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CFTC Proposes Easing of Dodd-Frank Speculation Limit Rules

The U.S. Commodity Futures Trading Commission proposed easing part of Dodd-Frank Act regulations limiting speculation in oil, natural gas, wheat and other commodities after industry groups said the original rules were onerous.

The CFTC’s five commissioners voted 5-0 in private to propose changing how companies aggregate trading positions when they have ownership stakes in other firms, the agency said in a statement today. The agency proposed raising to 50 percent from 10 percent the threshold for when a company is considered to have an ownership or equity stake in another firm and must add trading positions.

The proposal, which is open to public comment, would affect so-called position limits that were completed by the CFTC in October as part of an effort to reduce excessive speculation in commodities. The limits, which cap the number of contracts a trader can have in a market, prompted a lawsuit by the International Swaps and Derivatives Association Inc. and the Securities Industry and Financial Markets Association.

“I support the commission’s proposed rules that, among other things, expand the exemptions relating to information sharing restrictions, expand the circumstances under which market participants will not be required to aggregate positions,” Jill E. Sommers, a Republican commissioner, said in a statement today.

Industry Sought Revisions

The agency proposed revising the rules following requests from lobbying groups representing agriculture and energy firms including ConocoPhillips, Archer-Daniels-Midland Co. and

“Absent actual relief from the aggregation requirements of the position limit rules, commercial firms likely will have to significantly reorganize their existing commercial operations,” the Working Group of Commercial Energy Firms said in a Jan. 19 petition. “These actions may include the restructuring or disposition of investments in joint ventures.”

A person with between a 10 percent and 50 percent ownership or equity stake in another company would be able to leave the positions separate if the trading strategies can be demonstrated to be independent, according to the CFTC.

The limits would still require companies to add their trading positions when they are under “common trading control,” Bart Chilton, a Democrat commissioner, said in an e-mail today.

Common Trading Control

“What the rule does is provide commercial companies with an investment that is less than 50 percent of the total shares in another company the ability to disaggregate their positions with those held by the company they’ve invested in, as long as there is no common trading control,” Chilton said.

The CFTC’s original rule was approved on a 3-2 vote on Oct. 18 after more than a year of debate and 13,000 comment letters from supporters such as Delta Air Lines Inc. and opponents including Barclays Capital.

The case is International Swaps and Derivatives Association v. U.S. Commodity Futures Trading Commission, 11-02146, U.S. District Court, District of Columbia (Washington).

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