Font Size: AAA // Print // Bookmark

2011-17626

  • Federal Register, Volume 76 Issue 134 (Wednesday, July 13, 2011)[Federal Register Volume 76, Number 134 (Wednesday, July 13, 2011)]

    [Rules and Regulations]

    [Pages 41048-41056]

    From the Federal Register Online via the Government Printing Office [www.gpo.gov]

    [FR Doc No: 2011-17626]

    =======================================================================

    -----------------------------------------------------------------------

    COMMODITY FUTURES TRADING COMMISSION

    17 CFR Part 1

    RIN 3038-AD23

    Agricultural Commodity Definition

    AGENCY: Commodity Futures Trading Commission.

    ACTION: Final rule.

    -----------------------------------------------------------------------

    SUMMARY: The Commodity Futures Trading Commission (``Commission'' or

    ``CFTC'') is charged with proposing rules to implement new statutory

    provisions enacted by Title VII of the Dodd-Frank Wall Street Reform

    and Consumer Protection Act (``Dodd-Frank Act''). The Dodd-Frank Act,

    which amends the Commodity Exchange Act (``CEA'' or ``Act''), includes

    provisions applicable to ``a swap in an agricultural commodity (as

    defined by the [CFTC]).'' Neither Congress nor the CFTC has previously

    defined that term for purposes of the CEA or CFTC regulations. On

    October 26, 2010, the Commission requested comment on a proposed

    definition. After reviewing the comments submitted in response to the

    proposed definition, the Commission has determined to issue these final

    rules in essentially the same form as originally proposed, subject to a

    minor revision to the commodity-based index provision.

    DATES: Effective Date--September 12, 2011.

    FOR FURTHER INFORMATION CONTACT: Donald Heitman, Senior Special

    Counsel, (202) 418-5041, dheitman@cftc.gov, or Ryne Miller, Attorney

    Advisor, (202) 418-5921, rmiller@cftc.gov, Division of Market

    Oversight, Commodity Futures Trading Commission, Three Lafayette

    Centre, 1155 21st Street, NW., Washington, DC 20581.

    SUPPLEMENTARY INFORMATION:

    Part I--Background

    On July 21, 2010, President Obama signed the Dodd-Frank Wall Street

    Reform and Consumer Protection Act.\1\ Title VII of the Dodd-Frank Act

    \2\ amended the CEA \3\ to establish a comprehensive new regulatory

    framework for swaps and security-based swaps. The legislation was

    enacted to reduce risk, increase transparency, and promote market

    integrity within the financial system by, among other things: (1)

    Providing for the registration and comprehensive regulation of swap

    dealers and major swap participants; (2) imposing clearing and trade

    execution requirements on standardized derivative products; (3)

    creating robust recordkeeping and real-time reporting regimes; and (4)

    enhancing the Commission's rulemaking and enforcement authorities with

    respect to, among others, all registered entities and intermediaries

    subject to the Commission's oversight.

    ---------------------------------------------------------------------------

    \1\ See Dodd-Frank Wall Street Reform and Consumer Protection

    Act, Public Law 111-203, 124 Stat. 1376 (2010). The text of the

    Dodd-Frank Act may be accessed at http://www.cftc.gov./

    LawRegulation/OTCDERIVATIVES/index.htm.

    \2\ Pursuant to section 701 of the Dodd-Frank Act, Title VII may

    be cited as the ``Wall Street Transparency and Accountability Act of

    2010.''

    \3\ 7 U.S.C. 1 et seq.

    ---------------------------------------------------------------------------

    The Dodd-Frank Act includes provisions applicable to ``a swap in an

    agricultural commodity (as defined by the [CFTC]).'' Neither Congress

    nor the CFTC has previously defined ``agricultural commodity'' for

    purposes of the CEA or CFTC regulations. On October 26, 2010, the

    Commission issued a notice of proposed rulemaking requesting comment on

    a proposed definition of agricultural commodity (the ``NPRM'').\4\

    After reviewing the comments submitted in response to the proposed

    definition,\5\ the Commission has determined to issue this final

    definition in essentially the same form as originally proposed, subject

    to a minor revision to the commodity-based index provision, for

    purposes of the CEA and Commission regulations.

    ---------------------------------------------------------------------------

    \4\ 75 FR 65586, Oct. 26, 2010.

    \5\ Those comments are available on the Commission's Web site

    at: http://comments.cftc.gov/PublicComments/CommentList.aspx?id=868.

