Commodity Futures Trading Commission § 146

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					                               Commodity Futures Trading Commission                                                                 § 1.46

                               §§ 1.41–1.43      [Reserved]                               other similar entity for a period of 5
                                                                                          years from the date thereof.
                               § 1.44 Records and reports of ware-                        (Approved by the Office of Management and
                                    houses, depositories, and other                       Budget under control number 3038–0019)
                                    similar entities; visitation of prem-
                                    ises.                                                 (Sec. 5a, 49 Stat. 1497; 7 U.S.C. 7a)

                                 Each contract market shall require                       [41 FR 3194, Jan. 21, 1976, as amended at 46
                                                                                          FR 63035, Dec. 30, 1981; 47 FR 57009, Dec. 22,
                               the operators of warehouses, deposi-                       1982]
                               tories and other similar entities whose
                               receipts are deliverable in satisfaction                   § 1.45   [Reserved]
                               of commodity futures contracts or op-
                               tions on physicals made on or subject                      § 1.46 Application and closing out of
                               to the rules of such contract market:                           offsetting long and short positions.
                                 (a) To keep records showing the                             (a) Application of purchases and sales.
                               stocks of each commodity traded for                        Except with respect to purchases or
                               future delivery or upon which option                       sales which are for omnibus accounts,
                               contracts are traded on such contract                      or where the customer or account con-
                               market in store in such warehouses,                        troller has instructed otherwise, any
                                                                                          futures commission merchant who, on
                               depositories and other similar entities
                                                                                          or subject to the rules of a designated
                               by kinds, by classes, and by grades, if
                                                                                          contract market or registered deriva-
                               stored under conditions requiring such                     tives transaction execution facility:
                               designation or identification, and in-                        (1) Purchases any commodity for fu-
                               cluding also lots and parcels stored                       ture delivery for the account of any
                               specially or separately or in specially                    customer when the account of such
                               leased space of the warehouse, deposi-                     customer at the time of such purchase
                               tory or other similar entity;                              has a short position in the same future
                                 (b) Upon call from the Commission,                       of the same commodity on the same
                               to report the stocks of commodities in                     market;
                               such warehouses, depositories and                             (2) Sells any commodity for future
                               other similar entities and to furnish in-                  delivery for the account of any cus-
                               formation concerning stocks of each                        tomer when the account of such cus-
                               commodity traded for future delivery                       tomer at the time of such sale has a
                               or upon which option contracts are                         long position in the same future of the
                               traded on such contract market about                       same commodity on the same market;
                               to be transferred or in the process of                        (3) Purchases a put or call option for
                                                                                          the account of any option customer
                               being transferred or otherwise moved
                                                                                          when the account of such option cus-
                               into or out of such warehouses, deposi-                    tomer at the time of such purchase has
                               tories and other similar entities, as                      a short put or call option position with
                               well as any other information con-                         the same underlying futures contract
                               cerning commodities stored in such                         or same underlying physical, strike
                               warehouse, depositories and other simi-                    price, expiration date and contract
                               lar entities and which are or may be                       market as that purchased; or
                               available for delivery on futures con-                        (4) Sells a put or call option for the
                               tracts or options on physicals; and                        account of any option customer when
                                 (c) To permit visitation of the prem-                    the account of such option customer at
                               ises and inspection of the books and                       the time of such sale has a long put or
                               records of such warehouses, deposi-                        call option position with the same un-
                               tories and other similar entities by                       derlying futures contract or same un-
                               duly authorized representatives of the                     derlying physical, strike price, expira-
                               Commission or the Department of Jus-                       tion date and contract market as that
                               tice, and to keep all books, records, pa-                  sold shall on the same day apply such
                               pers, and memoranda relating to the                        purchase or sale against such pre-
                               storage and warehousing of commod-                         viously held short or long futures or
                               ities in such warehouse, depository or                     option position, as the case may be,
                                                                                          and shall, for futures transactions,
                                                                                          promptly furnish such customer a
                                                                                          statement showing the financial result


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                               § 1.46                                                                  17 CFR Ch. I (4–1–09 Edition)

