for gold would result in a lower non-spot month limit level than the spot month limit level, and urged the Commission to ‘‘apply a consistent methodology to both spot and non-spot months.’’ CL–WGC–59558 at 5.
TABLE III–B–15—SOFTS AND OTHER AGRICULTURAL CONTRACTS—NON-SPOT MONTH LIMIT LEVELS
Contract
Previously proposed limit level 568 Reproposed speculative limit level CC ............................................................................................................................................................................ 7,100 10,200 KC ............................................................................................................................................................................ 7,100 8,800 CT ............................................................................................................................................................................ 8,800 9,400 OJ ............................................................................................................................................................................ 2,900 5,000 SB ............................................................................................................................................................................ 23,500 38,400 SF ............................................................................................................................................................................ 1,200 7,000 LC ............................................................................................................................................................................ 12,900 12,200 Set forth below is a summary of the impact analysis for softs and live cattle.
TABLE III–B–16—SOFTS AND OTHER AGRICULTURAL CONTRACTS—NON-SPOT MONTHS
Core-referenced futures contract Open interest Initial limit level Unique persons above limit level Reportable persons in market— all months Year Futures Swaps Total All months Single month Cocoa (CC) ....................... 1 240,984 11,257 252,240 10,200 12 7 682 2 273,134 56,853 329,987 Coffee C (KC) ................... 1 211,051 24,164 235,215 8,800 6 * 1,175 2 223,885 51,846 275,731 Cotton No. 2 (CT) ............. 1 238,580 35,102 273,682 9,400 13 8 1,000 2 239,321 60,477 299,798 FCOJ–A (OJ) .................... 1 16,883 121 17,004 5,000 ............................................ * * 242 2 16,336 5 16,341 Sugar No. 11 (SB) ............ 1 1,016,271 211,994 1,228,265 38,400 14 9 874 2 1,077,452 382,816 1,460,268 Sugar No. 16 (SF) ............. 1 8,385 0 8,385 7,000 * 0 22 2 9,608 0 9,608 Live Cattle (LC) ................. 1 387,896 23,626 411,522 12,200 9 * 1,436 2 350,147 52,330 402,478 Year 1 = July 1, 2014 to June 30, 2015. Year 2 = July 1, 2015 to June 30, 2016. Reproposed speculative position limit levels are shown in bold. * Denotes fewer than 4 persons.
c. Metals
The Commission is reproposing nonspot month speculative position limit levels for the GC, SI, PL, PA, and HG core referenced futures contracts based on the 10, 2.5 percent open interest formula.569

570One commenter expressed concern that imposing non-spot position limits on copper would negatively affect liquidity as evidenced by the number of unique persons affected. CL–CMC–59634 at 13, n. 26. Another commenter cited the number of unique traders with all-months overages as shown in the open interest data for the GC, SI and PL contracts in the December 2013 Position Limits Proposal as an indication that ‘‘the impact of the Commission’s non-spot-month position limits is random and arbitrarily inflexible with no relationship to preventing excessive speculation or manipulation.’’ CL–CME–59718 at 41. 571One commenter suggested deriving non-spot month limit levels for the CL, HO, and RB referenced contracts from the usage ratios for U.S. crude oil and oil products rather than open interest and expressed concern that ‘‘unnecessarily low limits will hamper legitimate hedging activity.’’ CL– Citadel–59717 at 7–8. Another commenter suggested setting limit levels based on customary position size. CL–APGA–59722 at 6. This commenter also supported setting the single month limit at two-thirds of the all months combined limit in order to relieve market congestion as traders exit or roll out of the next to expire month into the spot month. CL–APGA–59722 at 7.
TABLE III–B–17—CME METALS CONTRACTS—NON-SPOT MONTH LIMIT LEVELS
Contract
Previously proposed limit level Reproposed speculative limit level GC ............................................................................................................................................................................ 21,500 19,500 SI .............................................................................................................................................................................. 6,400 7,600 PL ............................................................................................................................................................................. 5000 5,000 PA ............................................................................................................................................................................ 5000 5,000 HG ............................................................................................................................................................................ 5,600 7,800 Set forth below is a summary of the impact analysis for metals.570
TABLE III–B–18—CME METALS CONTRACTS—NON-SPOT MONTHS
Core-referenced futures contract Open interest Initial limit level Unique persons above limit level Reportable persons in market—all months Year Futures Swaps Total All months Single month Gold (GC) ..... 1 618,738 47,727 666,465 19,500 19 17 1,557 2 667,495 36,029 703,525 Silver (SI) ..... 1 218,028 9,867 227,895 7,600 15 18 1,023 2 203,645 3,510 207,155 Platinum (PL) 1 70,151 21,566 91,717 5,000 26 26 842 2 70,713 2,285 72,997 Palladium (PA) .......... 1 37,488 1,929 39,417 5,000 * * 580 2 28,276 823 29,099 Copper (HG) 1 170,784 22,859 193,643 7,800 19 12 1,457 2 186,525 47,365 233,890 Year 1 = July 1, 2014 to June 30, 2015 Year 2 = July 1, 2015 to June 30, 2016 Reproposed speculative position limit levels are shown in bold.

Denotes fewer than 4 persons.
d. Energy
The Commission is reproposing nonspot month speculative position limit levels for the NG, CL, HO, and RB core referenced futures contracts based on the 10, 2.5 percent open interest formula.571

572 December 2013 Position Limits Proposal, 78 FR at 75728. 573CL–Public Citizen–59648 at 5; CL–AFR–59711 at 2; CL–IECA–59713 at 3; CL–Better Markets– 60325 at 2–3; CL–Better Markets–60401 at 19–20; CL–CMOC–59720 at 3; CL–Cota–59706 at 2; CL– RF–60372 at 3. 574 December 2013 Position Limits Proposal, 78 FR at 75728.
TABLE III–B–19—CME ENERGY CONTRACTS—NON-SPOT MONTH LIMIT LEVELS
Contract
Previously proposed limit level Reproposed speculative limit level NG ............................................................................................................................................................................ 149,600 200,900 CL ............................................................................................................................................................................ 109,200 148,800 HO ............................................................................................................................................................................ 16,100 21,300 RB ............................................................................................................................................................................ 11,800 15,300 Set forth below is a summary of the impact analysis for energy contracts.
TABLE III–B–20—CME ENERGY CONTRACTS—NON-SPOT MONTHS
Core-referenced futures contract Open interest Initial limit level Unique persons above limit level Reportable persons in market—all months Year Futures Swaps Total All months Single month Natural Gas (NG) .......... 1 4,919,841 2,866,128 7,785,969 200,900 * 0 1,846 2 4,628,471 3,331,141 7,959,612 Light Sweet Crude (CL) 1 4,071,681 1,587,450 5,659,130 148,800 2,673 2 4,130,131 1,744,137 5,874,268 NY Harbor ULSD (HO) 1 638,040 138,360 776,400 21,300 6 * 760 2 587,796 65,721 653,518 RBOB Gasoline (RB) ... 1 448,598 81,822 530,420 15,300 8 7 837 2 505,849 30,477 536,327 Year 1 = July 1, 2014 to June 30, 2015. Year 2 = July 1, 2015 to June 30, 2016. Reproposed speculative position limit levels are shown in bold.

Denotes fewer than 4 persons.

Subsequent Levels of Limits
The Commission notes that many of the comments referenced above, regarding setting initial position limits, are also discussed below, regarding resetting levels of limits. a. General Procedure for Re-Setting Levels of Limits Commission Proposal: The Commission proposed in § 150.2(e)(2) that it would fix subsequent levels of speculative position limits no less frequently than every two calendar years, in accordance with the procedures in § 150.2(e)(3) for spotmonth limits and § 150.2(e)(3) for nonspot-month limits, discussed below.572 The Commission proposed it would publish such subsequent levels on its Web site. Comments Received: Regarding § 150.2(e)(2), commenters requested the Commission review the level of limits more frequently than every two years to address changes that may occur within the commodities markets.573 Commission Reproposal: The Commission has determined to repropose this provision as previously proposed in the December 2013 Position Limits Proposal, and reiterates that it will fix subsequent levels no less frequently than every two calendar years. The Commission is not proposing to establish a procedural requirement to reset limit levels more frequently than every two years, because as the frequency of reset increases, the burdens on market participants to update compliance systems and strategies, and on exchanges to submit deliverable supply estimates and reset exchange limit levels, also increase. The Commission believes that a two year timetable should reduce burdens on market participants while still maintaining limits based on recent market data. Should higher limit levels be desired, exchanges or market participants may petition the Commission to change limit levels within the two year period. b. Re-setting Levels of Spot-Month Limits Commission Proposal: The Commission proposed in § 150.2(e)(3) to reset each spot month limit at a level no greater than one-quarter of the estimated spot-month deliverable supply, based on the estimate of deliverable supply provided by the exchange listing the core referenced futures contract. The Commission proposed that it could, in its discretion, rely on its own estimate of deliverable supply. The Commission further proposed that, alternatively, it could set spot-month limits based on the recommended level of the exchange listing the core referenced futures contract, if lower than 25 percent of estimated deliverable supply.574 Comments Received: Commenters generally recommended the Commission enhance predictability and reduce uncertainty for market participants, by either restricting how much adjustment would be made to the position limit level, or having the discretion to not alter position limit

