Revision of Federal Speculative Position Limits, 12621-12626 [05-5088]
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Federal Register / Vol. 70, No. 49 / Tuesday, March 15, 2005 / Proposed Rules
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COMMODITY FUTURES TRADING
COMMISSION
17 CFR Part 150
RIN 3038–AC24
Revision of Federal Speculative
Position Limits
Commodity Futures Trading
Commission.
ACTION: Notice of proposed rulemaking.
AGENCY:
SUMMARY: The Commodity Futures
Trading Commission (Commission)
periodically reviews its policies and
rules pertaining to the regulatory
framework for speculative position
limits, including the speculative
position limits set out in Commission
regulation 150.2 (Federal speculative
position limits). In this regard, the
Commission has reviewed the existing
levels for Federal speculative position
limits and is now proposing to increase
these limits for all single-month and allmonths-combined positions. In
addition, the Commission is proposing
to delete several obsolete provisions that
relate to contracts that are no longer
listed for trading or to DCMs that no
longer exist. The Commission is
requesting comment on these rule
amendments.
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Comments must be received on
or before April 14, 2005.
ADDRESSES: Comments should be
submitted to Jean A. Webb, Secretary,
Commodity Futures Trading
Commission, Three Lafayette Centre,
1155 21st Street, NW., Washington, DC
20581. Comments also may be sent by
facsimile to (202) 418–5521, or by
electronic mail to secretary@cftc.gov.
Reference should be made to ‘‘Proposed
Revision of Federal Speculative Position
Limits.’’ Comments may also be
submitted by connecting to the Federal
eRulemaking Portal at https://
www.regulations.gov and following
comment submission instructions.
FOR FURTHER INFORMATION CONTACT:
Clarence Sanders, Attorney, Division of
Market Oversight, Commodity Futures
Trading Commission, Three Lafayette
Centre, 1155 21st Street, NW.,
Washington, DC 20581, telephone (202)
418–5068, facsimile number (202) 418–
5507, electronic mail csanders@cftc.gov;
or Martin Murray, Economist, Division
of Market Oversight, telephone (202)
418–5276, facsimile number (202) 418–
5507, electronic mail
mmurray@cftc.gov.
SUPPLEMENTARY INFORMATION:
I. Background
A. Introduction
The Commission has long established
and enforced speculative position limits
for futures contracts on various
agricultural commodities. The
Commission periodically reviews its
policies and rules pertaining to the
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Issued in Washington, DC, on March 9,
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Edith V. Parish,
Acting Manager, Airspace and Rules.
[FR Doc. 05–5094 Filed 3–14–05; 8:45 am]
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regulatory framework for speculative
position limits, including the Federal
speculative position limits set out in
Commission regulation 150.2.1 Also,
during March, April, and May, 2004, the
Chicago Board of Trade (CBT), the
Kansas City Board of Trade (KCBT), and
the Minneapolis Grain Exchange (MGE)
submitted separate petitions to the
Commission seeking repeal or
amendment of Commission regulation
150.2. In addition, the New York Board
of Trade (NYBOT), while not submitting
a formal petition of its own, submitted
a letter in agreement with the action
sought by the petitions.
The Commission published the
petitions submitted by the designated
contract markets (DCMs) in the Federal
Register for comment on June 17, 2004,
and received eight comments in
response. Based upon the petitions and
the comments received, the Commission
has reexamined the particular levels set
for Federal speculative position limits.
In this regard, the Commission has
reviewed the existing levels for Federal
speculative position limits and is now
proposing to increase these limits for all
single-month and all-months-combined
positions. In particular, the Commission
is proposing to increase levels for
single-month and all-months-combined
positions for CBT Corn, Oats, Soybeans,
Wheat, Soybean Oil, and Soybean Meal;
1 Regulation 150.2 imposes three types of position
limits for each specified contract: A spot month
limit, a single-month limit, and an all-monthscombined limit. The Commission most recently
adopted amendments to levels for Federal
speculative limits in 1999 (see 64 FR 24038, May
5, 1999).
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MGE Hard Red Spring Wheat; KCBT
Hard Winter Wheat, and NYBOT Cotton
No. 2. In addition, the spot month limits
for all of these commodities would
remain unchanged. Finally, the
Commission is proposing to delete
several obsolete provisions in part 150
that relate to contracts that are no longer
listed for trading or to DCMs that no
longer exist.2 The Commission is
requesting comment on these rule
amendments.
B. Regulatory Framework
Speculative position limits have been
a tool for the regulation of the U.S.
futures markets since the adoption of
the Commodity Exchange Act of 1936.
Section 4a(a) of the Commodity
Exchange Act (Act), 7 U.S.C. 6a(a),
states that:
Excessive speculation in any commodity
under contracts of sale of such commodity
for future delivery made on or subject to the
rules of contract markets or derivatives
transaction execution facilities causing
sudden or unreasonable fluctuations or
unwarranted changes in the price of such
commodity, is an undue and unnecessary
burden on interstate commerce in such
commodity.
Accordingly, section 4a(a) provides
the Commission with the authority to:
Fix such limits on the amounts of trading
which may be done or positions which may
be held by any person under contracts of sale
of such commodity for future delivery on or
subject to the rules of any contract market or
derivatives transaction execution facility as
the Commission finds are necessary to
diminish, eliminate, or prevent such burden.
This longstanding statutory
framework providing for Federal
speculative position limits was
supplemented with the passage of the
Futures Trading Act of 1982, which
acknowledged the role of exchanges in
setting their own speculative position
limits. The 1982 legislation also
provided, under section 4a(e) of the Act,
that limits set by exchanges and
approved by the Commission were
subject to Commission enforcement.
Finally, the Commodity Futures
Modernization Act of 2000 (CFMA)
established designation criteria and core
principles with which a DCM must
comply to receive and maintain
designation. Among these, Core
2 Commission regulation 150.2 currently includes
Federal speculative position limits for agricultural
commodities traded on the MidAmerica
Commodity Exchange (MidAm) and for the white
wheat futures contract traded on MGE. These
provisions relating to the MidAm and the MGE
white wheat futures contract are obsolete and are
proposed for repeal as part of this action. In
addition, reference to the New York Cotton
Exchange is being changed to NYBOT to reflect a
change in corporate organization.
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Principle 5 in section 5(d) of the Act
states:
Position Limitations or Accountability—To
reduce the potential threat of market
manipulation or congestion, especially
during trading in the delivery month, the
board of trade shall adopt position
limitations or position accountability for
speculators, where necessary and
appropriate.
As outlined above, the regulatory
structure is administered under a twopronged framework. Under the first
prong, the Commission establishes and
enforces speculative position limits for
futures contracts on a limited group of
agricultural commodities. These Federal
limits are enumerated in Commission
regulation 150.2, and apply to the
following futures and option markets:
CBT corn, oats, soybeans, wheat,
soybean oil, and soybean meal; MGE
hard red spring wheat and white wheat;
NYBOT cotton No. 2; and KCBT hard
winter wheat. Under the second prong,
individual DCMs establish and enforce
their own speculative position limits or
position accountability provisions,
subject to Commission oversight and
separate authority to enforce exchangeset speculative position limits approved
by the Commission. Thus, responsibility
for enforcement of speculative position
limits is shared by the Commission and
the DCMs.3
C. Petitions for Rulemaking
The Commission has received three
petitions for rulemaking and a NYBOT
letter in support thereof.4 The first of
these was submitted by the CBT in
letters dated March 26, 2004, and April
27, 2004, the second by the KCBT in a
letter dated April 27, 2004, and the third
by the MGE in a letter dated May 20,
2004. NYBOT, while not submitting a
formal petition of its own, submitted a
May 27, 2004, letter stating that it fully
supports the CBT petition.
