Risk glossary


Bona fide hedge exemption

A trader may exceed position limits set by the Commodity Futures Trading Commission (CFTC) if:

1) the transaction or position is a substitute for transactions in a physical marketing channel; it is an economically appropriate means of risk reduction;

2) it arises from the potential change in the value of assets, liabilities or services;

3) it reduces risks resulting from a swap that was executed opposite a counterparty for which the transaction would qualify as a bona fide hedging transaction under the first three criteria; or

4) it reduces risks resulting from a swap that satisfies the first three criteria.

* see also Dodd-Frank; EMIR threshold

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