                               of the transactions involved and, if ap-                   against short or long positions carried
                               plicable, that the account was intro-                      forward from a prior date.
                               duced to the futures commission mer-                          (d) Exceptions. The provisions of this
                               chant by an introducing broker and the                     section shall not apply to:
                               names of the futures commission mer-                          (1) Purchases or sales of commodity
                               chant and introducing broker.                              options constituting ‘‘bona fide hedg-
                                 (b) Close-out against oldest open posi-                  ing transactions’’ pursuant to rules of
                               tion. In all instances wherein the short                   the contract market which have been
                               or long futures or option position in                      adopted in accordance with the re-
                               such customer’s or option customer’s                       quirements of § 1.61(b) and approved by
                               account immediately prior to such off-                     the Commission pursuant to; section
                               setting purchase or sale is greater than                   5a(a)(12)(A) of the Act Provided, That
                               the quantity purchased or sold, the fu-                    no contract market or futures commis-
                               tures commission merchant shall apply                      sion merchant shall permit such option
                               such offsetting purchase or sale to the                    positions to be offset other than by
                               oldest portion of the previously held                      open and competitive execution in the
                               short or long position: Provided, That                     trading pit or ring provided by the con-
                               upon specific instructions from the                        tract market, during the regular hours
                               customer or option customer the off-                       prescribed by the contract market for
                               setting transaction shall be applied as                    trading in such commodity option.
                               specified by the customer or option
                                                                                             (2) Purchases or sales constituting
                               customer without regard to the date of
                                                                                          ‘‘bona fide hedging transactions’’ as de-
                               acquisition of the previously held posi-
                                                                                          fined in § 1.3(z); nor
                               tion. Such instructions may also be ac-
                               cepted from any person who, by power                          (3) Sales during a delivery period for
                               of attorney or otherwise, actually di-                     the purpose of making delivery during
                               rects trading in the customer’s or op-                     such delivery period if such sales are
                               tion customer’s account unless the per-                    accompanied by instructions to make
                               son directing the trading is the futures                   delivery thereon, together with ware-
                               commission merchant (including any                         house receipts or other documents nec-
                               partner thereof), or is an officer, em-                    essary to effectuate such delivery.
                               ployee, or agent of the futures commis-                       (4)–(7) [Reserved]
                               sion merchant. With respect to every                          (8) Purchases or sales held in error
                               such offsetting transaction that, in ac-                   accounts, including but not limited to
                               cordance with such specific instruc-                       floor broker error accounts, and pur-
                               tions, is not applied to the oldest por-                   chases or sales identified as errors at
                               tion of the previously held position,                      the time they are assigned to an ac-
                               the futures commission merchant shall                      count that contains other purchases or
                               clearly show on the statement issued                       sales not identified as errors and held
                               to the customer or option customer in                      in that account (‘‘error trades’’), pro-
                               connection with the transaction, that                      vided that:
                               because of the specific instructions                          (i) Each error trade does not offset
                               given by or on behalf of the customer                      another error trade held in the same
                               or option customer the transaction was                     account;
                               not applied in the usual manner, i.e.,                        (ii) Each error trade is offset by open
                               against the oldest portion of the pre-                     and competitive means on or subject to
                               viously held position. However, no such                    the rules of a contract market by not
                               showing need be made if the futures                        later than the close of business on the
                               commission merchant has received                           business day following the day the
                               such specific instructions in writing                      error trade is discovered and assigned
                               from the customer or option customer                       to an error account or identified as an
                               for whom such account is carried.                          error trade, unless at the close of busi-
                                 (c) In-and-out trades; day trades. Not-                  ness on the business day following the
                               withstanding the provisions of para-                       discovery of the error trade, the rel-
                               graphs (a) and (b) of this section shall                   evant market has reached a daily price
                               not be deemed to require the applica-                      fluctuation limit and the trader is un-
                               tion of purchases or sales closed out                      able to offset the error trade, in which
                               during the same day (commonly known                        case the error trade must be offset as
                               as ‘‘in-and-out trades’’ or ‘‘day trades’’)                soon as practicable thereafter; and


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                               Commodity Futures Trading Commission                                                                 § 1.47