575CL–FIA–60303 at 8, Agricultural Advisory Committee Meeting Transcript at 126–134 (Dec. 9, 2014). 576E.g., CL–WGC–59558 at 5; CL–MFA–60385 at 4–6; CL–ISDA/SIFMA–59611 at 3, 31, 55–56, and 63–64; CL–MGEX–59610 at 2; CL–NGFA–59681 at 4–5. 577See, e.g., CL–WGC–59558 at 5; CL–Public Citizen–60313 at 1; CL–Tri-State–59682 at 1–2; CL– AFR–59711 at 2; CL–WEED–59628 at 1; CL– Industrial Energy Consumers of America–59671 at 3; CL–CMOC–59720 at 3; CL–IATP–60394 at 2; CL– NGFA–59681 at 4–5. 578CL–ISDA/SIFMA–59611 at 55; CL–Armajaro– 59729 at 1; CL–CAM–60097 at 3–4. 579CL–WGC–59558 at 5. 580E.g., CL–IATP–60323 at 5; CL–IATP–60394 at 2; CL–RF–60372 at 3. 581CL–FIA–59595 at 3, 9–10; CL–NGSA–59941 at 15. 582CL–MFA–59606 at 18; CL–MFA–60385 at 6. 583CL–MSCGI–59708 at 2, 11. 584CL–CAM–60097 at 3–4. 585CL–IATP–60323 at 6. 586CL–IATP–60323 at 7. levels, for example, if there have not been problems with convergence.575 Commenters were divided regarding the proposed methodology for computing spot month position limit levels (which is calculated by determining a figure that is no more than 25 percent of estimated deliverable supply).576 Several commenters stated that the proposed formula for setting spot month limits based on 25 percent of deliverable supply results in spot month position limits that would be too high and may result in contract performance issues.577 Other commenters thought the formula results in spot-month position limits that would be too low and hinder market liquidity.578 Yet another requested that the Commission do further research to determine whether deliverable supply or open interest was a better means of setting spot month position limits, and apply the same metric (deliverable supply or open interest) to spot month limits and to non-spot month limits.579 Several commenters recommended that the Commission consider an alternative means of limiting excessive speculation, that is, by setting position limits at a level low enough to restore a hedger majority in open interest in each core referenced futures contract.580 In estimating deliverable supply, some commenters recommended that the Commission include supply that is subject to long-term supply contracts, arguing that such supply can be readily made available for futures delivery.581 One commenter recommended that the Commission permit the inclusion in the deliverable supply calculation of supplies that can be readily transported to the futures delivery location.582 Another commenter recommended that the deliverable supply estimate should include related commodities that a DCM allows to be used to liquidate a futures position through an EFP transaction.583 One commenter recommended that the deliverable supply estimate for natural gas should include supplies that are available at other major locations in addition to the specific futures delivery location of Erath, Louisiana, because commercials at these locations use the futures contract for hedging and price basing and basing spot month
limits on a more limited delivery area would be too restrictive.584 In estimating deliverable supply, one commenter recommended that the Commission not include supplies that do not meet delivery specifications.585 The same commenter said that DCMs should provide documentation if including long term supply agreements in deliverable supply estimates to enable the Commission to verify the information. The commenter expressed concern about financial holding companies’ ability to own, warehouse and trade physical commodities and urged the Commission to assess how such firms might affect deliverable supply.586 Commission Reproposal: The Commission is reproposing to reset each spot-month limit, in its discretion, either: Based on 25 percent of deliverable supply as estimated by an exchange listing the core referenced futures contract; to the existing spotmonth position limit level (that is, not changing such level); or to the recommended level of the exchange listing the core referenced futures contract, but not greater than 25 percent of estimated deliverable supply. In the alternative, if the Commission elects to rely on its own estimate of deliverable supply, it will first publish that estimate for comment in the Federal Register. Thus, the Commission accepts the commenter’s recommendation that the Commission have discretion to retain current spot-month position limit levels. In this regard, the Commission provides, in reproposed § 150.2(e)(3)(ii)(B), that an exchange need not submit an estimate of deliverable supply, if the exchange provides notice to the Commission, not less than two calendar months before the due date for its submission of an estimate, that it is recommending the Commission not change the spot-month limit, and the Commission accepts such recommendation. The Commission notes that it has long used deliverable supply as the basis for spot month position limits due to concerns regarding corners, squeezes, and other settlement-period manipulative activity. By restricting derivative positions to a proportion of the deliverable supply of the commodity, spot month position limits reduce the possibility that a market participant can use derivatives, including referenced contracts, to affect the price of the cash commodity (and vice versa). Limiting a speculative position based on a percentage of deliverable supply also restricts a speculative trader’s ability to establish a leveraged position in cash-settled derivative contracts, diminishing that trader’s incentive to manipulate the cash settlement price. Commenters did not provide evidence that would suggest that the open interest formula would respond more effectively to these concerns, and the Commission does not believe that using open interest would be preferable for calculating spot-month position limit levels. In addition, setting the limit levels at no greater than 25 percent of deliverable supply has historically been effective on both the federal and exchange level to combat
corners and squeezes. In the preamble to the final rules for vacated
Part 151, the Commission noted that the
25 percent of deliverable supply formula appears to ‘‘work effectively as a prophylactic tool to reduce the threat of corners and squeezes and promote convergence without compromising market liquidity.’’ Commenters did not provide evidence to support claims that this historical formula is no longer effective. In response to concerns that 25 percent of deliverable supply may result in a limit level that is too high, the Commission notes that exchanges can and often do—and are permitted under reproposed § 150.5(a) to—set limits at a level lower than 25 percent of estimated deliverable supply, which allows the exchanges to alter exchange-set limits easily based on changing market conditions. In response to commenters’ suggestion to restore a hedger majority, the Commission notes such an alternative may fail the requirements of CEA section 4a(a)(3)(B)(iv) to ensure sufficient liquidity for bona fide hedgers. Hedgers may not be transacting on opposite sides of the market simultaneously and, thus, need speculators to provide liquidity. Simply changing the proportion of hedgers in the market does not mean that the markets would operate more efficiently for bona fide hedgers. In addition, in order to adopt the commenter’s suggestion, the Commission would need to reintroduce the withdrawn ’03 series forms which required traders to identify which positions were speculative and which were hedging, since any entity,

587 December 2013 Position Limits Proposal, 78 FR at 75729. 588CL–FIA–60303 at 8. This commenter did not recommend any specific percentage limitation. 589E.g., CL–Public Citizen–59648 at 5 (annually); CL–AFR–II at 2 (greater frequency); CL–Better Markets–60325 at 2–3 (‘‘[b]iennial updates . . . are completely inadequate’’); CL–Better Markets–59716 at 34 (biennial updates values ‘‘the input of swap dealers and their trade groups over that of commercial hedgers’’); CL–CMOC–59720 at 3 (annual consultation with hedgers and end users); CL–RF–60372 at 3 (‘‘review position limits every six months’’). 590CL–MFA–59606 at 21. 591E.g., CL–Tri-State–59682 at 1–2; CL–A4A– 59714 at 3; CL–Better Markets–59716 at 24; CL– APGA–59722 at 3, 6; CL–AFBF–59730 at 3; CL– NGFA–59681 at 5. 592E.g., CL–U.S. Dairy–59597 at 4, 6; CL–Hood– 59582; CL–McCully–59592 at 1; CL–Rice Dairy– 59601 at 1; CL–Agri-Mark–59609 at 1–2; CL– Jacoby–59622 at 1; CL–Pedestal–59630 at 2; CL– Darigold–59651 at 1–2; CL–Traditum–59655 at 1; CL–Leprino–59707 at 2; CL–IDFA–59771 at 1–2; CL–Fonterra–59608 at 1–2; CL–NCFC–59613 at 6; CL–NMPF–59936 at 2; CL–DFA–59621 at 7–8; CL– Glanbia Foods–60316 at 1; CL–Leprino Foods– 59707 at 2; CL–NMPF–59936 at 2. 593Some commenters urged the Commission to establish an individual month position limit in Class III Milk equal to the spot month limit but no less than 3,000 contracts net, and an all-monthslimit as a multiple of four times the spot month limit, to foster needed liquidity in the non-spot months. See, e.g., CL–NCFC–59942 at 6. Another commenter urged an all-months-limit in Class III Milk of ten times the spot month limit for a similar reason. CL–U.S. Dairy–59597 at 4. These comments are now moot. 594E.g., CL–IATP–60323 at 5; CL–IATP–60394 at 2; CL–RF–60372 at 3; CL–A4A–59686 at 4; CL– Better Markets–59716 at 5; CL–Better Markets– 60325 at 2. 595CL–USCF–59644 at 3–4. even a commercial end-user, can establish speculative positions. In response to commenters’ suggestions regarding methods for estimating deliverable supply, the Commission notes that deliverable supply estimates are calculated and submitted by DCMs. Guidance for calculating deliverable supply can be found in Appendix C to part 38. Amendments to part 38 are beyond the scope of this rulemaking. However, such guidance already provides that deliverable supply calculations are estimates based on what ‘‘reasonably can be expected to be readily available’’ (including estimates of long-term supply that can be shown to be regularly made available for futures delivery).
c. Re-Setting Levels of Non-Spot-Month
Limits
Commission Proposal—General Procedure: For setting subsequent levels of non-spot month limits no less frequently than every two calendar years, the Commission proposed in § 150.3(e)(4) to use the open interest formula: 10 percent of the first 25,000 contracts and 2.5 percent of the open interest thereafter (10, 2.5 percent formula).587 Comments Received and Commission Response: ‘‘In order to enhance the predictability and reduce uncertainty in business planning,’’ one commenter recommended that the Commission ‘‘adjust limits gradually and by no more than a minimum percentage in one biennial cycle.’’ 588 The Commission declines this suggestion because, as explained below, the Commission is reproposing a minimum non-spot month limit level of 5,000 contracts; market participants would be certain that in no circumstance would the limit level fall below that figure. Also, because exchanges can set limits at levels below the federal limit level, a change in the federal limit may not have an effect on exchange limit levels. Several commenters recommended that the Commission review the levels of position limits more frequently than once every two years to address changes that may occur within the commodities markets.589 In response these concerns, the Commission notes that exchanges may set limits at a level lower than the federal limits in order to more readily adapt to changing market conditions. Should higher limit levels be desired, exchanges may petition the Commission or the Commission may determine to change limit levels within the two year period. Thus, the flexibility to change limit levels more frequently than every two years is already permitted by the reproposed rules and the Commission is not changing the timeline. One commenter recommended that the Commission ‘‘adopt final rules that give the Commission the flexibility to increase position limits immediately or with little delay so that the market can accurately respond to external forces without violating position limits’’ or, in the alternative, ‘‘include peak open interest levels beyond the most recent two years when it determines the level of open interest on which to base position limits.590 In response, the Commission notes that using peak open interest figures, as opposed to an average, as reproposed, may not necessarily represent an accurate portrait of current market conditions. Using the most recent two years of data is designed to ensure that the non-spotmonth limit levels are set relative to the current size of the market. Several commenters expressed the view that the proposed limits based on the open interest formula would result in limit levels that are too high and would not accomplish the goal of reducing excessive speculation.591 In response, the Commission believes the open interest formula provides a level that is low enough to reduce the potential for excessive speculation and market manipulation without unduly impairing liquidity for bona fide hedgers. Under the rules
reproposed today, both the Commission and the exchanges would have flexibility to impose non-spot month limit levels at the greater of the open interest formula, the spot month limit level, or 5,000 contracts. Several commenters expressed the view that the proposed limits based on the open interest formula would result in limit levels for dairy contracts that are too low and would restrict hedging use by limiting liquidity.592 The Commission responds that it is deferring the imposition of position limits on the Class III Milk contract, as discussed below.593 The Commission also observes that reproposed § 150.9 permits market participants to apply directly to the exchanges to obtain an exemption to exceed speculative position limits. Several commenters recommended that the Commission consider an alternative means of limiting speculative traders, by setting position limits at a level low enough to restore a hedger majority in open interest in each core referenced futures contract.594 As discussed above, the Commission is concerned that ‘‘restoring’’ a hedger majority may not ensure sufficient liquidity for bona fide hedgers. Hedgers may not be transacting on opposite sides of the market simultaneously and, thus, need speculators to provide liquidity. Simply changing the proportion of hedgers in the market does not mean that the markets would operate more efficiently for bona fide hedgers. In addition, in order to implement this suggestion, the Commission would need to reintroduce the long defunct ’03 series forms which required traders to identify which positions were speculative and which were hedging, because any entity, even a commercial end-user, can establish speculative positions. One commenter noted that the open interest formula permits a speculator to hold a larger percentage of open interest in a smaller commodity market and thus the formula’s entire rationale seems ‘‘arbitrary . . . and . . . capricious.’’ 595 The Commission acknowledges that, because of the way the 10, 2.5 percent formula works, a speculator in a market with open interest of fewer than 25,000 contracts may have a larger share of the open interest than a speculator in a market with an open interest of greater

