POSITION LIMITS.

SEC. 737. POSITION LIMITS.(a) Aggregate Position Limits.—Section 4a(a) of the Commodity Exchange Act (7 U.S.C. 6a(a)) is amended—(1) by inserting after “(a)” the following:“(1) In general.—”;(2) in the first sentence, by striking “on electronic trading facilities with respect to a significant price discovery contract” and inserting “swaps that perform or affect a significant price discovery function with respect to registered entities”;(3) in the second sentence—(A) by inserting “, including any group or class of traders,” after “held by any person”; and(B) by striking “on an electronic trading facility with respect to a significant price discovery contract,” and inserting “swaps traded on or subject to the rules of a 124 STAT. 1723 designated contract market or a swap execution facility, or swaps not traded on or subject to the rules of a designated contract market or a swap execution facility that performs a significant price discovery function with respect to a registered entity,”; and(4) by adding at the end the following:“(2) Establishment of limitations.—“(A) In general.—In accordance with the standards set forth in paragraph (1) of this subsection and consistent with the good faith exception cited in subsection (b)(2), with respect to physical commodities other than excluded commodities as defined by the Commission, the Commission shall by rule, regulation, or order establish limits on the amount of positions, as appropriate, other than bona fide hedge positions, that may be held by any person with respect to contracts of sale for future delivery or with respect to options on the contracts or commodities traded on or subject to the rules of a designated contract market.“(B) Timing.—“(i) Exempt commodities.—For exempt commodities, the limits required under subparagraph (A) shall be established within 180 days after the date of the enactment of this paragraph.“(ii) Agricultural commodities.—For agricultural commodities, the limits required under subparagraph (A) shall be established within 270 days after the date of the enactment of this paragraph.“(C) Goal.—In establishing the limits required under subparagraph (A), the Commission shall strive to ensure that trading on foreign boards of trade in the same commodity will be subject to comparable limits and that any limits to be imposed by the Commission will not cause price discovery in the commodity to shift to trading on the foreign boards of trade.“(3) Specific limitations.—In establishing the limits required in paragraph (2), the Commission, as appropriate, shall set limits—“(A) on the number of positions that may be held by any person for the spot month, each other month, and the aggregate number of positions that may be held by any person for all months; and“(B) to the maximum extent practicable, in its discretion—“(i) to diminish, eliminate, or prevent excessive speculation as described under this section;“(ii) to deter and prevent market manipulation, squeezes, and corners;“(iii) to ensure sufficient market liquidity for bona fide hedgers; and“(iv) to ensure that the price discovery function of the underlying market is not disrupted.“(4) Significant price discovery function.—In making a determination whether a swap performs or affects a significant price discovery function with respect to regulated markets, the Commission shall consider, as appropriate:124 STAT. 1724“(A) Price linkage.—The extent to which the swap uses or otherwise relies on a daily or final settlement price, or other major price parameter, of another contract traded on a regulated market based upon the same underlying commodity, to value a position, transfer or convert a position, financially settle a position, or close out a position.“(B) Arbitrage.—The extent to which the price for the swap is sufficiently related to the price of another contract traded on a regulated market based upon the same underlying commodity so as to permit market participants to effectively arbitrage between the markets by simultaneously maintaining positions or executing trades in the swaps on a frequent and recurring basis.“(C) Material price reference.—The extent to which, on a frequent and recurring basis, bids, offers, or transactions in a contract traded on a regulated market are directly based on, or are determined by referencing, the price generated by the swap.“(D) Material liquidity.—The extent to which the volume of swaps being traded in the commodity is sufficient to have a material effect on another contract traded on a regulated market.“(E) Other material factors.—Such other material factors as the Commission specifies by rule or regulation as relevant to determine whether a swap serves a significant price discovery function with respect to a regulated market.“(5) Economically equivalent contracts.—“(A) Notwithstanding any other provision of this section, the Commission shall establish limits on the amount of positions, including aggregate position limits, as appropriate, other than bona fide hedge positions, that may be held by any person with respect to swaps that are economically equivalent to contracts of sale for future delivery or to options on the contracts or commodities traded on or subject to the rules of a designated contract market subject to paragraph (2).“(B) In establishing limits pursuant to subparagraph (A), the Commission shall—“(i) develop the limits concurrently with limits established under paragraph (2), and the limits shall have similar requirements as under paragraph (3)(B); and“(ii) establish the limits simultaneously with limits established under paragraph (2).“(6) Aggregate position limits.—The Commission shall, by rule or regulation, establish limits (including related hedge exemption provisions) on the aggregate number or amount of positions in contracts based upon the same underlying commodity (as defined by the Commission) that may be held by any person, including any group or class of traders, for each month across—“(A) contracts listed by designated contract markets;“(B) with respect to an agreement contract, or transaction that settles against any price (including the daily or final settlement price) of 1 or more contracts listed 124 STAT. 1725 for trading on a registered entity, contracts traded on a foreign board of trade that provides members or other participants located in the United States with direct access to its electronic trading and order matching system; and“(C) swap contracts that perform or affect a significant price discovery function with respect to regulated entities.“(7) Exemptions.—The Commission, by rule, regulation, or order, may exempt, conditionally or unconditionally, any person or class of persons, any swap or class of swaps, any contract of sale of a commodity for future delivery or class of such contracts, any option or class of options, or any transaction or class of transactions from any requirement it may establish under this section with respect to position limits.”.(b) Conforming Amendments.—Section 4a(b) of the Commodity Exchange Act (7 U.S.C. 6a(b)) is amended—(1) in paragraph (1), by striking “or derivatives transaction execution facility or facilities or electronic trading facility” and inserting “or swap execution facility or facilities”; and(2) in paragraph (2), by striking “or derivatives transaction execution facility or facilities or electronic trading facility” and inserting “or swap execution facility”.(c) Bona Fide Hedging Transaction.—Section 4a(c) of the Commodity Exchange Act is amended—(1) by inserting “(1)” after “(c)”; and(2) by adding at the end the following:“(2) For the purposes of implementation of subsection (a)(2) for contracts of sale for future delivery or options on the contracts or commodities, the Commission shall define what constitutes a bona fide hedging transaction or position as a transaction or position that—“(A)(i) represents a substitute for transactions made or to be made or positions taken or to be taken at a later time in a physical marketing channel;“(ii) is economically appropriate to the reduction of risks in the conduct and management of a commercial enterprise; and“(iii) arises from the potential change in the value of—“(I) assets that a person owns, produces, manufactures, processes, or merchandises or anticipates owning, producing, manufacturing, processing, or merchandising;“(II) liabilities that a person owns or anticipates incurring; or“(III) services that a person provides, purchases, or anticipates providing or purchasing; or“(B) reduces risks attendant to a position resulting from a swap that—“(i) was executed opposite a counterparty for which the transaction would qualify as a bona fide hedging transaction pursuant to subparagraph (A); or“(ii) meets the requirements of subparagraph (A).”.(d) Effective Date.—This section and the amendments made by this section shall become effective on the date of the enactment of this section.124 STAT. 1726