The CBT petition requests that the
Commission repeal regulation 150.2 and
3 Provisions regarding the establishment of
exchange-set speculative position limits were
originally set forth in CFTC regulation 1.61. In
1999, the Commission simplified and reorganized
its rules by relocating the substance of regulation
1.61’s requirements to part 150 of the Commission’s
rules, thereby incorporating within part 150
provisions for both Federal speculative position
limits and exchange-set speculative position limits
(see 64 FR 24038, May 5, 1999). Section 4a(e)
provides that a violation of a speculative position
limit set by a Commission-approved exchange rule
is also a violation of the Act. Thus, the Commission
can enforce directly violations of exchange-set
speculative position limits as well as those
provided under Commission rules.
4 Commission regulation 13.2 states in pertinent
part that ‘‘any person may file a petition with the
Secretariat of the Commission for the issuance,
amendment, or repeal of a rule of general
application.’’
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thereby eliminate the Federal
speculative position limits for all
commodity markets enumerated under
that rule. The KCBT petition requests
that the Commission repeal that part of
regulation 150.2 pertaining to Federal
speculative position limits for the KCBT
hard winter wheat contract. The MGE
petition also seeks repeal of regulation
150.2 as it relates to Federal speculative
limits for the MGE contract in hard red
spring wheat.5
Alternatively, should the Commission
determine to retain regulation 150.2, all
of the petitioners request that the
Commission either (1) retain Federal
speculative limits only for the spot or
delivery month while eliminating
Federal speculative limits for singlemonth and all-months-combined
positions, or (2) in lieu of eliminating
non-spot-month Federal speculative
limits, increase most of the singlemonth and all-months-combined limits
currently found in Commission
regulation 150.2. Thus, although the
petitions present a range of regulatory
alternatives, one essential element
embedded in the petitions involves an
increase in speculative position limits
for non-spot single months and/or in allmonths-combined.
The petitions acknowledge that the
Commission may determine to retain
these limits. As noted, under that
alternative, the DCMs seek an increase
in most of the existing single-month and
all-months-combined position limits. In
particular, the CBT requests that the
Commission amend that regulation to
increase the single-month and allmonths-combined speculative position
limits for the corn, soybeans, wheat,
soybean oil, and soybean meal contracts
traded at the CBT to the maximum
levels that would be permitted if the
Commission were to apply the open
interest formula found in Commission
regulation 150.5 to set all-months
combined levels, and to adjust the
single month limits to reflect the
existing ratio of single month to allmonths-combined levels.6
Using open interest data for calendar
year 2003 (the most recent year at the
time the petitions were submitted), the
CBT proposed the following:
5 The Commission notes that if regulation 150.2
were to be repealed in its entirety, DCMs would be
required to have speculative position limit or
position accountability provisions consistent with
section 5(d)(5) of the Act and part 38 of the
Commission’s regulations.
6 The CBT has also separately submitted for
Commission approval proposed amendments to the
CBT’s own speculative position limit rules for corn,
soybeans, wheat, soybean oil, and soybean meal.
The CBT’s request has been stayed until such time
as the Commission may act to amend the Federal
speculative position limits.
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Single month limit
(by contracts)
CBT contract
Current
Corn .................................................................................................................................
Soybeans .........................................................................................................................
Wheat ...............................................................................................................................
Soybean Oil .....................................................................................................................
Soybean Meal ..................................................................................................................
The CBT cites several justifications in
support of the approach it took in
proposing these levels. Among these,
the CBT notes that it conducted a survey
of the agricultural trading community
and found that a majority of
respondents supported an increase in
single-month and/or all-monthscombined limits. Additionally, the CBT
notes that most respondents supporting
an increase in limits also sought to
retain the same approximate ratio of
single-month to all-months-combined
limits. The CBT asserts that the
proposed higher levels conform to this
standard and preserve the same
approximate ratio as sought by survey
respondents.
The CBT also comments that the
proposed increases to the all-months
combined levels noted above are
consistent with the percentage of open
interest formula (using data for calendar
year 2003) included in regulation 150.5,
which the Commission has applied in
the past when it initiated action to
increase CBT agricultural commodity
limits to their present levels (57 FR
12766, April 13, 1992, and 64 FR 24038,
May 5, 1999), and which continues to
serve as an acceptable practice for the
establishment of Exchange-set
speculative position limits. In
particular, regulation 150.5 stipulates
that all-months-combined limit levels
for tangible commodities should be set
at levels no greater than 10% of the
average combined futures and deltaadjusted option month-end open
interest for the most recent calendar
year up to 25,000 contracts with a
marginal increase of 2.5% thereafter.
The CBT further notes that its
proposed single-month speculative
position limits were set to retain the
same approximate ratio of single-month
to all-months-combined limits as
requested by respondents to its abovementioned survey, and that the
proposed limits would not be
extraordinarily large relative to total
open positions in the contracts, the
breadth and liquidity of the cash market
underlying each delivery month, and
the opportunity for arbitrage between
the futures market and the cash market.
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5,500
3,500
3,000
3,000
3,000
The KCBT and MGE both request that
the Commission continue to maintain
‘‘parity’’ in speculative position limit
levels across wheat exchanges. The
KCBT notes that growth in trading
volume has been strong in recent years,
and attributes this growth to the
maintenance of parity in speculative
limits among exchanges. The KCBT
further observes that the increased
growth in volume since 1999 has
attracted commodity fund business to
the KCBT wheat market, and maintains
that failure to retain parity in
speculative limits could cause a loss in
fund business to other markets with
higher limits. In addition, the KCBT
remarks that significant trading volume
is generated from arbitrage
opportunities that exist between
markets, and that differing limits
between exchanges could affect the
growth potential for inter-market spread
volume. Finally, the KCBT comments
that reportable commercial traders
continue to hold the majority of open
interest in KCBT wheat futures, and that
increasing speculative limits would
permit an increase in speculative
activity and in turn increase liquidity to
the benefit of commercial users.
The MGE notes that Federal
speculative limits were most recently
increased during 1999, and concludes
that this increase was intended to
recognize the greater activity in wheat
futures trading. The MGE states that it
has not observed any increased
susceptibility to manipulation or price
distortion in the hard red spring wheat
contract during the period following the
increase in Federal speculative limits.
Rather, the MGE remarks that the
increase in Federal speculative limits
appears to have added liquidity and
stability to the marketplace. The MGE
notes that speculative limits historically
have been uniform at the three domestic
DCMs trading wheat contracts and that
failure to maintain this equality would
be unfairly discriminatory, not only to
the MGE, but also to its market
participants. In this regard, the MGE
observes that many traders at the MGE,
and in particular the commodity funds,
utilize arbitrage opportunities among
the wheat markets, and that any
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Proposed
10,000
6,500
4,500
4,500
4,500
All months limit
(by contract)
Current
9,000
5,500
4,000
4,000
4,000
Proposed
17,000
10,000
5,500
6,500
6,000
disparate treatment in speculative limits
could drive away participants and
reduce market liquidity.
As noted, NYBOT did not submit a
petition of its own, but instead
submitted a letter supporting the CBT
petition. The NYBOT letter also suggests
an alternative in the event that the
Commission determines not to repeal
regulation 150.2. Specifically, the
NYBOT comment letter includes a
request that the all-months-combined
limit for Cotton No. 2 be increased from
3,500 contracts to 4,000 contracts.7 The
NYBOT letter supports this request on
the basis of growth in open interest in
the Cotton No. 2 futures contract, based
on the open interest test specified in
regulation 150.5 and using data for
calendar year 2003.