596CL–Working Group–59693 at 62.
597CL–Citadel–59717 at 7–8.
598CL–APGA–59722 at 6.
599 December 2013 Position Limits Proposal, 78 FR at 75734. 600 Id. 601CL–MFA–59606 at 21. 602E.g., CL–DBCS–59569 at 6; CL–FIA–59595 at 14; CL–EEI–60386 at 11; CL–MFA–59606 at 5, 20, 22–23; CL–ISDA/SIFMA–59611 at 29, including footnote 108; CL–CMC–59634 at 13; CL–Olam– 59658 at 3; CL–COPE–59662 at 22; CL–Calpine– 59663 at 4; CL–Chamber–59684 at 5; CL–NFP– 59690 at 20; CL–Just Energy–59692 at 4; CL– Working Group–59693 at 62; CL–Working Group– 60396 at 8–10; CL–Citadel–59717 at 4–5. 603CL–ICE–59966 at 6; CL–U.S. Dairy–59597 at 4. than 25,000 contracts. The Commission responds that it is by design that the 10,
2.5 percent open interest formula
provides that a speculator may hold a larger percentage of total open interest in a smaller market, potentially providing liquidity for bona fide hedgers in such a smaller market. As open interest increases, the 2.5% marginal increase results in limit levels that become a progressively smaller percentage of total open interest, essentially placing a greater emphasis on deterring market manipulation and protecting the price discovery process in a larger market. Another commenter suggested that the Commission use a 10, 5 percent open interest formula rather than a 10,
2.5 percent formula as proposed,
arguing that the 10, 5 percent formula has worked well for certain agricultural futures markets and should be applied more broadly. Alternatively, this commenter said that Commission should use the 10, 5 percent formula for at least spread positions.596 The Commission notes the 10, 2.5 percent formula has produced limit levels that should sufficiently maximize the CEA
section 4a(a)(3)(B) criteria, and the
Commission does not believe increasing the marginal percentage is necessary. A larger limit such as would be produced from a 10, 5 percent formula may not adequately prevent excessive speculation. In the preamble to the proposed rules, the Commission noted that the 10, 2.5 percent formula was first proposed in 1992, and the commenter has not provided sufficient justification for moving away from this established standard. One commenter recommended that the Commission consider commodityrelated ratios in establishing limits, such as the ratio between crude oil and its products, diesel (30 percent) and gasoline (50 percent), rather than on separate open interest formulas applied to each.597 In response, the Commission notes setting limit levels based on the open interest of a related commodity may result in limit levels that are too large to be effective in the smaller commodity markets. For example, based on the levels proposed in this release in
Appendix D, implementing a limit for
NYMEX RBOB Gasoline equal to 50 percent of the crude oil limit, as suggested by the commenter, would result in a limit almost 10 times the size otherwise indicated by the open interest formula, and would equal almost 28 percent of total average open interest in the RBOB referenced contract. Further, hedgers with positions in multiple contracts could establish positions in various ratios without violating a position limit, provided they comply with the bona fide hedging position definition and any applicable requirements. The Commission also notes that the process in reproposed § 150.10 exempting certain spread positions may allow speculators some flexibility in inter- and intra-commodity spreads for the purpose of providing liquidity to bona fide hedgers. One commenter suggested the Commission consider setting position limits on ‘‘customary position size’’ which had been used for setting nonspot month limits by the Commission in the past and which the commenter argues is a more effective means of curtailing large speculative positions.598 In response, the Commission believes the 10, 2.5 percent formula has been effective in preventing excessive speculation without unduly limiting liquidity for bona fide hedgers. The Commission notes when the ‘‘customary position size’’ methodology was used to set non-spot-month limit levels, such levels were below the levels established using 10, 2.5 percent formula. Commission Reproposal Regarding General Procedure for Re-Setting Levels of Non-Spot Month Limits: The Commission has determined to repropose the 10, 2.5 percent formula, generally as proposed in the December 2013 Position Limits Proposal, for the reasons discussed above. However, the Commission has determined, in response to requests by commenters requesting wheat parity, as discussed above, to provide that it may determine not to change the level of a non-spot month limit. This would permit, for example, the Commission to continue to retain a level of 12,000 contracts for the non-spot month limits in the KW and MWE contracts, even if average open interest did not exceed 405,000 contracts (which is the level that, when applying the 10, 2.5 percent formula, would result in a limit of 12,000 contracts). Commission Proposal for Time Periods, Data Sources, Publication and Minimum Levels for Re-Setting Levels of Non-Spot Month Limits: Under proposed in § 150.2(e)(4)(i) and (ii), the Commission would estimate average open interest in referenced contracts using data reported for each of the last two calendar years pursuant to parts 16, 20, and/or 45.599 The Commission also proposed under § 150.2(e)(4)(iii) to publish on the Commission’s Web page estimates of average open interest in referenced contracts on a monthly basis to make it easier for market participants to estimate changes in levels of position limits.600 Finally, the Commission proposed under § 150.2(e)(4)(iv) to establish minimum non-spot month levels of 1,000 contracts for agricultural
commodity contracts and 5,000 contracts for exempt commodity contracts. Comments Received and Commission Response: Regarding the time period for average open interest, as noted above, one commenter recommended that the Commission, as an alternative, ‘‘include peak open interest levels beyond the most recent two years when it determines the level of open interest on which to base position limits.’’ 601 In response, the Commission notes that using peak open interest figures, as opposed to an average, as reproposed, may not necessarily represent an accurate portrait of current market conditions. Regarding data sources for average open interest, several commenters noted that the open interest data used by the Commission in determining the nonspot month limits was not complete since it did not include all OTC swaps data and that the Commission should correct this deficiency before it sets the limits using the open interest formula.602 In response, the Commission notes it used futuresequivalent open interest for swaps reported under part 20, in determining the initial non-spot month limits, as discussed above, and believes this data also is acceptable for re-setting limit levels, as reproposed. The Commission received no comments regarding publication of average open interest. Regarding minimum levels for nonspot month limits, some commenters urged the Commission to afford itself the flexibility to set non-spot month limits at least as high as the spot-month position limit, rather than base the nonspot month limit strictly on the open interest formula in cases where the latter would result in a relatively small limit that would hinder liquidity.603 The Commission accepts these

