CME Group provides notice on position limit exemption

CME Group released an April 19 advisory notice that includes information on the process for receiving an exemption from position limits based on having bona fide hedging positions. The company recently discussed critical aspects of the notice with the NGFA. 

Below are portions of the notice that address the procedure for applying for an exemption from position limits or re-applying to update an exemption to use hedging using strategies not previously allowed by the exchange, such as anticipatory hedging. The following language is taken directly from the notice:   

How can a market participant obtain an exemption from position limits? (p. 6)

A market participant seeking an exemption from position limits must apply by completing a form provided by the Department. Market participants may be eligible to receive an exemption from position limits in accordance with Rule 559 based on having bona fide hedging positions (as defined in CFTC Regulation §150.1 (Bona fide hedging transaction or positions), non-enumerated bona fide hedging positions and/or spread positions. 

A market participant intending to exceed position limits, including limits established pursuant to a previously approved exemption, must file the required application and receive approval from the department prior to exceeding such limits. However, a person who establishes a position in excess of position limits and files the required application for bona fide hedging transactions or positions or non-enumerated bona fide hedging transactions or positions with the department will not be in violation of Rule 559 provided that the filing occurs within five (5) business days after assuming the position, except in circumstances where the department requires a person to file prior to the fifth business day. An application filed after exceeding a limit must include an explanation of the sudden or unforeseen bona fide hedging need. 
In the event the positions in excess of the limits are not deemed to be exemption-eligible, the applicant and clearing firm will be in violation of speculative position limits for the period of time in which the excess positions remained open. 

The department may approve, deny, condition or limit any exemption request based on factors deemed by the department to be relevant, including, but not limited to, the applicant's business needs and financial status, as well as whether the positions can be established and liquidated in an orderly manner given characteristics of the market for which the exemption is sought. 

A person who has received written authorization from the department to exceed position limits must annually file an updated application no later than one year following the approval date of the most recent application. Further, for referenced contracts, a party applying for an extension of a non-enumerated bona fide hedging exemption must receive a notice of extension from the exchange prior to exceeding the position limit after the expiration date of the current exemption. 

Failure to file an updated application will result in expiration of the exemption. 

To obtain an exemption application or for further information on the exemption application process, please contact the department via email. 

For CME and CBOT products: Hedgeprogram@cmegroup.com 
For NYMEX and COMEX products: NYhedgeprogram@cmegroup.com

If a market participant currently holds a position limit exemption, do they need to refile under the new rules, and if so, when? (p. 7) 

Market participants currently holding a position limit exemption may continue to rely on that exemption until the expiration date noted in their approval letter. Market participants looking to hedge using strategies not previously allowed or approved by the exchange must file a new position limit exemption application. For example, a corn participant looking to hedge singled-sided unpriced deals under anticipatory merchandising would need to file a new application since this strategy was not previously permitted.