    ---------------------------------------------------------------------------

    [[Page 41049]]

    A. Statutory Framework--``Agricultural Commodity''

    1. Pre Dodd-Frank Act

    For a detailed discussion of the pre Dodd-Frank statutory history

    relating to the term agricultural commodity, please review the NPRM at

    75 FR 65586-65587.

    2. The Dodd-Frank Act

    In addition to deleting two existing CEA provisions that referenced

    agricultural commodities,\6\ the Dodd-Frank Act contains several new

    provisions relating to agricultural commodities. Section 721(a)(21) of

    the Dodd-Frank Act adds a new section 1a(47) to the CEA defining the

    term ``swap.'' As part of the definition, clause (iii) of section

    1a(47)(A) provides that a swap includes ``any agreement, contract, or

    transaction commonly known as * * * an agricultural swap. * * *'' \7\

    ---------------------------------------------------------------------------

    \6\ Pre Dodd Frank CEA sections 2(g) and 5a(b)(2)(F).

    \7\ See new CEA section 1a(47)(A)(iii)(XX) as added by section

    721(a)(21) of the Dodd-Frank Act.

    ---------------------------------------------------------------------------

    Section 723(c)(3)(A) of the Dodd-Frank Act, which is a free-

    standing provision that does not amend the CEA, contains a general rule

    whereby, except as provided in section 723(c)(3)(B), ``no person shall

    offer to enter into, enter into, or confirm the execution of, any swap

    in an agricultural commodity (as defined by the [CFTC]).'' Section

    723(c)(3)(B) provides that a swap in an agricultural commodity may be

    permitted pursuant to the Commission's exemptive authority under CEA

    section 4(c), ``or any rule, regulation, or order issued thereunder

    (including any rule, regulation, or order in effect as of the date of

    enactment of this Act) by the [CFTC] to allow swaps under such terms

    and conditions as the Commission shall prescribe.''

    Section 733 of the Dodd-Frank Act adds a new section 5h to the CEA

    that governs the registration and regulation of swap execution

    facilities. New CEA section 5h(b)(2) provides that a swap execution

    facility ``may not list for trading or confirm the execution of any

    swap in an agricultural commodity (as defined by the Commission) except

    pursuant to a rule or regulation of the Commission allowing the swap

    under such terms and conditions as the Commission shall prescribe.''

    Section 737 of the Dodd-Frank Act amends CEA section 4a and

    specifically directs the Commission to adopt position limits for

    futures, DCM-traded options, and swaps that are economically equivalent

    to futures and exchange-traded options for physical commodities other

    than excluded commodities--that is, exempt and agricultural

    commodities. Section 737 also sets timeframes for the adoption of such

    position limits for both exempt and agricultural commodities.

    B. Regulatory Framework--``Agricultural Commodity''

    For a detailed discussion of the history surrounding the

    Commission's regulatory framework related to the term agricultural

    commodity, please review the NPRM at 75 FR 65588-65589. Under current

    regulations, the term agricultural commodity is significant primarily

    for parts 32 and 35.\8\ The final definition is not anticipated to have

    any significant substantive impact outside of those rules.

    ---------------------------------------------------------------------------

    \8\ 17 CFR part 32 and 17 CFR part 35.

    ---------------------------------------------------------------------------

    In relation to parts 32 (dealing with commodity options) and 35

    (dealing with swaps), the Commission, in a separate proposed

    rulemaking, has proposed (1) to treat all commodity options that fall

    within the Dodd-Frank definition of swap (including options on either

    agricultural or non-agricultural commodities) the same as any other

    swap, thereby doing away with the need to distinguish between an

    agricultural commodity and any other type of commodity for the purpose

    of identifying the applicable options rules, and (2) to treat swaps in

    an agricultural commodity the same as any other swap, thereby doing

    away with the need to distinguish between an agricultural commodity and

    any other type of commodity for the purpose of identifying the

    applicable swaps rules.\9\ The definition will also inform the

    Commission's planned rulemaking addressing speculative position limits

    on both agricultural and exempt commodities.\10\

    ---------------------------------------------------------------------------

    \9\ The proposal to treat agricultural swaps the same as swaps

    in other commodities was issued following an advance notice of

    proposed rulemaking (``ANPRM'') that specifically asked whether

    swaps in an agricultural commodity should be treated any differently

    than other swaps. See 75 FR 59666, Sept. 28, 2010. The overwhelming

    majority of the comments supported adopting a rule that would treat

    swaps in an agricultural commodity the same as all other swaps, and

    the proposed agricultural swaps rules that followed the ANPRM so

    provide. (See: Commodity Options and Agricultural Swaps, 76 FR 6095,

    February 3, 2011). If the final agricultural swaps rules should

    reverse course and prohibit or limit agricultural swaps, the

    Commission will take appropriate action to address any impact such

    rule change might have with respect to the definition set out

    herein.