604Each of these contracts is cash settled to a U.S. Department of Agriculture price series; Feeder Cattle and Lean Hogs settle to a CME-calculated index of daily USDA livestock prices, while Class III Milk settles to the monthly USDA Class III Milk price. 605CL–Rice Dairy–59960 at 1; CL–US Dairy– 59597 at 3–4; CL–NMPF–59652 at 4; CL–DFA– 59948 at 4–5. 606CL–NMPF–59652 at 5; CL–DFA–59948 at 8. 607CL–NGSA–59674 at 44; CL–ICE–59669 at 5–6. 608See, e.g., CL–US Dairy–59597 at 3–4. 609CL–DFA–59948 at 6. 610CL–Rice Dairy–59601 at 1; CL–US Dairy– 59597 at 3; CL–NMPF–59652 at 4; CL–DFA–59948 at 4–5. 611For example, the Commission stated that concerns regarding corners and squeezes are most acute in the markets for physical-delivery contracts in the spot month. December 2013 Position Limits Proposal, 78 FR at 75737. 612See, e.g., December 2013 Position Limits Proposal 78 FR at 75688, including n. 82. 613 7 U.S.C. 6a(c)(1). Section 737 of the DoddFrank Act did not substantively change CEA section 4a(c)(1) (renumbering existing provision by inserting ‘‘(1)’’ after ‘‘(c)’’). 614 7 U.S.C. 6a(a)(1). Section 737 of the DoddFrank Act did not change the Commission’s authority to exempt spreads under CEA section 4a(a)(1). 615 7 U.S.C. 6a(a)(7). Section 737 of the DoddFrank Act added CEA section 4a(a)(7). The Commission interprets CEA section 4a(a)(7) to provide the Commission with plenary authority to grant exemptive relief from position limits, consistent with the purposes of the CEA. Specifically, under Section 4a(a)(7), 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 . . . with respect to position limits.’’ 616For completeness, the Commission notes it previously provided an exemption in § 150.3(a)(2) for spreads of futures positions which offset option positions. However, the Commission removed and reserved that provision once it was rendered obsolete by the Commission determination to impose speculative limits on a trader’s net position in futures and options combined, rather than separately. 58 FR 17973 at 17979 (April 7, 1993). 617 17 CFR 150.3(a)(1). The term bona fide hedging position is currently defined at 17 CFR 1.3(z) (2010). As discussed above, the Commission is reproposing a new definition of bona fide hedging position in § 150.1. 618The Commission clarifies that a spread position in this context means a short position in a single month of a futures contract and a long position in another contract month of that same futures contract, outside of the spot month, in the same crop year. The short and/or long positions may also be in options on that same futures contract, on a futures equivalent basis. Such spread positions, when combined with any other
net positions in the single month, must not exceed the all-months limit set forth in current § 150.2, and must be in the same crop year. 17 CFR 150.3(a)(3). 619 ‘‘Eligible entity’’ is defined in current 17 CFR 150.1(d). 620 ‘‘Independent account controller’’ is defined in current 17 CFR 150.1(e). 621 17 CFR 150.3(a)(4). See also discussion of the IAC exemption in the 2016 Final Aggregation Rule. commenters’ recommendation. Upon consideration of proposing minimum initial non-spot month limits, as discussed above, the Commission is removing the distinction between agricultural and exempt commodities. This change would establish a minimum non-spot month limit level of 5,000 contracts in either agricultural or exempt commodities. Commission Reproposal: The Commission has determined to repropose these provisions generally as proposed in the December 2013 Position Limits Proposal, but with the changes described above to provide flexibility for a higher minimum level of non-spot month limits.
7. Deferral of Limits on Cash-Settled
Core Referenced Futures Contracts Commission Proposal:
The Commission proposed, but is not reproposing, positon limits on three cash-settled core referenced futures contracts: CME Class III Milk; CME Feeder Cattle; and CME Lean Hogs.604 Comments Received: Commenters raised concerns with these cash-settled contracts and how they fit within the federal position limits regime. While many of these concerns were raised in the context of the dairy industry, they apply to all three cash-settled core referenced futures contracts. Concerns raised include: (1) How to apply spot month limits in a contract that is cashsettled; 605 (2) the ‘‘five-day rule’’ for bona fide hedging; 606 and (3) the length of the spot month period.607 Commenters contended that the Commission’s rationale in the December 2013 Position Limits Proposal focused on concerns with physical-delivery contracts, which the commenters believe do not apply to cash-settled core referenced futures contracts because there is no physical delivery process and because the contracts settle to government-regulated price series (through the USDA).608 Commenters were concerned that the Commission’s ‘‘one-size-fits-all’’ approach discriminates against participants in dairy and livestock because the spotmonth limit is effectively smaller compared to the separate spot-month limits for physical-delivery and cashsettled contracts in other commodities.609 Several commenters suggested limit levels that do not follow the proposed formulae for determining limit levels for both spot and non-spotmonth limits due to the unique aspects of cash-settled core referenced futures contracts, including the relatively large cash market and trading strategies not found in other core referenced futures markets.610 Commission Determination: The Commission, as part of the phased approach to implementing position limits on all physical commodity derivative contracts, is deferring action so that it may, at a later date: (1) Clarify the application of limits to cash-settled core referenced futures contracts; and (2) consider further which method to use to determine a level for a spotmonth limit for a cash-settled core referenced futures contract. The Commission notes that the December 2013 Position Limits Proposal discussed spot-month limits primarily in the context of protecting the price discovery process by preventing corners and squeezes.611 There was limited discussion of cash-settled core referenced futures contracts.612 The Commission did not propose alternate means of calculating limit levels for cash-settled core referenced futures contracts in the December 2013 Position Limits Proposal.
C. § 150.3—Exemptions

Current § 150.3
Statutory authority: CEA section 4a(c)(1) exempts positions that are shown to be bona fide hedging positions, as defined by the Commission, from any Commission rule establishing speculative position limits under CEA section 4a(a).613 In addition, CEA section 4a(a)(1) authorizes the Commission to exempt transactions normally know to the trade as ‘‘spreads.’’ 614 Further, CEA section 4a(a)(7) authorizes the Commission to exempt any person, contract, or transaction from any position limit requirement the Commission establishes.615 Current exemptions: The three existing exemptions in current § 150.3(a), promulgated prior to the enactment of the Dodd-Frank Act, are
part of the Commission’s regulatory
framework for speculative position limits.616 First, current § 150.3(a)(1) exempts positions shown to be bona fide hedging positions from federal position limits.617 Second, current § 150.3(a)(3) exempts spread positions between single months of a futures contract (and/or, on a futures-equivalent basis, options) outside of the spot month, provided a trader’s spread position in any single month does not exceed the all-months limit.618 Third, under current § 150.3(a)(4), positions carried for an eligible entity 619 in the separate account of an independent account controller (‘‘IAC’’) 620 that manages customer positions need not be aggregated with the other positions owned or controlled by that eligible entity (the ‘‘IAC exemption’’).621

622See November 2013 Aggregation Proposal. See also 2016 Final Aggregation Rule. 623Under the 2016 Supplemental Position Limits Proposal, DCMs and SEFs that are trading facilities would have authority to grant spread exemptions to both exchange and federal position limits. See infra discussion of §§ 150.5 and 150.10. 624The Commission received many comments on the changes to the bona fide hedging definition in § 150.1 and the processes for exchange recognition of exemptions in §§ 150.9–11. See discussion of the bona fide hedging definition, above, and of the processes in §§ 150.9–11, below. 625 Id. 626 December 2013 Position Limits Proposal, 78 FR at 75736. 627CL–CME–59718 at 71.
2. Proposed § 150.3
In the December 2013 Position Limits Proposal, the Commission proposed a number of organizational and substantive amendments to § 150.3, generally resulting in an increase in the number of exemptions to speculative position limits. First, the Commission proposed to amend the three exemptions from federal speculative limits contained in current § 150.3. These previously proposed amendments would update cross references, relocate the IAC exemption and consolidate it with the Commission’s separate proposal to amend the aggregation requirements of § 150.4,622 and delete the calendar month spread provision which is unnecessary under changes to § 150.2 that would set the level of each single month position limit to that of the all-months position limit. Second, the Commission proposed to add exemptions from the federal speculative position limits for financial distress situations, certain spot-month positions in cash-settled referenced contracts, and grandfathered pre-Dodd-Frank and transition period swaps. Third, the Commission proposed to revise recordkeeping and reporting requirements for traders claiming any exemption from the federal speculative position limits. a. Proposed Amendments to Existing Exemptions Proposed Rule: In the December 2013 Position Limits Proposal, the Commission proposed to update crossreferences within § 150.3 to reflect other changes in part 150. Specifically, the Commission proposed: To update references to the bona fide hedging definition to § 150.1 from § 1.3(z); to require that those filing for exemptive relief must meet the reporting requirements in part 19; and to add a cross-reference to aggregation provisions in proposed § 150.4. The Commission also proposed to move the existing IAC exemption to § 150.4, thereby deleting the current exemption in § 150.3(a)(4). The Commission also proposed to delete the spread exemption in current § 150.3, because it noted that the proposed nonspot month limits rendered such an exemption unnecessary.623 In the 2016 Supplemental Position Limits Proposal, the Commission proposed to conform § 150.3(a) to accommodate processes proposed in other sections of part 150. Specifically, the Commission proposed under § 150.3(a)(1)(i) exemptions for those bona fide hedging positions that have been recognized by a DCM or SEF in accordance with proposed §§ 150.9 and
150.11. The Commission also proposed
under § 150.3(a)(1)(iv) exemptions for those spread positions that have been recognized by a DCM or SEF in accordance with proposed § 150.10. Recognition of other positions exempted under proposed § 150.3(e) was renumbered as subsection (v) from subsection (iv) of § 150.3(a)(1) of the 2013 Position Limits Proposal. Comments Received: The Commission received no comments on the proposed conforming changes to § 150.3.624 The Commission addresses comments on the IAC exemption in its final rule amending the aggregation policy under § 150.4, published separately. Commission Reproposal: The Commission is reproposing these amendments as previously proposed in the December 2013 Position Limits Proposal. b. Positions Which May Exceed Limits—§ 150.3(a) Proposed Rule: In the December 2013 Position Limits Proposal, the Commission listed positions which may exceed limits in proposed § 150.3(a). Such positions included: (i) Bona fide hedging positions as defined in § 150.1; (ii) financial distress positions exempted under § 150.3(b); (iii) conditional spot month limit positions exempted under § 150.3(c); and (iv) other positions exempted under § 150.3(e). Proposed § 150.3(a) also provided that all such positions may exceed limits only if recordkeeping requirements in § 150.3(g) are met and any applicable reporting requirements in part 19 are met. In the 2016 Supplemental Position Limits Proposal, the Commission proposed to revise § 150.3(a) to include, in addition to bona fide hedging positions as defined in § 150.1, positions that are recognized by a DCM or SEF in accordance with § 150.9 or § 150.11 as well as spread positions recognized by a DCM or SEF in accordance with § 150.10. Comments Received: The Commission received many comments on the definition of bona fide hedging in § 150.1, as well as on the processes proposed in §§ 150.9–11.625 The Commission addresses those comments in the discussion of the definition of bona fide hedging position in § 150.1, above, and in the discussion of the processes proposed in §§ 150.9–11, below. The Commission did not receive comments specific to the conforming revisions to § 150.3(a). Commission Reproposal: The Commission is reproposing § 150.3(a) as previously proposed in the December 2013 Position Limits Proposal, with conforming changes consistent with the reproposed definition of a bona fide hedging position in § 150.1, which includes positions that are recognized by a DCM or SEF in accordance with reproposed § 150.9 or § 150.11, or by the Commission, and conforming changes consistent with the process for spread positions recognized by a DCM or SEF in accordance with reproposed § 150.10, or by the Commission.
c. Proposed Additional Exemptions
From Position Limits
i. Financial Distress Exemption—
§ 150.3(b)
Proposed Rule: The Commission proposed to add in § 150.3(b) an exemption from position limits for market participants in financial distress circumstances, upon the Commission’s approval of a specific request.626 For example, the Commission recognized that, in periods of financial distress, it may be beneficial for a financially sound market participant to take on the positions (and corresponding risk) of a less stable market participant. The Commission explained that it has historically provided an exemption from position limits in these types of situations in order to avoid sudden liquidations that could potentially reduce liquidity, disrupt price discovery, and/or increase systemic risk. The Commission therefore proposed to codify this historical practice. Comments Received: One commenter requested the non-exclusive circumstances for the financial distress exemption be clarified by adding ‘‘bud not limited to’’ after the word ‘‘include’’ to permit other situations not listed.627 Commission Reproposal: In response to the commenter, the Commission clarifies that the circumstances under which a financial distress exemption may be claimed include, but are not limited to, the specific scenarios in the definition. However, the Commission believes that the proposed definition

