Stump Strategic
THREE THINGS TO NOTE
December 6, 2016
CFTC Re-Proposes Position Limit Regulations
As the year comes to a close, the CFTC has unanimously re-proposed rules to regulate the manner in which
speculative position limits may apply to 25 exempt and agricultural commodity futures and options contracts, and
physical commodity swaps that are “economically equivalent”. As opposed to finalizing the position limit rule this
year as some expected, the Commission has determined to again propose refinements. One of the most complex
and politically charged issues to be considered by the Commission, this rule set will now benefit from additional
public input under a 60-day comment period. A fact sheet summarizing the re-proposal and table of the proposed
initial limit levels may be found here.
NOTED
 The re-proposal sets spot month limits at 25% of deliverable supply or a lower level recommended by the
designated contract market (DCM). Deliverable supply estimates will be provided by the DCM and verified by
the Commission. There is proposed a conditional limit for cash-settled natural gas of 10,000 contracts.
 Non-spot month limits would be based upon a formula informed by open interest in futures and swaps.
 The re-proposal continues to refine the definition of a bona-fide hedging and specifically retains certain
restrictions during the last five days of trading for physical delivery contracts, but as re-proposed the listing
exchange may, on a case-by-case basis, recognize certain such transactions (cross commodity hedges, certain
anticipatory enumerated hedges, and pass through swap offsets) as non-enumerated bona fide hedging
positions. The re-proposal then does not apply the prudential condition of the “five-day rule” to nonenumerated hedging positions.
 The Commission has preliminarily determined to exclude trade options from the rule’s definition of “referenced
contract”, but to provide flexibility permits trade options to be taken into consideration as a cash position, on
a futures-equivalent basis, as the basis of a bona fide hedging positions.
 The re-proposal temporarily relieves Swap Execution Facilities (SEFs) and DCMs from the obligation to set
position limits on swaps that are subject to federal position limits if such entity lack access to position data on
swaps.
New Policy Recommendations to Note
Various policy leaders have recently disseminated thought pieces for public consideration. The two below may be
of interest.
NOTED
 The Volcker Alliance recently issued a report on “shadow banking” which discusses risk concentration at
derivatives clearinghouses, interconnection concerns about clearinghouse investments, OTC risk concentration
among clearing member, SRO “conflicts”, and potential regulatory gaps. The report makes several
recommendations, including folding the CFTC into the SEC and consolidating various supervisory regulatory
authorities into a single “prudential supervisory authority” headed by the Federal Reserve’s vice chairman of
supervisory. Additionally, the report recommends a regulatory review of the ownership and for-profit
structure of clearinghouses, as well as the development of a “clear statutory framework” for the
resolution/recovery of clearinghouses.
 Former White House Chief of Staff Leon Panetta, former Governor and Office of Management and Budget
Director Mitch Daniels, and former Congressman Tim Penny released a memo to President-Elect Trump
regarding fiscal challenges and their recommendations for achieving a more positive outlook. The memo
highlights the importance of addressing the rising U.S. debt situation and states that “smarter fiscal policy”
must be a component of Trump’s pro-growth agenda. The memo puts forward ten recommendations,
including offsetting Trump’s proposed infrastructure spending, tax reform, etc. with spending cuts and/or
revenue increases elsewhere in the budget.
Transition to 2017
President-Elect Trump and Vice-President-Elect Pence have been busy assembling their preferred team of cabinetlevel leaders for various executive level agencies. An updated list of those Trump intends to nominate is available
here. The Senate will now begin the process of vetting each eventual nominee.
NOTED
 While this process can take months, one key benefit for Trump’s nominees is something commonly called the
“nuclear option”. In 2013, then Democratic leader Harry Reid sought and achieved a Senate rule change to
expedite President Obama’s pending nominations. This changed the Senate voting threshold to end debate for
many nominations from 60 votes to a simple majority of 51 votes. Limiting debate can expedite the process,
particularly for those nominees viewed as controversial and opposed by a minority of Senators. Trump will
benefit from this rule change at the onset of his Presidency when so many key positions are considered by the
Senate.
 We expect Senate Democrats to be publicly critical of many Trump cabinet picks, likely resulting in very tense
confirmation hearings in various Senate Committees.
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