    \10\ See Sec. 737(a) of the Dodd-Frank Act; see also Position

    Limits for Derivatives, 76 FR 4752, Jan. 26, 2011.

    ---------------------------------------------------------------------------

    Part II--Summary of Comments; Commission Response to Comments

    As noted above, on October 26, 2010 the Commission published for

    comment a notice of proposed rulemaking that proposed a definition of

    ``agricultural commodity'' for purposes of the Commodity Exchange Act

    and Commission regulations.\11\ The NPRM proposed a four category

    definition, including:

    ---------------------------------------------------------------------------

    \11\ 75 FR 65586, Oct. 26, 2010.

    ---------------------------------------------------------------------------

    1. The enumerated commodities listed in section 1a of the CEA,

    including such things as wheat, cotton, corn, the soybean complex,

    livestock, etc.;

    2. A general operational definition that covers: ``All other

    commodities that are, or once were, or are derived from, living

    organisms, including plant, animal and aquatic life, which are

    generally fungible, within their respective classes, and are used

    primarily for human food, shelter, animal feed, or natural fiber;''

    3. A catch-all category for commodities that would generally be

    recognized as agricultural in nature, but which do not fit within the

    general operational definition. In addition to the specified

    commodities named in category three (tobacco and the products of

    horticulture), category three would also include other commodities

    that, in future, would be classified as ``agricultural commodities'' as

    a result of Commission action: ``Tobacco, products of horticulture, and

    such other commodities used or consumed by animals or humans as the

    Commission may by rule, regulation, or order designate after notice and

    opportunity for hearing;'' and

    4. Finally, a provision applicable to: ``Commodity-based contracts

    based wholly or principally on a single underlying agricultural

    commodity.''

    In response to the NPRM, the Commission received twelve formal

    comment letters \12\ representing a broad range of interests, including

    producers, merchants, swap dealers, commodity funds, futures industry

    organizations, academics, and policy organizations. In particular,

    comment letters were received from the following persons or entities:

    The Agricultural Swaps Working Group (``Ag Swaps Working Group''),

    comprised of financial institutions that provide risk management and

    investment products

    [[Page 41050]]

    to agricultural end users; BOK Financial (``BOK''); Better Markets,

    Inc. (``Better Markets''); Commodity Markets Council (``CMC''); Dairy

    Farmers of America, Inc. (``DFA''); the Gavilon Group, LLC

    (``Gavilon''); Institute for Agriculture and Trade Policy (``IATP'');

    CME Group, Inc. (``CME Group''); Minneapolis Grain Exchange (``MGEX'');

    National Council of Farmer Cooperatives (``NCFC''); National Grain and

    Feed Association (``NGFA''); and Michael Greenberger (``Professor

    Greenberger''), a professor from the University of Maryland Law School.

    In addition, on May 4, 2011, the Commission re-opened the comment

    period on several of the Dodd-Frank rulemakings, including the proposed

    agricultural commodity definition, to June 3, 2011.\13\ Of the

    additional comments received, three specifically addressed substantive

    concerns related to the proposed agricultural commodity definition--one

    letter from Chris Barnard, discussed below; one letter from the

    National Milk Producers Federation (``NMPF''), generally supporting the

    proposed definition; and one letter from MGEX, reiterating the

    arguments made in its earlier comments.\14\

    ---------------------------------------------------------------------------

    \12\ The comment file also includes records of discussions with

    three external parties (Land O'Lakes, Inc., a mixed group of

    agricultural and academic interests, and an agricultural risk

    manager from Kansas). At those meetings and/or phone calls, issues

    tangential to the agricultural commodity definition rulemaking were

    discussed between visitors and Commission representatives.

    \13\ See 76 FR 25274, May 4, 2011.

    \14\ Illustrated by the following quote from the NMPF letter,

    the majority of the comments filed for the June 3, 2011 deadline

    addressed issues outside of the scope of the agricultural commodity

    definition; e.g. end user concerns, cooperative associations, and

    the general regulatory regime for swaps:

    NMPF agrees that the proposed rule provides a reasonable

    definition of ``agricultural commodity'', with respect to milk,

    dairy products, and common dairy feedstuffs.