628 December 2013 Position Limits Proposal, 78 FR at 75738. 629CL–AMG–59709 at 2, 18–19. 630 December 2013 Position Limits Proposal, 78 FR at 75740. 631CL–FIA–59595 at 5, 34–35; CL–AMG–59709 at 2, 12–15; CL–CME–59718 at 67–69. 632CL–Sen. Levin–59637 at 8; CL–Better Markets–60325 at 2. 633 December 2013 Position Limits Proposal, 78 FR at 75738–9. 634 17 CFR 140.99 defines three types of staff letters—exemptive letters, no-action letters, and interpretative letters—that differ in scope and effect. An interpretative letter is written advice or guidance by the staff of a division of the Commission or its Office of the General Counsel. It binds only the staff of the division that issued it (or the Office of the General Counsel, as the case may Continued sufficiently articulates that the list of potential circumstances for claiming the financial distress exemption is nonexclusive, and, therefore, is reproposing the definition as previously proposed.
ii. Pre-Enactment and Transition Period
Swaps Exemption—§ 150.3(d) Proposed Rule: In the December 2013 Position Limits Proposal, the Commission proposed to provide an exemption from federal position limits for (1) pre-enactment swaps, defined as swaps entered into prior to July 21, 2010 (the date of the enactment of the DoddFrank Act of 2010), so long as the terms of which have not expired as of that date, and (2) transition period swaps, defined as swaps entered into during the period commencing July 22, 2010 and ending 60 days after the publication of the final position limit rules in the Federal Register, the terms of which have not expired as of that date. The Commission also proposed to allow both pre-enactment and transition period swaps to be netted with commodity derivative contracts acquired more than 60 days after publication of the final rules in the Federal Register for purposes of complying with non-spot-month position limits.628 Comments Received: One commenter suggested that ‘‘grandfathering’’ relief should be extended to pre-existing positions, and should also permit the pre-existing positions to be increased after the effective date of the limit. The commenter also suggested that the Commission should permit the risk associated with a pre-existing position to be offset through roll of a position from a prompt month into a deferred contract month.629 Commission Reproposal: The Commission declines to accept the commenter’s recommendation regarding increasing positions, because allowing pre-existing positions to be increased after the effective date of the limits effectively would create a loophole for exceeding position limits. Further, the Commission declines the commenter’s recommendation to permit a roll of a pre-existing position, because that would permit a market participant to extend indefinitely the holding of a speculative economic exposure in commodity derivative contracts exempt from position limits, frustrating the intent of speculative position limits. The Commission notes, however, that reproposed § 150.3(d), like the previous proposal, allows for netting of pre- and post-effective date positions, allowing a market participant to offset the risk of the position provided the offsetting position is not held into a spot month. The Commission is reproposing § 150.3(d) as proposed in the December 2013 Position Limits Proposal.
iii. Previously Granted Exemptions—
§ 150.3(f)
Proposed Rule: The Commission proposed in the December 2013 Position Limits Proposal that exemptions previously granted by the Commission under § 1.47 for swap risk management would not apply to new swap positions entered into after the effective date of the final rule. The Commission noted that the proposed rules revoke the previously granted exemptions for risk management positions for such new swaps. Therefore, risk management positions that offset such new swaps would be subject to federal position limits, unless another exemption applied. The Commission explained that these risk management positions are inconsistent with the revised definition of bona fide hedging contained in the December 2013 Position Limits Proposal and the purposes of the Dodd-Frank Act amendments to the CEA.630 Comments Received: A number of commenters urged the Commission not to deny risk-management exemptions for financial intermediaries who utilize referenced contracts to offset the risks arising from the provision of diversified commodity-based returns to the intermediaries’ clients.631 In contrast, other commenters noted that the proposed rules ‘‘properly refrain’’ from providing a general exemption to financial firms seeking to hedge their financial risks from the sale of commodity-related instruments such as index swaps, ETFs, and ETNs because such instruments are ‘‘inherently speculative’’ and may overwhelm the price discovery function of the derivative market.632 Commission Reproposal: As discussed above in the clarifications to the bona fide hedging position definition, the Commission now proposes to expand the relief in § 150.3(f) by: (1) Clarifying that such previously granted exemptions may apply to pre-existing financial instruments that are within the scope of existing § 1.47 exemptions, rather than only to pre-existing swaps; and (2) recognizing exchange-granted nonenumerated exemptions in non-legacy commodity derivatives outside of the spot month (consistent with the Commission’s recognition of risk management exemptions outside of the spot month), and provided such exemptions are granted prior to the compliance date of the final rule, and apply only to pre-existing financial instruments as of the effective date of the final rule. These two changes are intended to reduce the potential for market disruption by forced liquidations, since a market intermediary would continue to be able to offset risks of pre-effective-date financial instruments, pursuant to previously-granted federal or exchange risk management exemptions.
iv. Non-Enumerated Hedging
Positions—§ 150.3(e)
Proposed Rule: In the December 2013 Position Limits Proposal, the Commission noted that it previously permitted a person to file an application seeking approval for a non-enumerated position to be recognized as a bona fide hedging position under § 1.47. The Commission proposed to delete § 1.47 for several reasons described in the December 2013 Position Limits Proposal.633 Proposed § 150.3 provided that a person that engages in risk-reducing practices commonly used in the market, that the person believes may not be included in the list of enumerated bona fide hedging positions, may apply to the Commission for an exemption from position limits. As previously proposed, market participants would be guided in § 150.3(e) first to consult proposed
Appendix C to part 150 to see whether
their practices fell within a nonexhaustive list of examples of bona fide hedging positions as defined under proposed § 150.1. A person engaged in risk-reducing practices that are not enumerated in the revised definition of bona fide hedging position in previously proposed § 150.1 may use two different avenues to apply to the Commission for relief from federal position limits: The person may request an interpretative letter from Commission staff pursuant to § 140.99 634 concerning the applicability

be), and third-parties may rely upon it as the interpretation of that staff. See description of CFTC Staff Letters, available at http://www.cftc.gov/ lawregulation/cftcstaffletters/index.htm. 635See supra discussion of CEA section 4a(a)(7). 636See infra discussion of these alternative processes in § 150.9, § 150.10, and § 150.11. 637CL–CMC–59718 at 15. 638CL–Citadel–59717 at 8–9. 639CFTC Reauthorization Act of 2008 (‘‘Farm Bill’’, incorporated as Title XIII of the Food, Conservation and Energy Act of 2008, Public Law 110–246, 112 Stat. 1624 (June 18, 2008)) expanded the Commission’s authority with respect to ECMs by creating a new regulatory category: ECMs on which significant price discovery contracts (‘‘SPDCs’’) were traded. The Farm Bill authorized the Commission to designate an ECM contract as a SPDC if the Commission determined, under criteria established in the Act, that the contract performed a significant price discovery function. When the Commission made such a determination, the ECM on which the SPDC was traded would be required to assume, with respect to that contract, all the responsibilities and obligations of a registered entity under the Commission’s regulations and the Act. This process was invalidated and deleted by changes to the Act made under the Dodd-Frank Act of 2010. 640On March 16, 2009, the Commission adopted final rules implementing the provisions of the Farm Bill. 74 FR 12179 (March 23, 2009). These regulations became effective on April 22, 2009. Among other things, the rules established procedures by which the Commission would make and announce its determination as to whether a particular contract served a significant price discovery function. On July 24, 2009, the Commission issued an order finding that ICE’s Henry Financial LD1 Fixed Price contract (‘‘NG LD1 contract’’) performed a significant price discovery function and, thus, that ICE was a registered entity with respect to the NG LD1 contract, subject to all provisions of the Act applicable to registered entities, including compliance with certain core principles. 74 FR 37988 (July 30, 2009). As required after the designation of the NG LD1 contract as a SPDC, ICE submitted a demonstration of their compliance with the required core principles. One of the core principles with which ICE was required to comply under the Farm Bill ECM SPDC rules concerned position limits and position accountability rules for the contract(s) designated as SPDC(s). See Section 13201(C)(ii)(IV) of the Farm Bill (implemented in Section 2(h)(7) of the Act). 641See 17 CFR part 36, App. B, Core Principle IV(c)(3) (2010). 74 FR 12177 (April 22, 2009). 642 ICE also imposed related aggregation, bona fide hedging, and other exemption rules for the ICE NG LD1 contract. 643New York Mercantile Exchange, Inc. Submission #09.103 (June 2, 2009): Notification of Amendments to NYMEX Rules 9A.27 and 9A.27A to Establish Hard Expiration Position Limits for Certain Natural Gas Financially Settled Contracts.
Previously, NYMEX did not have spot-month limits on its HH contract and related cash-settled contracts. of the bona fide hedging position exemption, or the person may seek exemptive relief from the Commission under CEA section 4a(a)(7).635 In the 2016 Supplemental Position Limits Proposal, the Commission proposed §§ 150.9, 150.10, and 150.11 which provided alternative processes that would permit eligible DCMs and SEFs to provide relief for nonenumerated bona fide hedging positions, certain spread positions, and anticipatory bona fide hedging positions, respectively.636 However, the Commission did not propose to alter or delete § 150.3 because the Commission determined to provide multiple avenues for persons seeking exemptive relief. Comments Received: One commenter requested that the Commission provide a spread exemption from federal position limits for certain soft commodities, reasoning that there was a ‘‘lack of fungibility of certain soft commodities . . . [because] inventories of various categories vary widely in terms of marketability over time.’’ The commenter also stated that such a spread exemption would allow for effective competition for the ownership of certified inventories that in turn helps to maintain a close relationship between the cash and futures markets.637 Another commenter recommended the Commission recognize calendar spread netting, and not place any limits on the same, because speculators provide liquidity in deferred months to hedgers and offset, in part, that exposure with shorter dated contracts.638 Commission Reproposal: Both of these comments were submitted in response to the December 2013 Position Limits Proposal, well in advance of the 2016 Supplemental Position Limits Proposal. Spread exemptions such as those described by the commenters are addressed in § 150.10, discussed below. The Commission is reproposing § 150.3(e) as previously proposed in the December 2013 Position Limits Proposal. d. Proposed Conditional Spot Month Limit Exemption—§ 150.3(c) Conditional spot month limit exemptions to exchange-set spot-month position limits for natural gas contracts were adopted in 2009, after the ICE submitted such an exemption as part of its certification of compliance with core principles required of exempt commercial markets (‘‘ECMs’’) on which significant price discovery contracts (‘‘SPDCs’’) were traded.639 As ICE developed its rules in order to comply with the ECM SPDC requirements,640 ICE expressed concerns regarding the impact of position limits on the open interest in its LD1 contract. ICE demonstrated that as the open interest declines in the physical-delivery New York Mercantile Exchange Inc. (‘‘NYMEX’’) Henry Hub Natural Gas Futures (‘‘NYMEX NG’’) contract approaching expiration, open interest increases rapidly in the cashsettled ICE NG LD1 contract, and suggested that the ICE NG LD1 contract served an important function for hedgers and speculators who wished to recreate or hedge the NYMEX NG contract price
without being required to make or take delivery. ICE stated that it believed there are ‘‘significant and material distinctions between the design and use of’’ the NYMEX NG contract and the ICE NG LD1 contract, and those distinctions were most pronounced at expiration. Further, ICE stated that, due to the size of some positions in the cashsettled ICE NG LD1 contract, the impact to the market of an equivalent limit could impair the ability for market participants to adjust their positions in an orderly fashion to come into compliance. For these reasons, ICE requested that the Commission consider an alternative to the Commission’s acceptable practice that spot month position limits for the NG LD1 contract should be equivalent to the spot month position limits in the NYMEX NG contract.641 After discussion with both the Commission’s Division of Market Oversight and NYMEX, ICE submitted and certified rule amendments implementing position limits and position accountability rules for the ICE NG LD1 contract. Specifically, ICE imposed a spot-month position limit and non-spot-month position accountability levels equal to those of the economically equivalent NYMEX NG contract. ICE also adopted a rule for a larger conditional position limit for traders who: (1) Agreed not to maintain a position in the NYMEX NG futures contract during the last three trading days, and (2) agreed to show ICE their complete book of Henry Hub related positions.642 In June 2009, the Commission also received self-certified rule amendments from CME Group, Inc. (‘‘CME’’) regarding position limits and position accountability levels for the cash-settled NYMEX Henry Hub Financial Last Day Futures (HH) contract and related cashsettled contracts.643 The rules, as amended, established spot month position limits for the NYMEX HH contract as well as certain related cashsettled contracts so as to be consistent with the requirements for the SPDC contract on ICE. In the rule certification documents, CME stated that it was amending its position limits rules for the HH contract in anticipation of ICE’s new rules. In February 2010, the conditional spot month limit exemptions on NYMEX and ICE went into effect. Proposed Rules: In the December 2013 Position Limits Proposal, the

