WASHINGTON, June 1, 2016 -- The Commodity Futures Trading Commission has responded to the concerns of agribusiness by loosening its restrictions on the type of hedging strategies that can be exempted from position limits.
A supplemental proposal released by the CFTC would ensure that anticipatory hedging practices could qualify for a “bona fide” hedging exemption. The proposal also would provide flexibility to commodity exchanges to recognize certain positions as bona fide hedging, subject to CFTC oversight.
It is the latest example of how the commission under Chairman Timothy Massad has been trying to respond to complaints by grain companies and others about the CFTC’s early attempts to implement the 2010 Dodd-Frank law.
Massad said the commission listened “closely to the concerns of market participants, and in particular commercial-end users, who use these markets every day to hedge commercial risk.”
Todd Kemp, who follows CFTC regulations for the National Grain and Feed Association, said the proposal mirrors the Commodity Exchange Act in the definition of bona fide hedging. NGFA believed the CFTC was restricting the definition so much that it could have created problems for grain elevators and other traders. Elevators, for example, use anticipatory hedging during harvest season when farmers unload grain over a weekend when the exchanges are closed.
Kemp, senior vice president of marketing and treasurer at NGFA, said the definition of bona fide hedging was a “huge improvement over the original proposal.”
“This seems to be a pretty good recognition by the commission about the points we’ve been making, that you shouldn’t be narrowing down the range of risk management strategies to our industry. You ought to be making those broadly available,” he said.
CFTC reauthorization bills passed by the House last year and approved in April by the Senate Agriculture Committee both included provisions requiring the agency to include anticipatory hedging in the definition of bona fide hedging.
The CFTC’s Republican member, J. Christopher Giancarlo, supported the new proposal, which is to be folded into a larger rule on position limits.
“The supplemental proposal appears responsive to a broad range of public comments. I believe it is a positive step forward in devising a final rule that will take into account certain practical realities associated with administering a workable position limits regime,” Giancarlo said.