The Division of Market Oversight of the Commodity Futures Trading Commission granted relief from a Commission regulation that requires certain persons otherwise required to aggregate their futures and related options positions with those of certain other affiliated persons for CFTC position limit purposes to file a notice of an available exemption from such requirement prior to relying on the exemption. Under the relief, a person may act on an eligible exemption without an advance filing, but must file a notice within five business days after being requested to do so by the Commission or a designated contract market (DCM). DMO’s new relief also expands who might be eligible for certain exemptions as well as what information must be addressed in any notice filings. Implementation of the CFTC’s advance notice filing requirement was previously delayed by DMO until August 14. (Click here for details in the article “CFTC Staff Grants Six-Month Delay for Firms to File Mandatory Disaggregation Notices” in the February 12, 2017 edition of Bridging the Week.) DMO’s current relief is effective through August 12, 2019.
(Under CFTC rules a person that holds a 10-percent or more ownership interest in another person, or directly or indirectly controls the trader of another person, must aggregate their futures and related options positions (on a futures equivalent basis) with those of such other person. However, CFTC rules provide for certain exemptions from aggregation in the case of affiliated entities where there are certain prescribed indicia of independence in trading decisions and information walls between the affiliates, and other circumstances. Click here to access CFTC Rule 150.4.)
Compliance Weeds: Importantly, DMO’s new relief is not an invitation to do nothing. Where a person is potentially required to aggregate its futures and related options positions with another affiliated person for core CFTC commodities (click here to access CFTC Rule 150.2 for the current list of core commodities), it should assess substantially in advance of a potential position limit breach whether it might be eligible to disaggregate its positions with such affiliated person based on any exemption provided by the CFTC (e.g., owned-entity exemption, independent account controller exemption). If such person is eligible and desires to disaggregate positions, it should confirm that all requisite conditions necessary to qualify for such exemption are in place or promptly implement all requirements. It may be too late to benefit from an exemption if appropriate measures are not implemented prior to a position limit breach, let alone after a CFTC or DCM request for a notice filing. Such analysis should also occur in connection with DCM position limits and exemptions available at DCMs where there may be parallel provisions.