644See December 2013 Position Limits Proposal, 78 FR at 75736–38. 645 Id. at 75737. 646 Id. at 75770. 647 Id. at 75770, n. 782. 648E.g., CL–FIA–59595 at 3 and 11; CL–EEI– EPSA–59602 at 9–10; CL–MFA–59606 at 5 and 19– 20; CL–AIMA–59618 at 2; CL–ISDA/SIFMA–59611 at 31; CL–BG Group–59656 at 7; CL–BG Group– 59937 at 5–6; CL–COPE–59662 at 23; CL–NGSA– 59673 at 38–39; CL–NGSA–59941 at 3–4; CL– IECAssn–59957 at 9. 649CL–WGC–59558 at 4. 650E.g., CL–Sen. Levin–59637 at 7; CL–AFR– 59711 at 2; CL–A4A–59714 at 3; CL–Working Group–59693 at 59–60; CL–IECA–59713 at 3–4; CL– Better Markets–60401 at 17–18; CL–CME–59971 at 3; CL–CME–60307 at 4–5; CL–CME–60406 at 2; CL– CMOC–59720 at 3–6; CL–APGA–59722 at 8; CL– OSEC–59972 at 7; CL–RF–60372 at 3; CL–IATP– 59701 at 5; CL–IATP–59704 at 6; CL–IATP–60394 at 2; CL–NGFA–59681 at 6. 651E.g., CL–FIA–59595 at 20; CL–COPE–59662 at 23; CL–EEI–EPSA–60926 at 7, CL–EEI–Sup–60386 at 3–4; CL–Working Group–59693 at 59–60. 652CL–SEMP–59926 at 4–6; CL–SEMP–60384 at 5–6. 653E.g., CL–IECAssn–59713 at 30–31; CL–ICE– 59966 at 4–5; CL–ICE–59962 at 4–7. 654CL–EEI–EPSA–59602 at 10; CL–ICE–59669 at 7. 655CL–COPE–59662 at 24. 656CL–CME–60926 at 4. 657CL–ICE–61009 at 1. 658 Id. 659CL–CME–61008 at 2. 660 Id. at 3. 661CL–ICE–61009 at 2. Commission proposed a conditional spot month limit exemption for all commodities subject to federal limits under proposed § 150.2. That proposed rule was identical to the rule proposed in the Part 151 Proposal, with the exception that the December 2013 Position Limits Proposal did not include any restriction on trading in the cash market.644 In proposing the conditional spot month limit exemption in proposed § 150.3(c), the Commission stated its preliminary belief that the current exemption in natural gas markets has served ‘‘to further the purposes Congress articulated for position limits’’ and that the exemption ‘‘would not encourage price discovery to migrate to the cash-settled contracts in a way that would make the physical-delivery contract more susceptible to sudden price movements near expiration.’’ 645 In addition, the Commission noted that it has observed repeatedly that open interest levels in physical-delivery contracts ‘‘naturally decline leading up to and during the spot month, as the contract approaches expiration’’ because ‘‘both hedgers and speculators exit the physical-delivery contract in order to, for example, roll their positions to the next contract month or avoid delivery obligations.’’ 646 The Commission also stated its preliminary belief that ‘‘it is unlikely that the factors keeping traders in the spot month physical-delivery contract will change due solely to the introduction of a higher cash-settled limit,’’ as traders participating in the physical-delivery contract in the spot month are ‘‘understood to have a commercial reason or need to stay in the spot month.’’ 647 Comments Received: The Commission received many comments regarding the conditional spot month limit exemption. These
comments revealed little to no consensus among market participants, exchanges, and industry groups regarding spot-month position limits in cash-settled contracts. Several commenters supported the higher spot-month limit (or no limit at all) for cash-settled contracts, but opposed the restriction on holding a position in the physical-delivery referenced contract to obtain the higher limit for various reasons, including: The view that there is no discernible reason for the restriction in the first place; the belief that it provides a negative impact on liquidity in the physical delivery contract; and the view that it prevents commercials from taking advantage of the higher limit given their need to have some exposure in a physical delivery referenced contract during the spot month.648 One commenter said that the conditional spot month position limit exemption for gold is not supported by sufficient research, could decouple the cash-settled contract from the physicaldelivery contract, and could lead to lower liquidity in the physical-delivery contract and higher price volatility.649 Several commenters opposed a spotmonth position limit for cash-settled contracts that is higher than the limit for physical-delivery contracts for various reasons including: The higher limit does not address the problem of excessive speculation; the higher limit would reduce liquidity in the physical-delivery contract; and the conditional limit is not restrictive enough and should include a restriction on holdings of the physical commodity as had been proposed in vacated part 151.650 Several commenters expressed the view that a market participant holding a trade option position, which presumably would be considered a physical delivery referenced contract, should not be precluded from using the conditional spot-month limit exemption because trade options are functionally equivalent to a forward contract and the conditional exemption does not restrict holding forwards.651 One commenter supported the conditional spot month limit exemption provided that the Commission modifies its proposal to allow independentlyoperated subsidiaries to hold positions in physical-delivery contracts if the subsidiary engages in separate and independent trading activities, shares no employees, and is not jointly directed in its trading activity with other subsidiaries by the parent company.652 Some commenters supported the continuation of the practice of DCMs separately establishing and maintaining their own conditional spot month limits and not aggregating cash-settled limits across exchanges and the OTC market, arguing that the resultant aggregated limit will be unnecessarily restrictive and result in lower liquidity and increased volatility.653 Some commenters expressed the view that the filing of daily Form 504 reports to satisfy the conditional spot month limit exemption was burdensome, and recommended less frequent reporting such as monthly reports 654 or no reporting at all.655 Two
exchanges which currently permit a conditional spot month limit exemption, CME and ICE, have each submitted several comments regarding the exemption, some in direct response to the other exchange’s comments. This back-and-forth nature of the disagreement surrounding the conditional spot month limit exemption has been significant and, on many aspects of the previously proposed exemption, the comments have been in direct opposition to each other. CME submitted a comment letter in response to the 2016 Supplemental Position Limits Proposal that reiterated its belief that the conditional limit would drain liquidity from the physical-delivery contract; 656 ICE responded that nothing in the natural gas market has suggested that the physical-delivery contract has been harmed.657 ICE noted that CME’s current conditional limit benefits CME’s own cash-settled natural gas contracts; 658 CME responded that it opposes any conditional limit framework even though such opposition could work ‘‘to the detriment of CME Group’s commercial interests in certain of its cash-settled markets.’’ 659 CME stated its belief that the CEA necessitates ‘‘one-to-one limit treatment and similar exemptions’’ for both physical-delivery and cash-settled contracts within a particular commodity; 660 ICE suggested that removing or reducing the conditional limit would ‘‘disrupt present market practice.’’ 661 ICE also submitted a series of charts, using CFTC Commitment of Traders