                                 (iii) No error trade is closed out by                    sitions. In such cases, the Commission
                               transferring such an open position to                      shall consider all information so filed
                               another account also controlled by                         and, by notice to such person, shall
                               that same trader.                                          specify the extent to which the Com-
                                 (e) The statements required by para-                     mission has determined that the trans-
                               graph (a) of this section may be fur-                      actions and positions may be classified
                               nished to the customer or the person                       as bona fide hedging. In no case shall
                               described in § 1.33(d) by means of elec-                   transactions and positions described be
                               tronic transmission, in accordance                         considered as bona fide hedging if they
                               with § 1.33(g).                                            exceed the levels specified in paragraph
                               (Approved by the Office of Management and                  (d) of this section.
                               Budget under control number 3038–0007)                        (b) Initial statement. Initial state-
                                                                                          ments concerning the classification of
                               (Secs. 4g, 5, 42 Stat. 1000, 49 Stat. 1496; 7
                               U.S.C. 6g, 7; secs. 4g, 5, 8a; 7 U.S.C. 6g, 7, 12a)        transactions and positions as bona fide
                                                                                          hedging pursuant to § 1.3(z)(3) shall be
                               [41 FR 3194, Jan. 21, 1976, as amended at 46               filed with the Commission at least 30
                               FR 54524, Nov. 3, 1981; 46 FR 63035, Dec. 30,
                                                                                          days in advance of the date that such
                               1981; 47 FR 57009, Dec. 22, 1982; 48 FR 35289,
                               Aug. 3, 1983; 49 FR 19972, May 11, 1984; 50 FR             transactions or positions would be in
                               26, Jan. 2, 1985; 51 FR 17473, May 13, 1986; 53            excess of limits then in effect pursuant
                               FR 614, Jan. 11, 1988; 56 FR 14314, Apr. 9, 1991;          to section 4a of the Act. Such state-
                               57 FR 55085, Nov. 24, 1992; 59 FR 5526, Feb. 7,            ments shall:
                               1994; 66 FR 53517, Oct. 23, 2001; 69 FR 59545,                (1) Describe the transactions and po-
                               Oct. 5, 2004]                                              sitions for future delivery and the off-
                               § 1.47 Requirements for classification                     setting cash positions;
                                    of purchases or sales of contracts                       (2) Set forth in detail information
                                    for future delivery as bona fide                      which will demonstrate that the pur-
                                    hedging under § 1.3(z)(3) of the reg-                 chases and sales are economically ap-
                                    ulations.                                             propriate to the reduction of risk expo-
                                 (a) Any person who wishes to avail                       sure attendant to the conduct and
                               himself of the provisions of § 1.3(z)(3) of                management of a commercial enter-
                               the regulations and to make purchases                      prise;
                               or sales of any commodity for future                          (3) Contain, and upon request of the
                               delivery in any commodity in excess of                     Commission be supplemented by, such
                               trading and position limits then in ef-                    other information which is necessary
                               fect pursuant to section 4a of the Act                     to enable the Commission to make a
                               shall file statement with the Commis-                      determination whether the particular
                               sion in conformity with the require-                       purchases and sales for future delivery
                               ments of this section. All or a specified                  fall within the scope of those described
                               portion of the transactions and posi-                      in section 1.3(z)(1) of the regulations;
                               tions described in these statements                           (4) Include a statement concerning
                               shall not be considered as bona fide                       the maximum size of positions for fu-
                               hedging if such person is so notified by                   ture delivery (both long and short)
                               the Commission:                                            which will be acquired any time during
                                 (1) Within 30 days after the Commis-                     the next fiscal year or marketing sea-
                               sion is furnished the information re-                      son of the person filing or on whose be-
                               quired under paragraph (b) of this sec-                    half the filing is made.
                               tion, or                                                      (5) In addition: statements filed by an
                                 (2) Within 10 days after the Commis-                     agent, concerning a futures position
                               sion is furnished with the information                     which would offset a cash position
                               required under paragraph (c) of this                       which the agent does not own or has
                               section.                                                   not contracted to buy or sell, shall con-
                               The Commission may request the per-                        tain information describing all con-
                               son notified to file specific additional                   tractual arrangements between the
                               information with the Commission to                         agent filing and the person who owns
                               support a determination that all, or                       the commodity or holds the cash mar-
                               the specified portion, of the trans-                       ket commitment being offset;
                               actions and positions be considered as                        (6) Statements concerning futures po-
                               bona fide hedging transactions and po-                     sitions to be acquired against unsold


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