ICE Futures U.S. intends to implement a rule change that potentially permits a person from not having to aggregate its positions with a related entity to assess compliance with exchange speculative position limits. Under the IFUS amended rule, a person could apply to the exchange for authority not to aggregate its positions with another person where it holds a 10 percent or greater equity interest if (1) the individuals controlling the trading of the relevant accounts do not have knowledge of each other’s trading decisions; (2) the accounts are traded pursuant to separately developed and independent trading strategies; (3) there are written procedures precluding access to information regarding the trades, positions and strategies of each account; and (4) there is no sharing of information by the persons controlling each account’s trading decisions. The relief, modeled after a similar de-aggregation proposal of the Commodity Futures Trading Commission made in September 2015, would not apply to IFUS positions subject to federal position limits. (Click here to access details of the CFTC proposed de-aggregation rule in the article, “CFTC Revises Aggregation Proposal Related to Position Limits,” in the September 27, 2015 edition of Bridging the Week.) The amended rule is scheduled to be effective March 18, 2016. Separately, ICE Futures Europe announced that, going forward, it would permit exchange for physical transactions for the purpose of rolling forward futures positions in soft commodities where delivery could not occur. To evidence that such EFPs were bona fide, parties would be required, upon request by the exchange, to produce evidence that there were performance issues that precluded delivery of the relevant physical commodity. Effectively, one party would sell the physical position it did not receive and buy a forward futures contract, and the other party would buy the physical position it did not deliver and sell a forward futures contract.

Compliance Weeds: Both of these developments are significant. Traditionally, an exchange of futures for a related position must involve the purchase (or sale) of a futures position (or option under certain circumstances) and the simultaneous sale (or purchase) of a related position. There must be customary documentation to evidence the related position transaction that must be produced to an exchange upon request. In connection with the limited circumstances of delivery issues involving soft commodities, ICE Futures Europe will now permit the use of exchange for futures transactions to roll forward a futures contract. Effectively, the cash leg of such transaction will be the physical position that was not delivered. This is a highly exceptional circumstance and the principle cannot, for now, be applied to other exchanges or even other products on ICE Europe. Likewise, ICE Futures U.S.’s proposed amendment of its rules to potentially permit accounts of related entities or persons to be disaggregated for purposes of complying with exchange-position limits in advance of the adoption by the Commodity Futures Trading Commission of a similar rule is a practical response to situations where accounts within a corporate group are truly independently traded and one entity does not coordinate directly or indirectly with the other. The CFTC currently permits disaggregation for certain accounts of eligible entities (mainly certain commodity pool operators or commodity trading advisors) subject to independent control, but not to accounts of non-eligible entities. Again, this potential relief will not apply to positions subject to federal speculative position limits.