662 Id. at 3–6.
663CL–CME–61008 at 2–3. CEA section 4(b)(1)(B)(ii)(1) imposes requirements on a foreign board of trade (‘‘FBOT’’) as a condition of providing U.S. persons direct access to the electronic trading and order-matching systems of the FBOT with respect to a contract that settles against any price of one or more contracts listed for trading on a registered entity. Such FBOT must adopt position limits for contract(s) that are ‘‘comparable’’ to the position limits adopted by the registered entity for the contract(s) against which the FBOT contract settles. 7 U.S.C. 6(b)(1)(B)(ii)(1), codified in 17 CFR 48.8(c)(1)(ii)(A). 664CL–CME–61008 at 3. 665CL–ICE–61022 at 2. 666 Id. 667 Id. 668 17 CFR 13.2. 669See infra discussion of part 19 and Form 504, below. Report data, illustrating the opposite:
That spot-month open interest and volume in the physical-delivery contract (the NYMEX NG) have actually increased since the introduction of the conditional spot month limit.662 CME stated its opposition to the conditional limits ‘‘as a matter of statutory law,’’ opining that CEA section 4(b) does not allow the imposition of the conditional limit.663 CME believes that the conditional limit contained in the December 2013 Position Limits Proposal ‘‘contravenes Congress’s intent behind the statutory ‘comparability’ requirement’’ in multiple ways, and that neither ICE nor the Commission has ‘‘addressed these aspects of [CEA
section 4(b)].’’ 664
ICE replied that the Commission ‘‘has no basis to modify the current conditional limit level’’ because the markets ‘‘have functioned efficiently and effectively’’ and the Commission should not ‘‘change the status quo.’’ 665 ICE continued that the conditional limit of five times the physical-delivery contract’s spot-month limit ‘‘appears to be arbitrary and likely insufficient’’ and opined that the Commission has not indicated how it arrived at that figure or how such a level ‘‘strikes the right balance between supporting liquidity and diminishing undue burdens.’’ 666 ICE concluded that the conditional exemption ‘‘must be maintained at no less than the current levels.’’ 667 Commission Reproposal: After taking into consideration all the comments it received regarding the conditional spotmonth limit exemption, the Commission is reproposing the conditional spotmonth limit exemption in natural gas markets only. The Commission believes the volume of comments regarding the conditional spot-month limit exemption indicates the importance of careful and thoughtful analysis prior to finalizing policy with respect to conditional spotmonth limit exemptions in other cashsettled referenced contracts. In particular, the considerations may vary, and should be considered in relation to the particular commodity at issue. As such, the Commission believes it is prudent to proceed cautiously in expanding the conditional spot-month limit exemption beyond the natural gas markets where it is currently employed. The Commission encourages exchanges and/or market participants who believe that the Commission should extend the conditional spot-month limit exemption to additional commodities to petition the Commission to issue a rule pursuant to § 13.2 of the Commission’s regulations.668 With respect to natural gas cashsettled referenced contracts, the reproposed rules allow market participants to exceed the position limit provided that such positions do not exceed 10,000 contracts and the person holding or controlling such positions does not hold or control positions in the spot-month natural gas physicaldelivery referenced contract (NYMEX NG). Persons relying upon this exemption must file Form 504 during the spot month.669 The Commission observes that the conditional exemption level of 10,000 contracts is equal to five times the federal natural gas spot-month position limit level of 2,000 contracts. The conditional exemption level is also equal to the sum of the current conditional exemption levels for each of the NYMEX HH contract and the ICE NG LD1 contract. The Commission believes the level of 10,000 contracts provides relief for market participants who currently may hold or control 5,000 contracts in each of these two cashsettled natural gas futures contracts and an unlimited number of cash-settled swaps, while still furthering the purposes of the Dodd-Frank Act’s amendments to CEA section 4a. The Commission is proposing the fixed figure of 10,000 contracts,
rather than the variable figure of five times the spot-month position limit level, in order to avoid confusion in the event NYMEX were to set its spot-month limit in the physical-delivery NYMEX NG contract at a level below 2,000 contracts. The Commission provides, for informational purposes, summary statistical information that it considered in declining to extend the conditional spot-month limit exemption beyond the natural gas referenced contract. The four tables below present the number of unique persons that held positions in commodity derivative contracts greater than or equal to the specified levels, as reported to the Commission under the large trader reporting systems for futures and swaps, for the period July 1, 2014 to June 30, 2016. The table also presents counts of unique reportable persons, whether reportable under part 17 (futures and future option contracts) or under part 20 (swap contracts). The method the Commission used to analyze this large trader data is discussed above, under § 150.2. The four tables group commodities only for convenience of presentation. In each table, the term ‘‘25% DS’’ means 25 percent of the deliverable supply as estimated by the exchange listing the core referenced futures contract and verified as reasonable by the Commission. Similarly, ‘‘15% DS’’ means 15 percent of estimated deliverable supply. An asterisk (‘‘*’’) means that fewer than four unique persons were reported. ‘‘CME proposal’’ means the level recommended by the CME Group for the spot-month limit. MGEX submitted a recommended spotmonth limit level that is slightly less than 25 percent of estimated deliverable supply but did not affect the reported number of unique persons; no other exchange recommended a spot-month level of less than 25 percent of estimated deliverable supply. For the first group of commodities, there was no unique person in the cashsettled referenced contracts whose position would have exceeded 25 percent of the exchange’s estimated deliverable supply. Moreover, no unique person held a position in the cash-settled referenced contracts that would have exceeded the reproposed spot-month limits discussed under § 150.2, above, that are lower than 25 percent of the exchange’s estimated deliverable supply.

670The Commission notes that 60 percent of the 450 contract spot-month limit is analogous to the counts presented for 15 percent of estimated deliverable supply. That is, 60 percent of 25 percent equals 15 percent.
TABLE III–B–21—CME GROUP AND MGEX AGRICULTURAL CONTRACTS
Core-referenced futures contract Basis of spot-month level Position limit level Number of unique persons >= level Number of reportable persons in market Spot month cash settled Spot month physical delivery Spot month only All months Corn .................................... CME proposal .................... 600 0 36 1,050 2,606
(CBOT current limit 600) ..... 25% DS .............................. 900 0 20 ........................ ........................
Oats ..................................... CME proposal .................... 600 33 173
(CBOT current limit 600) ..... 25% DS .............................. 900 ........................ ........................
Soybeans ............................ CME proposal .................... 600 0 22 929 2,503
(CBOT current limit 600) ..... 25% DS .............................. 1,200 0 14 ........................ ........................
Soybean Meal ..................... CME proposal .................... 720 0 14 381 978
(CBOT current limit 720) ..... 25% DS .............................. 2,000 0 () ........................ ........................
Soybean Oil ........................ CME proposal .................... 540 0 21 397 1,034
(CBOT current limit 540) ..... 25% DS .............................. 3,400 ........................ ........................
Wheat (CBOT) .................... CME proposal .................... 600 0 11 444 1,867
(CBOT current limit 600) ..... 25% DS .............................. 1,000 0 6 ........................ ........................
Wheat (MGEX) .................... Parity w/CME proposal ...... 600 0 () 102 342
(MGEX current limit 600) .... Approx. 25% DS ................ 1,000 0 () ........................ ........................
Wheat (KCBT) ..................... CME proposal .................... 600 0 4 250 718
(KCBT current limit 600) ..... 25% CBOT DS ................... 1,000 0 () ........................ ........................
25% DS .............................. 3,000 0 () ........................ ........................
Rough Rice ......................... CME proposal .................... 600 91 281
(CBOT current limit 600) ..... 25% DS .............................. 2,300 ........................ ........................
For the second group of commodities, there was no unique person in the cashsettled referenced contracts whose position would have exceeded 25 percent of the exchange’s estimated deliverable supply or, in the case of Live Cattle, the current exchange limit level of 450 contracts. Moreover, other than in the Sugar No. 11 contract, no unique person held a position in the cashsettled referenced contracts that would have exceeded 15 percent of the exchange’s estimated deliverable supply. For informational purposes, the
table also shows for Live Cattle that no
unique person held a position in the cash-settled referenced contracts that would have exceeded 60 percent of the exchange’s current spot-month limit of 450 contracts.670
TABLE III–B–22—OTHER AGRICULTURAL CONTRACTS AND ICE FUTURES U.S. SOFTS
Core-referenced futures contract Basis of spot-month level Position limit level Number of unique persons >= level Number of unique persons in market Spot month cash settled Spot month physical delivery Spot month only All months Cotton No. 2 ........................ 15% DS .............................. 960 0 () 122 1,000
(ICE current limit 300) ......... 25% DS .............................. 1,600 ........................ ........................
Cocoa .................................. 15% DS .............................. 3,300 164 682
(ICE current limit 1,000) ...... 25% DS .............................. 5,500 ........................ ........................
Coffee .................................. 15% DS .............................. 1,440 0 () 336 1,175
(ICE current limit 500) ......... 25% DS .............................. 2,400 0 () ........................ ........................
Orange Juice ....................... 15% DS .............................. 1,680 38 242
(ICE current limit 300) ......... 25% DS .............................. 2,800 ........................ ........................
Live Cattle ........................... 60% Current Limit .............. 225 0 33 616 1,436
(CME current limit 450) ....... Current limit * ...................... 450 ........................ ........................
Sugar No. 11 ....................... 15% DS .............................. 13,980 () 10 443 874
(ICE current limit 5,000) ...... 25% DS .............................. 23,300 0 () ........................ ........................
Sugar No. 16 ....................... 15% DS .............................. 4,200 12 22
(ICE current limit 1,000) ...... 25% DS .............................. 7,000 ........................ ........................
For the third group of energy commodities, there were a number of unique persons in the cash-settled referenced contracts whose position would have exceeded 25 percent of the exchange’s estimated deliverable supply. For energy commodities other than natural gas, there were fewer than 20 unique persons that had cash-settled positions in excess of the reproposed spot-month limit levels, each based on 25 percent of deliverable supply, as discussed above under § 150.2. However, for natural gas referenced contracts, 131 unique persons had cashsettled positions in excess of the reproposed spot-month limit level of 2,000 contracts. As can be observed in the table below, only 20 unique persons had cash-settled referenced contract positions that would have exceeded the

671As can be observed in the open interest table discussed under § 150.2, above, the Commission notes that open interest in cash-settled platinum contracts was markedly lower in the second 12- month review period (year 2), than in the first 12- month review period (year 1). reproposed natural gas conditional spotmonth limit level of 10,000 contracts. Thus, a conditional spot-month limit exemption in natural gas referenced contracts potentially would provide relief to a substantial number of market participants, each of whom did not have a position that was extraordinarily large in relation to other traders’ positions in cash-settled referenced contracts.
TABLE III–B–23—ENERGY CONTRACTS
Core-referenced futures contract Basis of spot-month level Position limit level Nunber of unique persons >= level Number of unique persons in market Spot month cash settled Spot month physical delivery Spot month only All months Crude Oil, Light Sweet (WTI). CME proposal * .................. 6,000 19 8 1,773 2,673
(NYMEX current limit .......... 25% DS .............................. 10,400 16 () ........................ ........................
3,000 contracts) .................. 50% DS .............................. 20,800 () 0 ........................ ........................
Gasoline Blendstock
(RBOB).
CME proposal .................... 2,000 23 14 463 837
(NYMEX current limit .......... 25% DS .............................. 6,800 () 0 ........................ ........................
1,000 contracts) .................. 50% DS .............................. 13,600 ........................ ........................
Natural Gas ......................... 25% DS .............................. 2,000 131 16 1,400 1,846
(NYMEX current limit .......... 50% DS .............................. 4,000 77 () ........................ ........................
1,000 contracts) .................. Current single exchange conditional spot-month limit exemption.
5,000 65 (*) ........................ ........................
Conditional spot-month limit exemption.
10,000 20 0 ........................ ........................
ULSD (HO) .......................... CME proposal .................... 2,000 24 11 470 760
(NYMEX current limit .......... 25% DS .............................. 2,900 15 5 ........................ ........................
1,000 contracts) .................. 50% DS .............................. 5,800 5 0 ........................ ........................