D. Response to Petitions
As previously noted, the Commission
published the DCMs’ request in the
Federal Register on June 17, 2004 (see
69 FR 33874, June 17, 2004). Along with
the petitions, the Commission posed six
questions, including a request for
comment on general issues raised by the
DCMs’ petitions, such as whether any
Federal speculative limits should be
retained. In addition, the Commission
requested comment on specific issues
relating to the current composition of
Part 150 of the Commission’s
regulations, including whether the
speculative limit levels found in
Commission regulation 150.2 should be
increased. The comment period closed
on August 16, 2004, and eight comment
letters were received in response to the
Federal Register notice. Comments were
received from an agricultural producer,
a grain company, a DCM, a CTA, and
several commercial associations,
including one comment letter signed
jointly by six separate agricultural
associations.
Of the eight comment letters received,
three generally opposed the petitions
and five generally supported the
7 Currently, the NYBOT does not have its own
speculative position limit provisions for cotton No.
2 but has submitted proposed amendments that
would establish such limits. NYBOT’s request has
been stayed until such time as the Commission may
act to amend the Federal speculative position
limits.
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petitions. There were some differences
among those both favoring and opposing
the petitions. For example, one
commenter, although in nominal
support of the petitions, conditioned
that support with a recommendation
that the Commission review for prior
approval any DCM-proposed changes in
speculative position limits for
agricultural commodities.
The comment letter signed by the six
agricultural associations discussed at
length the DCMs’ petitions and the
questions posed by the Commission. In
particular the associations indicated
support for ‘‘the concept of expanded
speculative limits’’ but at the same time
opposed the DCMs’ request that the
Commission repeal regulation 150.2.
With respect to the DCMs’ request that
the single- and all-months-combined
position limits be increased, the
associations responded that the new
levels proposed by the CBT should be
reviewed according to existing
Commission criteria for each of the
indicated contract markets. The
associations acknowledged that such a
review may support increased
speculative position limits for some of
the contracts. The associations also
supported the request of the KCBT and
MGE that position limit parity be
retained among the wheat contracts
traded on each of the petitioning DCMs.
II. Commission Speculative Position
Limit Levels
The Commission is proposing several
revisions to the speculative position
limit levels found in regulation 150.2
based upon its experience in
administering these limits and after
carefully considering the DCM petitions
and the comments received in response
to the petitions for rulemaking. Under
the proposed revisions, spot month
limits would remain unchanged from
the current levels, but every singlemonth and all-months-combined
position limit would be increased. In
general, the proposed levels for allmonths-combined were established
considering the open interest formula
noted above and based on data for the
most recent calendar year, i.e., 2004, as
well as other pertinent considerations as
explained below. With respect to the
individual month limits, a strict
application of the open interest formula
contained in regulation 150.5 would
have resulted in somewhat lower
individual month limits for some
commodities and higher limits for
others than those proposed below.
However, the Commission believes
there is merit in the argument that
maintaining the existing ratios between
single-month and all-months-combined
speculative position limit levels is of
benefit to the marketplace, and thus the
Commission is proposing to establish
individual-month limits that are
consistent with that approach.
In addition, with respect to the MGE
and KCBT wheat contracts, the
Commission proposes to maintain parity
with the levels proposed for CBT wheat
rather than establish different limits
based on the open interest formula for
each contract. The Commission first
adopted this parity approach in an
action to revise position limits in 1993
(see 58 FR 17973, April 7, 1993). At that
time the Commission concluded that the
breadth and liquidity of the cash
markets underlying the KCBT and MGE
wheat contracts justified setting these
limits at parity with little risk of
regulatory harm from such action. 58 FR
at 17979. The Commission continues to
believe that the breadth and liquidity of
underlying cash markets, as well as
continued growth in open interest, for
the KCBT and MGE wheat contracts
support maintenance of these
speculative position limit levels at
parity with one another.
The Commission is also clarifying in
regulation 150.2 its practice of
aggregating traders’ positions for
purposes of ascertaining compliance
with Federal speculative position limits
when a DCM lists for trading two or
more contracts with substantially
identical terms based on the same
underlying commodity characteristics.
In particular, the aggregation
requirement applies to the CBT’s corn
and mini-sized corn, soybeans and
mini-sized soybeans, and wheat and
mini-sized wheat futures and option
contracts.
Based on the criteria noted above, the
Commission is proposing the following
changes to the Federal speculative
position limits.
SPECULATIVE POSITION LIMITS
[By contract]
Spot month
Single month
All months
Contract
No change
Current
Proposed
Current
Proposed
Chicago Board of Trade
Corn & Mini-Corn .....................................................................................
Oats .........................................................................................................
Soybeans & Mini-Soybeans .....................................................................
Wheat & Mini-Wheat ................................................................................
Soybean Oil .............................................................................................
Soybean Meal ..........................................................................................
600
600
600
600
540
720
5,500
1,000
3,500
3,000
3,000
3,000
13,500
1,400
6,500
5,000
5,000
5,000
9,000
1,500
5,500
4,000
4,000
4,000
22,000
2,000
10,000
6,500
6,500
6,500
Minneapolis Grain Exchange
Hard Red Spring Wheat ..........................................................................
600
3,000
5,000
4,000
6,500
New York Board of Trade
Cotton No. 2 ............................................................................................
300
2,500
3,500
3,500
5,000
Kansas City Board of Trade
Hard Winter Wheat ..................................................................................
600
3,000
5,000
4,000
6,500
As noted above, the Commission has
at this time determined to retain Federal
speculative position limits at the
increased levels proposed herein,
notwithstanding that the DCM petitions
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sought their elimination and
replacement with DCM-administered
speculative position limit provisions.
The Commission, however, intends to
continue its review of its current
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policies regarding the administration of
speculative position limits, including a
further evaluation of the merits of
retaining Federal speculative limits. At
the same time, the Commission notes
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that Exchanges may determine to
establish, pursuant to sections 4a(e) and
5c(c) of the Act, their own speculative
position limits at levels less than the
Federal levels.8
At this time, the Commission does not
intend to expand the scope of regulation
150.2 by including futures contracts that
are not already enumerated therein,
except, as noted above, in the limited
case when such contracts would share
substantially identical terms with an
existing enumerated contract on the
same DCM.9 In this regard, Federal
speculative position limits would not
apply to the CBT’s South American
soybean contract or the MGE’s cashsettled hard red spring wheat futures
contract because these contracts have
substantially different commodity
characteristics than related contracts
currently enumerated under regulation
150.2. Rather, in cases where a new
contract’s terms and conditions deviate
from those of the enumerated contract
list, the Commission will rely upon the
DCMs to establish speculative position
limit or position accountability
provisions for such contracts consistent
with the requirements of section 5(d)(5)
of the Act and part 38 of the
Commission’s regulations.10
Finally, the Commission notes that
existing regulation 150.2 also provides
for speculative limits for agricultural
commodities traded on the MidAm and
for the white wheat futures contract
traded on MGE. These provisions
relating to the MidAm and the MGE
white wheat futures contract are
obsolete and are proposed for repeal as
part of this action. In addition, the
reference to the New York Cotton
Exchange is being changed to NYBOT to
reflect a change in corporate
organization.
8 Pursuant to subsection 5c(c)(2)(B) prior
Commission approval is required before a DCM
implements a rule that materially changes the terms
and conditions, as determined by the Commission,
in any contract of sale for future delivery of a
commodity specifically enumerated in section 1a(4)
of the Act (or any option thereon) traded through
its facilities if the rule amendment applies to
contracts and delivery months which have already
been listed for trading and have open interest.
