API pushes US CFTC to relax position limits rule further
Washington (Platts)--29Jun2012/449 pm EDT/2049 GMT
A trade group representing more than 500 natural gas and oil companies
is pressing the US Commodity Futures Trading Commission to further relax its
controversial position limits rule beyond a proposed change to the rule the
agency unveiled last month.
The CFTC on May 18 proposed changing its position limits rule by
requiring companies to count the positions of an affiliate against the
overall limits only if it owns more than 50% of that affiliate. The
commission had originally set this ownership threshold at 10%.
But in a letter sent to the CFTC on Friday, the American Petroleum
Institute called this 50% limit an "arbitrary benchmark" and said the limit
should be raised beyond 50% as long as a company can show it does not control
that affiliate. Just because a company may own more than 50% of another
company, it does not mean it has any control of that company's trading
operations, API argued.
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"Although ownership and control have been used interchangeably as
proxies for the ability of an entity to engage in market manipulation or
disruption, ownership by itself is meaningless without the ability to direct
or influence the management of the owned entity," Kyle Isakower, API's vice
president for regulatory and economic policy, wrote in the letter.
API argued that there are many situations where ownership may exceed
50%, but there is no risk of coordinated trading strategies. Joint ventures
between commercial energy companies, for example, may have agreements to not
share certain position data and wholly owned subsidiaries located outside the
US may operate entirely independently.
The CFTC's proposal requires affiliated entities to show they have no
knowledge of each other's trading decisions, but API argued that this should
not apply to "non-trading personnel," such as accountants or compliance
officers. In addition, API said the requirement for affiliates to have
separately developed and independent trading systems would "impose
significant compliance costs," and said a requirement for affiliates to
maintain independence by establishing separate physical address should be
relaxed to establishing simply separate trading floors, which could be housed
in the same physical address.
When the CFTC unveiled the proposal to raise the aggregation limits to
50% from 10%, Commissioner Jill Sommers, a Republican who voted against the
original position limits rule approved in October 2011, wondered if a
"one-size-fits-all answer," was feasible.
"In the absence of knowledge of, and control over, trading of an owned
entity, is there a real difference between owning 49% and owning 50%? I don't
think there is," Sommers said.
Lawyers for the International Swaps and Derivatives Association and the
Securities Industry and Financial Markets Association have argued in court
papers that the CFTC's change to its original position limits rule was a
concession by the agency that the rule was flawed. ISDA and SIFMA are suing
the CFTC in federal court to have the position limits rule overturned.
--Brian Scheid, firstname.lastname@example.org
--Edited by Lisa Miller, email@example.com