For WTI, CME Group recommended a step-down spot-month limit of 6,000/5,000/4,000 contracts in the last three days of trading.
For the fourth group of metal commodities, there were a few unique persons in the cash-settled referenced contracts whose position would have exceeded the reproposed levels of the spot-month limits, based on the CME Group’s recommended levels, as discussed above under § 150.2. However, there were fewer than 20 unique persons that had cash-settled positions in excess of the reproposed spot-month limit levels for metal commodities; this is in marked contrast to the 131 unique persons who had cash-settled positions in excess of the reproposed spot-month limit for natural gas contracts. The Commission, in consideration of the distribution of unique persons holding positions in cash-settled metal commodity contracts across the 24 calendar months of its analysis, particularly in platinum,671 is of the view that the spot-month limit level, as discussed above under § 150.2, and without a conditional spot-month limit exemption, is within the range of acceptable limit levels that, to the maximum extent practicable, may achieve the statutory policy objectives in CEA section 4a(a)(3)(B).
TABLE III–B–24—METAL CONTRACTS (COMEX DIVISION OF NYMEX)
Core-referenced futures contract Basis of spot-month level Position limit level Number of unique persons >= level Number of unique persons in market Spot month cash settled Spot month physical delivery Spot month only All months Copper ................................ CME proposal .................... 1,000 0 () 493 1,457
(current limit 1,000) ............. 25% DS .............................. 1,100 0 () ........................ ........................
Gold ..................................... CME proposal .................... 6,000 () () 518 1,557
(current limit 3,000) ............. 25% DS .............................. 11,200 ........................ ........................
Palladium ............................ CME proposal .................... 100 6 14 164 580
(current limit 100) ................ 25% DS .............................. 900 ........................ ........................
Platinum .............................. CME proposal .................... 500 13 () 235 842
(current limit 500) ................ 25% DS .............................. 900 10 () ........................ ........................
50% DS .............................. 1,800 (*) 0 ........................ ........................
Silver ................................... CME proposal .................... 3,000 311 1,023
(current limit 1,500) ............. 25% DS .............................. 5,600 ........................ ........................

672 December 2013 Position Limits Proposal, 78 FR at 75741. 673CL–O SEC–59972 at 5. 674CEA section 4a, as amended by the DoddFrank Act, provides the Commission with broad authority to set position limits, including an extension of its position limits authority to swaps positions. 7 U.S.C. 6a. See supra discussion of CEA
section 4a.
675The position limits on these agricultural contracts are referred to as ‘‘legacy’’ limits, and the listed commodities are referred to as the ‘‘enumerated’’ agricultural commodities. This list of enumerated agricultural contracts includes Corn (and Mini-Corn), Oats, Soybeans (and MiniSoybeans), Wheat (and Mini-wheat), Soybean Oil, Soybean Meal, Hard Red Spring Wheat, Hard Winter Wheat, and Cotton No. 2. See 17 CFR 150.2. 676See December 2013 Position Limits Proposal, 78 FR at 75748. 677Specifically, the Dodd-Frank Act amended DCM core principle 1 to include the condition that ‘‘[u]nless otherwise determined by the Commission by rule or regulation,’’ boards of trade shall have reasonable discretion in establishing the manner in which they comply with the core principles. See CEA section 5(d)(1)(B); 7 U.S.C. 7(d)(1)(B). 678See December 2013 Position Limits Proposal, 78 FR at 75748. 679See CEA section 5(d)(5)(B) (amended 2010), 7 U.S.C. 7(d)(5)(B). 680See CEA section 5h, 7 U.S.C. 7b–3. 681CEA section 5h(f)(6), 7 U.S.C. 7b–3(f)(6); see also December 2013 Position Limits Proposal, 78 FR at 75748. 682 Id. 683 December 2013 Position Limits Proposal, 78 FR at 75754. 684See CEA sections 5(d)(1)(B) and 5h(f)(1)(B); 7 U.S.C. 7(d)(1)(B) and 7b–3(f)(1)(B). 685 December 2013 Position Limits Proposal, 78 FR at 75754. e. Proposed Recordkeeping and Special Call Requirements—§ 150.3(g) and § 150.3(h) Proposed Rules: As proposed in the December 2013 Position Limits Proposal, § 150.3(g) specifies recordkeeping requirements for persons who claim any exemption set forth in § 150.3. Persons claiming exemptions under previously proposed § 150.3 must maintain complete books and records concerning all details of their related cash, forward, futures, options and swap positions and transactions. Furthermore, such persons must make such books and records available to the Commission upon request under previously proposed § 150.3(h), which would preserve the ‘‘special call’’ rule set forth in current § 150.3(b). This ‘‘special call’’ rule would have required that any person claiming an exemption under § 150.3 must, upon request, provide to the Commission such information as specified in the call relating to the positions owned or controlled by that person; trading done pursuant to the claimed exemption; the commodity derivative contracts or cash market positions which support the claim of exemption; and the relevant business relationships supporting a claim of exemption. The Commission noted that the previously proposed rules concerning detailed recordkeeping and special calls are designed to help ensure that any person who claims any exemption set forth in § 150.3 can demonstrate a legitimate purpose for doing so.672 Comments Received: The Commission did not receive any comments on the recordkeeping provisions in § 150.3(g) as proposed in the December 2013 Position Limits Proposal. With respect to previously proposed § 150.3(h), one commenter opposed the ‘‘special call’’
provision because, in the commenter’s opinion, it is ‘‘too passive.’’ The commenter advocated, instead, a revision requiring persons claiming an exemption to maintain books and records on an ongoing basis and provide information to the Commission on a periodic and automatic basis, because even if the Commission lacked staff and resources to review the submitted material in real-time, Commission staff would have detailed historical data for use in compliance audits. This commenter stated that since required records are likely to be kept in an electronic format, the more frequent reporting requirement would not be considered burdensome.673 Commission Reproposal: The Commission believes the previously proposed recordkeeping and ‘‘special call’’ provisions in § 150.3(g) and § 150.3(h), respectively, are sufficient to limit abuse of exemptions without causing undue burdens on market participants. The Commission is reproposing these sections generally as proposed in the December 2013 Position Limits Proposal. The Commission is clarifying, in reproposed § 150.3(g)(2), that the bona fides of the pass-through swap counterparty may be determined at the time of the transaction or, alternatively, at such later time that the counterparty can show the swap position to be a bona fide hedging position. As previously proposed, such bona fides could only be determined at the time of the transaction, as opposed to at a later time. D. § 150.5—Exchange-Set Speculative Position Limits and Parts 37 and 38

Background
As discussed above, the Commission currently sets and enforces position limits pursuant to its broad authority under CEA section 4a,674 and does so only with respect to certain enumerated agricultural products.675 As the Commission explained above and in the December 2013 Position Limits Proposal,676 section 735 of the DoddFrank Act amended section 5(d)(1) of the CEA to explicitly provide that the Commission may mandate the manner in which DCMs must comply with the core principles.677 However, Congress limited the exercise of reasonable discretion by DCMs only where the Commission has acted by regulation.678 The Dodd-Frank Act also amended DCM core principle 5. As amended, DCM core principle 5 requires that, for any contract that is subject to a position limitation established by the Commission pursuant to CEA section 4a(a), the DCM ‘‘shall set the position limitation of the board of trade at a level not higher than the position limitation established by the Commission.’’ 679 Moreover, the Dodd-Frank Act added CEA section 5h to provide a regulatory framework for Commission oversight of SEFs.680 Under SEF core principle 6, which parallels DCM core principle 5, Congress required that SEFs that are trading facilities adopt for each swap, as is necessary and appropriate, position limits or position accountability.681 Furthermore, Congress required that, for any contract that is subject to a Federal position limit under CEA section 4a(a), the SEF shall set its position limits at a level no higher than the position limitation established by the Commission.682
Summary
As explained in the December 2013 Position Limits Proposal,683 to implement the authority provided by
section 735 of the Dodd-Frank Act
amendments to CEA sections 5(d)(1) and 5h(f)(1), the Commission evaluated its pre-Dodd-Frank Act regulations and approach to oversight of DCMs, which had consisted largely of published guidance and acceptable practices, with the aim of updating them to conform to the new Dodd-Frank Act regulatory framework. Based on that review, and pursuant to the authority given to the Commission in amended sections 5(d)(1) and 5h(f)(1) of the CEA, which permit the Commission to determine, by rule or regulation, the manner in which boards of trade and SEFs, respectively, must comply with the core principles,684 the Commission in its December 2013 Position Limit Proposal, proposed several updates to § 150.5 to promote compliance with DCM core principle 5 and SEF core principle 6 governing position limitations or accountability.685 First, the Commission proposed amendments to the provisions of § 150.5 to include SEFs and swaps. Second, the Commission proposed to codify rules and revise acceptable practices for

Position Limits for Derivatives

Lineage: In force

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