9 The Commission also notes that should a DCM
list a contract that shared substantially identical
terms with a Regulation 150.2-enumerated contract
listed on another DCM, the Commission could
consider at that time whether to amend regulation
150.2 to likewise apply Federal limits to the newlylisted contract.
10 For example, the CBT and the MGE have
established Exchange-set speculative position limits
for the South American soybean and the cashsettled national hard red spring wheat index futures
contracts, respectively.
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III. Related Matters
A. Cost Benefit Analysis
Section 15(a) of the Act requires the
Commission to consider the costs and
benefits of its action before issuing a
new regulation under the Act. By its
terms, section 15(a) does not require the
Commission to quantify the costs and
benefits of a new regulation or to
determine whether the benefits of the
proposed regulation outweigh its costs.
Rather, section 15(a) requires the
Commission to ‘‘consider the costs and
benefits’’ of the subject rule.
Section 15(a) further specifies that the
costs and benefits of the proposed rule
shall be evaluated in light of five broad
areas of market and public concern: (1)
Protection of market participants and
the public; (2) efficiency,
competitiveness, and financial integrity
of futures markets; (3) price discovery;
(4) sound risk management practices;
and (5) other public interest
considerations. The Commission may,
in its discretion, give greater weight to
any one of the five enumerated areas of
concern and may, in its discretion,
determine that, notwithstanding its
costs, a particular rule is necessary or
appropriate to protect the public interest
or to effectuate any of the provisions or
to accomplish any of the purposes of the
Act.
The proposed rules impose limited
additional costs in terms of reporting
requirements, particularly since entities
trading in or holding large positions,
who either approach or meet the
speculative limits of the rules herein,
already file large trader reports with the
Commission. Moreover, the
amendments proposed herein would
increase Federal speculative limits for
some commodities and, to that extent,
reduce the compliance costs associated
with these speculative position limits.
The countervailing benefits to these
costs are that the continued inclusion of
appropriate speculative limits will help
to ensure the maintenance of
competitive and efficient markets,
protect the price discovery and risk
shifting functions, and protect market
participants and the public interest.
B. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA),
5 U.S.C. 601 et seq., requires federal
agencies, in proposing rules, to consider
the impact of those rules on small
businesses. The Commission believes
that the proposed rule amendments to
raise Commission speculative position
limits would only impact large traders.
The Commission has previously
determined that large traders are not
PO 00000
Frm 00014
Fmt 4702
Sfmt 4702
small entities for purposes of the RFA.11
Therefore, the Acting Chairman, on
behalf of the Commission, hereby
certifies, pursuant to 5 U.S.C. 605(b),
that the action taken herein will not
have a significant economic impact on
a substantial number of small entities.
The Commission also notes in this
regard that the proposed rules will raise
speculative limit levels and thereby
reduce the regulatory burden on all
affected entities.
C. Paperwork Reduction Act
When publishing proposed rules, the
Paperwork Reduction Act of 1995 (44
U.S.C. 3507(d)) imposes certain
requirements on federal agencies
(including the Commission) in
connection with their conducting or
sponsoring any collection of
information as defined by the
Paperwork Reduction Act. In
compliance with the Act, the
Commission, through this rule proposal,
solicits comment to: (1) Evaluate
whether the proposed collection of
information is necessary for the proper
performance of the functions of the
agency, including the validity of the
methodology and assumptions used; (2)
evaluate the accuracy of the agency’s
estimate of the burden of the proposed
collection of information including the
validity of the methodology and
assumptions used; (3) enhance the
quality, utility and clarity of the
information to be collected; and (4)
minimize the burden of the collection of
the information on those who are to
respond through the use of appropriate
automated, electronic, mechanical, or
other technological collection
techniques or other forms of information
technology, e.g., permitting electronic
submission of responses.
The Commission has submitted the
proposed rule and its associated
information collection requirements to
the Office of Management and Budget.
The proposed rule is part of two
approved information collections. The
burdens associated with these rules are
as follows:
Collection No.
[3038–0009]
Average burden hours per
response.
Number of respondents .......
Frequency of response ........
.3
2946
On occasion
Collection No.
[3038–0013]
Average burden hours per
response.
11 47
E:\FR\FM\15MRP1.SGM
FR 18618 (April 30, 1982).
15MRP1
3
12626
Federal Register / Vol. 70, No. 49 / Tuesday, March 15, 2005 / Proposed Rules
Collection No.
[3038–0009]
Number of respondents .......
Frequency of response ........
9
On occasion
the Commodity Exchange Act, the
Commission hereby proposes to amend
part 150 of chapter I of title 17 of the
Code of Federal Regulations as follows:
PART 150—LIMITS ON POSITIONS
List of Subjects in 17 CFR Part 150
Agricultural commodities, Bona fide
hedge positions, Commodity futures,
Cotton, Grains, Position limits, Spread
exemptions.
In consideration of the foregoing,
pursuant to the authority contained in
1. The authority citation for part 150
is revised to read as follows:
Authority: 7 U.S.C. 6a, 6c, and 12a(5), as
amended by the Commodity Futures
Modernization Act of 2000, Appendix E of
Pub. L. 106–554, 114 Stat. 2763 (2000).
2. Section 150.2 is revised to read as
follows:
§ 150.2
Position limits.
No person may hold or control
positions, separately or in combination,
net long or net short, for the purchase
or sale of a commodity for future
delivery or, on a futures-equivalent
basis, options thereon, in excess of the
following:
SPECULATIVE POSITION LIMITS
[In contract units]
Contract
Spot month
Single month
All months
Chicago Board of Trade
Corn and Mini Corn 1 ...................................................................................................................
Oats .............................................................................................................................................
Soybeans and Mini Soybeans 1 ...................................................................................................
Wheat and Mini Wheat 1 ..............................................................................................................
Soybean Oil .................................................................................................................................
Soybean Meal ..............................................................................................................................
600
600
600
600
540
720
13,500
1,400
6,500
5,000
5,000
5,000
22,000
2,000
10,000
6,500
6,500
6,500
Minneapolis Grain Exchange
Hard Red Spring Wheat ..............................................................................................................
600
5,000
6,500
New York Board of Trade
Cotton No. 2 ................................................................................................................................
300
3,500
5,000
Kansas City Board of Trade
Hard Winter Wheat ......................................................................................................................
600
5,000
6,500
1 For
purposes of compliance with these limits, positions in the regular sized and mini-sized contracts shall be aggregated.
Issued by the Commission this 7th day of
March, 2005, in Washington, DC.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 05–5088 Filed 3–14–05; 8:45 am]
BILLING CODE 6351–01–P
DEPARTMENT OF THE INTERIOR
Minerals Management Service
30 CFR Parts 250 and 256
RIN 1010–AD16
Oil, Gas, and Sulphur Operations and
Leasing in the Outer Continental Shelf
(OCS)—Cost Recovery
Minerals Management Service
(MMS), Interior.
ACTION: Proposed rule.
AGENCY:
SUMMARY: MMS proposes to modify its
regulations to change some existing fees
and implement several new fees. The
proposed fees would offset MMS’s costs
of performing certain services relating to
its minerals programs.
DATES: MMS will consider all comments
received by April 14, 2005. MMS may
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15:34 Mar 14, 2005
Jkt 205001
not fully consider comments received
after April 14, 2005.
ADDRESSES: You may submit comments
on the rulemaking by any of the
following methods listed below. Please
use 1010–AD16 as an identifier in your
message. See also Public Comment
Procedures under Procedural Matters.
• MMS’s Public Connect on-line
commenting system, https://
ocsconnect.mms.gov. Follow the
instructions on the Web site for
submitting comments.
• Federal eRulemaking Portal: https://
www.regulations.gov. Follow the
instructions on the Web site for
submitting comments.
