EXTERNAL MEETINGS: MEETING WITH LAND O'LAKES INC.

The discussion covered the following topics regarding the further definition of swap dealer.~Land O’Lakes’ primary comment is that the thresholds for the notional value of swaps, the number of swaps and the number of swap counterparties in the de minimis test in the swap dealer definition are too low.  For this reason, the swap dealer definition would apply to entities that do not engage in swap dealing activity to an extent that would be appropriate to regulate as a dealer.  In general, Land O’Lakes suggested that the de minimis thresholds should be raised by a factor of between 2 and 5.  ~Land O’Lakes suggested that it would be appropriate, where an agricultural cooperative enters into swaps as a dealer solely with its members and solely in connection with the agricultural production activities of the members, that the de minimis test of the number of counterparties count all the members of the cooperative as a single counterparty. ~In general, Land O’Lakes also suggested that the definition of swap dealer, when applied to agricultural cooperatives, should take account of the standard practices that have developed in the agricultural markets.  That is, for example, even where limitations of activity are not set out in written contracts, the definition should take into account that market participants in this area limit their swap activities to a high volume of “plain vanilla” transactions, without significant variation or customization among transactions.  In general, this suggests that the de minimis thresholds for the number of transactions and number of counterparties should be higher when applied to agricultural cooperatives.~Land O’Lakes explained that they use different types of swaps and similar transactions in the acquisition and distribution of dairy products, as well as other products such as cattle feed, pesticides, seed, natural gas and heating oil.  Some of these transactions call for physical settlement in the form of a delivery of the product in exchange for payment, while other transactions call for cash settlement in the form of payments calculated by reference to indicators such as fixed or floating prices.  The extent to which different types of transactions may fall within the definition of the term “swap” also was discussed.~The discussion also briefly addressed the further definition of eligible contract participant (ECP).  Although Land O’Lakes did not have any specific comments on the current definition of ECP or the proposed changes to the definition, Land O’Lakes did express a general concern that the ECP definition appropriately allow agricultural producers with lower levels of net worth to participate in the market and obtain the risk reduction benefits of swaps, futures, forwards and other derivatives.~On January 10, 2011, Julian Hammar, Mark Fajfar and David Aron of the CFTC conducted a follow-up telephone call with Susan Grelling of Land O’Lakes.  The telephone call discussed further details of the types of transactions, including swaps, forward purchase agreements and other similar transactions, in which Land O’Lakes engages.  The discussion went into more detail regarding the issues described above but did not cover any additional substantive issues.