• E-mail MMS at
rules.comments@mms.gov. Identify the
Regulation Identifier Number (RIN) in
the subject line.
• Fax: (703) 787–1093. Identify the
RIN.
• Mail or hand-carry comments to the
Department of the Interior; Minerals
Management Service; Mail Stop 4024;
381 Elden Street; Herndon, Virginia
20170–4817; Attention: Rules
Processing Team (RPT). Please reference
‘‘Oil, Gas, and Sulphur Operations and
Leasing in the Outer Continental Shelf—
PO 00000
Frm 00015
Fmt 4702
Sfmt 4702
Cost Recovery—AD16’’ in your
comments.
FOR FURTHER INFORMATION CONTACT:
Angela Mazzullo, Offshore Minerals
Management (OMM) Budget Office at
(703) 787–1691.
SUPPLEMENTARY INFORMATION:
Background
Legal Authority and Policy Guidance:
The Independent Offices Appropriation
Act of 1952 (IOAA), 31 U.S.C. 9701, is
a general law applicable Governmentwide, that provides authority to MMS to
recover the costs of providing services
to the non-federal sector. It requires
implementation through rulemaking.
There are several policy documents that
provide guidance on the process of
charging applicants for service costs.
These policy documents are found in
the Office of Management and Budget
(OMB) Circular A–25, ‘‘User Charges,’’
and the Department of the Interior
Departmental Manual (DM), 330 DM
1.3A & 6.4, ‘‘Cost Recovery’’ and ‘‘User
Charges.’’ The general policy that
E:\FR\FM\15MRP1.SGM
15MRP1
]]>Agencies
[Federal Register Volume 70, Number 49 (Tuesday, March 15, 2005)]
[Proposed Rules]
[Pages 12621-12626]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-5088]
=======================================================================
-----------------------------------------------------------------------
COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 150
RIN 3038-AC24
Revision of Federal Speculative Position Limits
AGENCY: Commodity Futures Trading Commission.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: The Commodity Futures Trading Commission (Commission)
periodically reviews its policies and rules pertaining to the
regulatory framework for speculative position limits, including the
speculative position limits set out in Commission regulation 150.2
(Federal speculative position limits). In this regard, the Commission
has reviewed the existing levels for Federal speculative position
limits and is now proposing to increase these limits for all single-
month and all-months-combined positions. In addition, the Commission is
proposing to delete several obsolete provisions that relate to
contracts that are no longer listed for trading or to DCMs that no
longer exist. The Commission is requesting comment on these rule
amendments.
DATES: Comments must be received on or before April 14, 2005.
ADDRESSES: Comments should be submitted to Jean A. Webb, Secretary,
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st
Street, NW., Washington, DC 20581. Comments also may be sent by
facsimile to (202) 418-5521, or by electronic mail to
secretary@cftc.gov. Reference should be made to ``Proposed Revision of
Federal Speculative Position Limits.'' Comments may also be submitted
by connecting to the Federal eRulemaking Portal at https://
www.regulations.gov and following comment submission instructions.
FOR FURTHER INFORMATION CONTACT: Clarence Sanders, Attorney, Division
of Market Oversight, Commodity Futures Trading Commission, Three
Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581,
telephone (202) 418-5068, facsimile number (202) 418-5507, electronic
mail csanders@cftc.gov; or Martin Murray, Economist, Division of Market
Oversight, telephone (202) 418-5276, facsimile number (202) 418-5507,
electronic mail mmurray@cftc.gov.
SUPPLEMENTARY INFORMATION:
I. Background
A. Introduction
The Commission has long established and enforced speculative
position limits for futures contracts on various agricultural
commodities. The Commission periodically reviews its policies and rules
pertaining to the regulatory framework for speculative position limits,
including the Federal speculative position limits set out in Commission
regulation 150.2.\1\ Also, during March, April, and May, 2004, the
Chicago Board of Trade (CBT), the Kansas City Board of Trade (KCBT),
and the Minneapolis Grain Exchange (MGE) submitted separate petitions
to the Commission seeking repeal or amendment of Commission regulation
150.2. In addition, the New York Board of Trade (NYBOT), while not
submitting a formal petition of its own, submitted a letter in
agreement with the action sought by the petitions.
---------------------------------------------------------------------------
\1\ Regulation 150.2 imposes three types of position limits for
each specified contract: A spot month limit, a single-month limit,
and an all-months-combined limit. The Commission most recently
adopted amendments to levels for Federal speculative limits in 1999
(see 64 FR 24038, May 5, 1999).
---------------------------------------------------------------------------
The Commission published the petitions submitted by the designated
contract markets (DCMs) in the Federal Register for comment on June 17,
2004, and received eight comments in response. Based upon the petitions
and the comments received, the Commission has reexamined the particular
levels set for Federal speculative position limits. In this regard, the
Commission has reviewed the existing levels for Federal speculative
position limits and is now proposing to increase these limits for all
single-month and all-months-combined positions. In particular, the
Commission is proposing to increase levels for single-month and all-
months-combined positions for CBT Corn, Oats, Soybeans, Wheat, Soybean
Oil, and Soybean Meal;
[[Page 12622]]
MGE Hard Red Spring Wheat; KCBT Hard Winter Wheat, and NYBOT Cotton No.
2. In addition, the spot month limits for all of these commodities
would remain unchanged. Finally, the Commission is proposing to delete
several obsolete provisions in part 150 that relate to contracts that
are no longer listed for trading or to DCMs that no longer exist.\2\
The Commission is requesting comment on these rule amendments.
---------------------------------------------------------------------------
\2\ Commission regulation 150.2 currently includes Federal
speculative position limits for agricultural commodities traded on
the MidAmerica Commodity Exchange (MidAm) and for the white wheat
futures contract traded on MGE. These provisions relating to the
MidAm and the MGE white wheat futures contract are obsolete and are
proposed for repeal as part of this action. In addition, reference
to the New York Cotton Exchange is being changed to NYBOT to reflect
a change in corporate organization.
---------------------------------------------------------------------------
B. Regulatory Framework
Speculative position limits have been a tool for the regulation of
the U.S. futures markets since the adoption of the Commodity Exchange
Act of 1936. Section 4a(a) of the Commodity Exchange Act (Act), 7
U.S.C. 6a(a), states that:
Excessive speculation in any commodity under contracts of sale
of such commodity for future delivery made on or subject to the
rules of contract markets or derivatives transaction execution
facilities causing sudden or unreasonable fluctuations or
unwarranted changes in the price of such commodity, is an undue and
unnecessary burden on interstate commerce in such commodity.
Accordingly, section 4a(a) provides the Commission with the
authority to:
Fix such limits on the amounts of trading which may be done or
positions which may be held by any person under contracts of sale of
such commodity for future delivery on or subject to the rules of any
contract market or derivatives transaction execution facility as the
Commission finds are necessary to diminish, eliminate, or prevent
such burden.
This longstanding statutory framework providing for Federal
speculative position limits was supplemented with the passage of the
Futures Trading Act of 1982, which acknowledged the role of exchanges
in setting their own speculative position limits. The 1982 legislation
also provided, under section 4a(e) of the Act, that limits set by
exchanges and approved by the Commission were subject to Commission
enforcement.
Finally, the Commodity Futures Modernization Act of 2000 (CFMA)
established designation criteria and core principles with which a DCM
must comply to receive and maintain designation. Among these, Core
Principle 5 in section 5(d) of the Act states:
Position Limitations or Accountability--To reduce the potential
threat of market manipulation or congestion, especially during
trading in the delivery month, the board of trade shall adopt
position limitations or position accountability for speculators,
where necessary and appropriate.
As outlined above, the regulatory structure is administered under a
two-pronged framework. Under the first prong, the Commission
establishes and enforces speculative position limits for futures
contracts on a limited group of agricultural commodities. These Federal
limits are enumerated in Commission regulation 150.2, and apply to the
following futures and option markets: CBT corn, oats, soybeans, wheat,
soybean oil, and soybean meal; MGE hard red spring wheat and white
wheat; NYBOT cotton No. 2; and KCBT hard winter wheat. Under the second
prong, individual DCMs establish and enforce their own speculative
position limits or position accountability provisions, subject to
Commission oversight and separate authority to enforce exchange-set
speculative position limits approved by the Commission. Thus,
responsibility for enforcement of speculative position limits is shared
by the Commission and the DCMs.\3\
---------------------------------------------------------------------------
\3\ Provisions regarding the establishment of exchange-set
speculative position limits were originally set forth in CFTC
regulation 1.61. In 1999, the Commission simplified and reorganized
its rules by relocating the substance of regulation 1.61's
requirements to part 150 of the Commission's rules, thereby
incorporating within part 150 provisions for both Federal
speculative position limits and exchange-set speculative position
limits (see 64 FR 24038, May 5, 1999). Section 4a(e) provides that a
violation of a speculative position limit set by a Commission-
approved exchange rule is also a violation of the Act. Thus, the
Commission can enforce directly violations of exchange-set
speculative position limits as well as those provided under
Commission rules.
---------------------------------------------------------------------------
C. Petitions for Rulemaking
The Commission has received three petitions for rulemaking and a
NYBOT letter in support thereof.\4\ The first of these was submitted by
the CBT in letters dated March 26, 2004, and April 27, 2004, the second
by the KCBT in a letter dated April 27, 2004, and the third by the MGE
in a letter dated May 20, 2004. NYBOT, while not submitting a formal
petition of its own, submitted a May 27, 2004, letter stating that it
fully supports the CBT petition.
---------------------------------------------------------------------------
\4\ Commission regulation 13.2 states in pertinent part that
``any person may file a petition with the Secretariat of the
Commission for the issuance, amendment, or repeal of a rule of
general application.''
---------------------------------------------------------------------------
The CBT petition requests that the Commission repeal regulation
150.2 and thereby eliminate the Federal speculative position limits for
all commodity markets enumerated under that rule. The KCBT petition
requests that the Commission repeal that part of regulation 150.2
pertaining to Federal speculative position limits for the KCBT hard
winter wheat contract. The MGE petition also seeks repeal of regulation
150.2 as it relates to Federal speculative limits for the MGE contract
in hard red spring wheat.\5\
---------------------------------------------------------------------------
\5\ The Commission notes that if regulation 150.2 were to be
repealed in its entirety, DCMs would be required to have speculative
position limit or position accountability provisions consistent with
section 5(d)(5) of the Act and part 38 of the Commission's
regulations.
---------------------------------------------------------------------------
Alternatively, should the Commission determine to retain regulation
150.2, all of the petitioners request that the Commission either (1)
retain Federal speculative limits only for the spot or delivery month
while eliminating Federal speculative limits for single-month and all-
months-combined positions, or (2) in lieu of eliminating non-spot-month
Federal speculative limits, increase most of the single-month and all-
months-combined limits currently found in Commission regulation 150.2.
Thus, although the petitions present a range of regulatory
alternatives, one essential element embedded in the petitions involves
an increase in speculative position limits for non-spot single months
and/or in all-months-combined.
The petitions acknowledge that the Commission may determine to
retain these limits. As noted, under that alternative, the DCMs seek an
increase in most of the existing single-month and all-months-combined
position limits. In particular, the CBT requests that the Commission
amend that regulation to increase the single-month and all-months-
combined speculative position limits for the corn, soybeans, wheat,
soybean oil, and soybean meal contracts traded at the CBT to the
maximum levels that would be permitted if the Commission were to apply
the open interest formula found in Commission regulation 150.5 to set
all-months combined levels, and to adjust the single month limits to
reflect the existing ratio of single month to all-months-combined
levels.\6\
---------------------------------------------------------------------------
\6\ The CBT has also separately submitted for Commission
approval proposed amendments to the CBT's own speculative position
limit rules for corn, soybeans, wheat, soybean oil, and soybean
meal. The CBT's request has been stayed until such time as the
Commission may act to amend the Federal speculative position limits.
---------------------------------------------------------------------------
Using open interest data for calendar year 2003 (the most recent
year at the time the petitions were submitted), the CBT proposed the
following:
[[Page 12623]]
----------------------------------------------------------------------------------------------------------------
Single month limit (by All months limit (by
contracts) contract)
CBT contract ---------------------------------------------------
Current Proposed Current Proposed
----------------------------------------------------------------------------------------------------------------
Corn........................................................ 5,500 10,000 9,000 17,000
Soybeans.................................................... 3,500 6,500 5,500 10,000
Wheat....................................................... 3,000 4,500 4,000 5,500
Soybean Oil................................................. 3,000 4,500 4,000 6,500
Soybean Meal................................................ 3,000 4,500 4,000 6,000
----------------------------------------------------------------------------------------------------------------
The CBT cites several justifications in support of the approach it
took in proposing these levels. Among these, the CBT notes that it
conducted a survey of the agricultural trading community and found that
a majority of respondents supported an increase in single-month and/or
all-months-combined limits. Additionally, the CBT notes that most
respondents supporting an increase in limits also sought to retain the
same approximate ratio of single-month to all-months-combined limits.
The CBT asserts that the proposed higher levels conform to this
standard and preserve the same approximate ratio as sought by survey
respondents.
The CBT also comments that the proposed increases to the all-months
combined levels noted above are consistent with the percentage of open
interest formula (using data for calendar year 2003) included in
regulation 150.5, which the Commission has applied in the past when it
initiated action to increase CBT agricultural commodity limits to their
present levels (57 FR 12766, April 13, 1992, and 64 FR 24038, May 5,
1999), and which continues to serve as an acceptable practice for the
establishment of Exchange-set speculative position limits. In
particular, regulation 150.5 stipulates that all-months-combined limit
levels for tangible commodities should be set at levels no greater than
10% of the average combined futures and delta-adjusted option month-end
open interest for the most recent calendar year up to 25,000 contracts
with a marginal increase of 2.5% thereafter.
The CBT further notes that its proposed single-month speculative
position limits were set to retain the same approximate ratio of
single-month to all-months-combined limits as requested by respondents
to its above-mentioned survey, and that the proposed limits would not
be extraordinarily large relative to total open positions in the
contracts, the breadth and liquidity of the cash market underlying each
delivery month, and the opportunity for arbitrage between the futures
market and the cash market.
The KCBT and MGE both request that the Commission continue to
maintain ``parity'' in speculative position limit levels across wheat
exchanges. The KCBT notes that growth in trading volume has been strong
in recent years, and attributes this growth to the maintenance of
parity in speculative limits among exchanges. The KCBT further observes
that the increased growth in volume since 1999 has attracted commodity
fund business to the KCBT wheat market, and maintains that failure to
retain parity in speculative limits could cause a loss in fund business
to other markets with higher limits. In addition, the KCBT remarks that
significant trading volume is generated from arbitrage opportunities
that exist between markets, and that differing limits between exchanges
could affect the growth potential for inter-market spread volume.
Finally, the KCBT comments that reportable commercial traders continue
to hold the majority of open interest in KCBT wheat futures, and that
increasing speculative limits would permit an increase in speculative
activity and in turn increase liquidity to the benefit of commercial
users.
The MGE notes that Federal speculative limits were most recently
increased during 1999, and concludes that this increase was intended to
recognize the greater activity in wheat futures trading. The MGE states
that it has not observed any increased susceptibility to manipulation
or price distortion in the hard red spring wheat contract during the
period following the increase in Federal speculative limits. Rather,
the MGE remarks that the increase in Federal speculative limits appears
to have added liquidity and stability to the marketplace. The MGE notes
that speculative limits historically have been uniform at the three
domestic DCMs trading wheat contracts and that failure to maintain this
equality would be unfairly discriminatory, not only to the MGE, but
also to its market participants. In this regard, the MGE observes that
many traders at the MGE, and in particular the commodity funds, utilize
arbitrage opportunities among the wheat markets, and that any disparate
treatment in speculative limits could drive away participants and
reduce market liquidity.
As noted, NYBOT did not submit a petition of its own, but instead
submitted a letter supporting the CBT petition. The NYBOT letter also
suggests an alternative in the event that the Commission determines not
to repeal regulation 150.2. Specifically, the NYBOT comment letter
includes a request that the all-months-combined limit for Cotton No. 2
be increased from 3,500 contracts to 4,000 contracts.\7\ The NYBOT
letter supports this request on the basis of growth in open interest in
the Cotton No. 2 futures contract, based on the open interest test
specified in regulation 150.5 and using data for calendar year 2003.
---------------------------------------------------------------------------
\7\ Currently, the NYBOT does not have its own speculative
position limit provisions for cotton No. 2 but has submitted
proposed amendments that would establish such limits. NYBOT's
request has been stayed until such time as the Commission may act to
amend the Federal speculative position limits.
---------------------------------------------------------------------------
D. Response to Petitions
As previously noted, the Commission published the DCMs' request in
the Federal Register on June 17, 2004 (see 69 FR 33874, June 17, 2004).
Along with the petitions, the Commission posed six questions, including
a request for comment on general issues raised by the DCMs' petitions,
such as whether any Federal speculative limits should be retained. In
addition, the Commission requested comment on specific issues relating
to the current composition of Part 150 of the Commission's regulations,
including whether the speculative limit levels found in Commission
regulation 150.2 should be increased. The comment period closed on
August 16, 2004, and eight comment letters were received in response to
the Federal Register notice. Comments were received from an
agricultural producer, a grain company, a DCM, a CTA, and several
commercial associations, including one comment letter signed jointly by
six separate agricultural associations.
Of the eight comment letters received, three generally opposed the
petitions and five generally supported the
[[Page 12624]]
petitions. There were some differences among those both favoring and
opposing the petitions. For example, one commenter, although in nominal
support of the petitions, conditioned that support with a
recommendation that the Commission review for prior approval any DCM-
proposed changes in speculative position limits for agricultural
commodities.
The comment letter signed by the six agricultural associations
discussed at length the DCMs' petitions and the questions posed by the
Commission. In particular the associations indicated support for ``the
concept of expanded speculative limits'' but at the same time opposed
the DCMs' request that the Commission repeal regulation 150.2. With
respect to the DCMs' request that the single- and all-months-combined
position limits be increased, the associations responded that the new
levels proposed by the CBT should be reviewed according to existing
Commission criteria for each of the indicated contract markets. The
associations acknowledged that such a review may support increased
speculative position limits for some of the contracts. The associations
also supported the request of the KCBT and MGE that position limit
parity be retained among the wheat contracts traded on each of the
petitioning DCMs.
II. Commission Speculative Position Limit Levels
The Commission is proposing several revisions to the speculative
position limit levels found in regulation 150.2 based upon its
experience in administering these limits and after carefully
considering the DCM petitions and the comments received in response to
the petitions for rulemaking. Under the proposed revisions, spot month
limits would remain unchanged from the current levels, but every
single-month and all-months-combined position limit would be increased.
In general, the proposed levels for all-months-combined were
established considering the open interest formula noted above and based
on data for the most recent calendar year, i.e., 2004, as well as other
pertinent considerations as explained below. With respect to the
individual month limits, a strict application of the open interest
formula contained in regulation 150.5 would have resulted in somewhat
lower individual month limits for some commodities and higher limits
for others than those proposed below. However, the Commission believes
there is merit in the argument that maintaining the existing ratios
between single-month and all-months-combined speculative position limit
levels is of benefit to the marketplace, and thus the Commission is
proposing to establish individual-month limits that are consistent with
that approach.
In addition, with respect to the MGE and KCBT wheat contracts, the
Commission proposes to maintain parity with the levels proposed for CBT
wheat rather than establish different limits based on the open interest
formula for each contract. The Commission first adopted this parity
approach in an action to revise position limits in 1993 (see 58 FR
17973, April 7, 1993). At that time the Commission concluded that the
breadth and liquidity of the cash markets underlying the KCBT and MGE
wheat contracts justified setting these limits at parity with little
risk of regulatory harm from such action. 58 FR at 17979. The
Commission continues to believe that the breadth and liquidity of
underlying cash markets, as well as continued growth in open interest,
for the KCBT and MGE wheat contracts support maintenance of these
speculative position limit levels at parity with one another.
The Commission is also clarifying in regulation 150.2 its practice
of aggregating traders' positions for purposes of ascertaining
compliance with Federal speculative position limits when a DCM lists
for trading two or more contracts with substantially identical terms
based on the same underlying commodity characteristics. In particular,
the aggregation requirement applies to the CBT's corn and mini-sized
corn, soybeans and mini-sized soybeans, and wheat and mini-sized wheat
futures and option contracts.
Based on the criteria noted above, the Commission is proposing the
following changes to the Federal speculative position limits.
Speculative Position Limits
[By contract]
----------------------------------------------------------------------------------------------------------------
Spot month Single month All months
Contract ----------------------------------------------------------------
No change Current Proposed Current Proposed
----------------------------------------------------------------------------------------------------------------
Chicago Board of Trade
Corn & Mini-Corn............................... 600 5,500 13,500 9,000 22,000
Oats........................................... 600 1,000 1,400 1,500 2,000
Soybeans & Mini-Soybeans....................... 600 3,500 6,500 5,500 10,000
Wheat & Mini-Wheat............................. 600 3,000 5,000 4,000 6,500
Soybean Oil.................................... 540 3,000 5,000 4,000 6,500
Soybean Meal................................... 720 3,000 5,000 4,000 6,500
Minneapolis Grain Exchange
Hard Red Spring Wheat.......................... 600 3,000 5,000 4,000 6,500
New York Board of Trade
Cotton No. 2................................... 300 2,500 3,500 3,500 5,000
Kansas City Board of Trade
Hard Winter Wheat.............................. 600 3,000 5,000 4,000 6,500
----------------------------------------------------------------------------------------------------------------
As noted above, the Commission has at this time determined to
retain Federal speculative position limits at the increased levels
proposed herein, notwithstanding that the DCM petitions sought their
elimination and replacement with DCM-administered speculative position
limit provisions. The Commission, however, intends to continue its
review of its current policies regarding the administration of
speculative position limits, including a further evaluation of the
merits of retaining Federal speculative limits. At the same time, the
Commission notes
[[Page 12625]]
that Exchanges may determine to establish, pursuant to sections 4a(e)
and 5c(c) of the Act, their own speculative position limits at levels
less than the Federal levels.\8\
---------------------------------------------------------------------------
\8\ Pursuant to subsection 5c(c)(2)(B) prior Commission approval
is required before a DCM implements a rule that materially changes
the terms and conditions, as determined by the Commission, in any
contract of sale for future delivery of a commodity specifically
enumerated in section 1a(4) of the Act (or any option thereon)
traded through its facilities if the rule amendment applies to
contracts and delivery months which have already been listed for
trading and have open interest.
---------------------------------------------------------------------------
At this time, the Commission does not intend to expand the scope of
regulation 150.2 by including futures contracts that are not already
enumerated therein, except, as noted above, in the limited case when
such contracts would share substantially identical terms with an
existing enumerated contract on the same DCM.\9\ In this regard,
Federal speculative position limits would not apply to the CBT's South
American soybean contract or the MGE's cash-settled hard red spring
wheat futures contract because these contracts have substantially
different commodity characteristics than related contracts currently
enumerated under regulation 150.2. Rather, in cases where a new
contract's terms and conditions deviate from those of the enumerated
contract list, the Commission will rely upon the DCMs to establish
speculative position limit or position accountability provisions for
such contracts consistent with the requirements of section 5(d)(5) of
the Act and part 38 of the Commission's regulations.\10\
---------------------------------------------------------------------------
\9\ The Commission also notes that should a DCM list a contract
that shared substantially identical terms with a Regulation 150.2-
enumerated contract listed on another DCM, the Commission could
consider at that time whether to amend regulation 150.2 to likewise
apply Federal limits to the newly-listed contract.
\10\ For example, the CBT and the MGE have established Exchange-
set speculative position limits for the South American soybean and
the cash-settled national hard red spring wheat index futures
contracts, respectively.
---------------------------------------------------------------------------
Finally, the Commission notes that existing regulation 150.2 also
provides for speculative limits for agricultural commodities traded on
the MidAm and for the white wheat futures contract traded on MGE. These
provisions relating to the MidAm and the MGE white wheat futures
contract are obsolete and are proposed for repeal as part of this
action. In addition, the reference to the New York Cotton Exchange is
being changed to NYBOT to reflect a change in corporate organization.
III. Related Matters
A. Cost Benefit Analysis
Section 15(a) of the Act requires the Commission to consider the
costs and benefits of its action before issuing a new regulation under
the Act. By its terms, section 15(a) does not require the Commission to
quantify the costs and benefits of a new regulation or to determine
whether the benefits of the proposed regulation outweigh its costs.
Rather, section 15(a) requires the Commission to ``consider the costs
and benefits'' of the subject rule.
Section 15(a) further specifies that the costs and benefits of the
proposed rule shall be evaluated in light of five broad areas of market
and public concern: (1) Protection of market participants and the
public; (2) efficiency, competitiveness, and financial integrity of
futures markets; (3) price discovery; (4) sound risk management
practices; and (5) other public interest considerations. The Commission
may, in its discretion, give greater weight to any one of the five
enumerated areas of concern and may, in its discretion, determine that,
notwithstanding its costs, a particular rule is necessary or
appropriate to protect the public interest or to effectuate any of the
provisions or to accomplish any of the purposes of the Act.
The proposed rules impose limited additional costs in terms of
reporting requirements, particularly since entities trading in or
holding large positions, who either approach or meet the speculative
limits of the rules herein, already file large trader reports with the
Commission. Moreover, the amendments proposed herein would increase
Federal speculative limits for some commodities and, to that extent,
reduce the compliance costs associated with these speculative position
limits. The countervailing benefits to these costs are that the
continued inclusion of appropriate speculative limits will help to
ensure the maintenance of competitive and efficient markets, protect
the price discovery and risk shifting functions, and protect market
participants and the public interest.
B. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq.,
requires federal agencies, in proposing rules, to consider the impact
of those rules on small businesses. The Commission believes that the
proposed rule amendments to raise Commission speculative position
limits would only impact large traders. The Commission has previously
determined that large traders are not small entities for purposes of
the RFA.\11\ Therefore, the Acting Chairman, on behalf of the
Commission, hereby certifies, pursuant to 5 U.S.C. 605(b), that the
action taken herein will not have a significant economic impact on a
substantial number of small entities. The Commission also notes in this
regard that the proposed rules will raise speculative limit levels and
thereby reduce the regulatory burden on all affected entities.
---------------------------------------------------------------------------
\11\ 47 FR 18618 (April 30, 1982).
---------------------------------------------------------------------------
C. Paperwork Reduction Act
When publishing proposed rules, the Paperwork Reduction Act of 1995
(44 U.S.C. 3507(d)) imposes certain requirements on federal agencies
(including the Commission) in connection with their conducting or
sponsoring any collection of information as defined by the Paperwork
Reduction Act. In compliance with the Act, the Commission, through this
rule proposal, solicits comment to: (1) Evaluate whether the proposed
collection of information is necessary for the proper performance of
the functions of the agency, including the validity of the methodology
and assumptions used; (2) evaluate the accuracy of the agency's
estimate of the burden of the proposed collection of information
including the validity of the methodology and assumptions used; (3)
enhance the quality, utility and clarity of the information to be
collected; and (4) minimize the burden of the collection of the
information on those who are to respond through the use of appropriate
automated, electronic, mechanical, or other technological collection
techniques or other forms of information technology, e.g., permitting
electronic submission of responses.
The Commission has submitted the proposed rule and its associated
information collection requirements to the Office of Management and
Budget. The proposed rule is part of two approved information
collections. The burdens associated with these rules are as follows:
------------------------------------------------------------------------
Collection No. [3038-0009]
------------------------------------------------------------------------
Average burden hours per response....... .3
Number of respondents................... 2946
Frequency of response................... On occasion
-----------------------------------------
Collection No.
[3038-0013]
-----------------------------------------
Average burden hours per response....... 3
[[Page 12626]]
Number of respondents................... 9
Frequency of response................... On occasion
------------------------------------------------------------------------
List of Subjects in 17 CFR Part 150
Agricultural commodities, Bona fide hedge positions, Commodity
futures, Cotton, Grains, Position limits, Spread exemptions.
In consideration of the foregoing, pursuant to the authority
contained in the Commodity Exchange Act, the Commission hereby proposes
to amend part 150 of chapter I of title 17 of the Code of Federal
Regulations as follows:
PART 150--LIMITS ON POSITIONS
1. The authority citation for part 150 is revised to read as
follows:
Authority: 7 U.S.C. 6a, 6c, and 12a(5), as amended by the
Commodity Futures Modernization Act of 2000, Appendix E of Pub. L.
106-554, 114 Stat. 2763 (2000).
2. Section 150.2 is revised to read as follows:
Sec. 150.2 Position limits.
No person may hold or control positions, separately or in
combination, net long or net short, for the purchase or sale of a
commodity for future delivery or, on a futures-equivalent basis,
options thereon, in excess of the following:
Speculative Position Limits
[In contract units]
----------------------------------------------------------------------------------------------------------------
Contract Spot month Single month All months
----------------------------------------------------------------------------------------------------------------
Chicago Board of Trade
Corn and Mini Corn 1............................................ 600 13,500 22,000
Oats............................................................ 600 1,400 2,000
Soybeans and Mini Soybeans 1.................................... 600 6,500 10,000
Wheat and Mini Wheat 1.......................................... 600 5,000 6,500
Soybean Oil..................................................... 540 5,000 6,500
Soybean Meal.................................................... 720 5,000 6,500
Minneapolis Grain Exchange
Hard Red Spring Wheat........................................... 600 5,000 6,500
New York Board of Trade
Cotton No. 2.................................................... 300 3,500 5,000
Kansas City Board of Trade
Hard Winter Wheat............................................... 600 5,000 6,500
----------------------------------------------------------------------------------------------------------------
\1\ For purposes of compliance with these limits, positions in the regular sized and mini-sized contracts shall
be aggregated.
Issued by the Commission this 7th day of March, 2005, in
Washington, DC.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 05-5088 Filed 3-14-05; 8:45 am]
BILLING CODE 6351-01-P