    However, this agreement must be seen in the context of our

    concerns about the potential over-regulation of farmers, farmer

    cooperative associations, and other commercial end users, including

    small and limited resource farmers.

    See letter from NMPF.

    ---------------------------------------------------------------------------

    With minor variations discussed below, the majority of commenters

    supported the definition of agricultural commodity as proposed. The

    following statement from the NGFA is representative:

    The NGFA is supportive of the Commission's efforts to define the

    term ``agricultural commodity'' for purposes of implementing

    provisions of the Dodd-Frank Wall Street Reform and Consumer

    Protection Act. Generally, we believe the proposed rule takes a

    straightforward and common-sense approach to the issue and we have

    no current objection to the categorization of various agricultural

    commodities as detailed in the proposed rule.

    In response to the Commission's questions, the NGFA at this time

    is not aware of additional commodities that should be included in

    the definition, though they may not fit neatly into the proposed

    rule; nor are we aware of commodities that do fit the proposed

    definition but should not be included. However, to accommodate

    situations that could arise in the future as new products are

    developed, the NGFA agrees that it would be prudent for the

    Commission to maintain some flexibility to consider or reconsider

    the status of any particular commodity as questions may arise in the

    context of specific markets or transactions.\15\

    ---------------------------------------------------------------------------

    \15\ See letter from NGFA.

    Many of the commenters specifically supported the fact that the

    proposed definition excludes biofuels.\16\ In addition, several

    commenters further noted the appropriateness of the definition in a

    regulatory regime where the Commission may decide to treat agricultural

    swaps as it does all other swaps.\17\

    ---------------------------------------------------------------------------

    \16\ See, e.g., letters from Gavilon, IATP, and the Ag Swaps

    Working Group.

    \17\ In fact, the Commission has recently proposed to treat

    agricultural swaps the same as any other swap: See Commodity Options

    and Agricultural Swaps, 75 FR 6095, Feb. 3, 2011.

    ---------------------------------------------------------------------------

    General support for the proposed definition; request for

    clarification on category two. Several commenters offered their general

    support for the definition as proposed, requesting only that the

    Commission clarify in any final rule that the second category of the

    agricultural commodity definition is self-effectuating and will

    encompass commodities that are now, or in the future may be, subject to

    swaps, futures, and options trading, without the need for additional

    CFTC action.\18\ These commenters suggested that such clarification

    would be consistent with Congress' definition of ``commodity'' in the

    CEA, which includes certain enumerated commodities and ``all other

    goods and articles, * * * and all services, rights, and interests in

    which contracts for future delivery are presently or in the future

    dealt in.'' \19\

    ---------------------------------------------------------------------------

    \18\ See, e.g., letters from CME Group, the Ag Swap Working

    Group, Gavilon, and DFA.

    \19\ See CEA section 1a(4).

    ---------------------------------------------------------------------------

    In response to this request, the Commission wishes to clarify that

    the general operational definition found in the second category is

    self-executing and will encompass commodities that are now, or in the

    future may become subject to swaps, futures, and options trading,

    without the need for additional CFTC action. In this regard, the rule

    defines those commodities that are agricultural commodities. It does

    not matter whether futures, swaps, or options are being traded in the

    commodity--either now or in the future.

    Request for consideration of public comment regarding the

    classification of new commodities. Other commenters asked that the

    Commission provide a means for the public to comment upon and appeal

    any Commission decision to include or exclude a particular commodity

    from the list of agricultural commodities under any category of the

    definition. As proposed, such a comment and appeal process is

    contemplated only for commodities that may fall under category three of

    the Commission's definition. In particular, subparagraph three of the

    agricultural commodity definition would allow the Commission to

    designate any other commodity used or consumed by animals or humans to

    be an agricultural commodity ``by rule, regulation or order * * * after

    notice and opportunity for hearing.'' \20\ CMC asked for a

    clarification or expansion of this process:

    ---------------------------------------------------------------------------

    \20\ See NPRM at 75 FR 65586 at 65593, Oct. 26, 2010.

    We therefore urge the Commission to provide for an appeals

    process for new instruments. To elaborate, we request that a

    consistent process and time period be instated for appealing a CFTC

    decision to include or exclude a particular commodity from the list

    of agricultural commodities. We acknowledge that the CFTC in its

    [NPRM] has made a provision for public hearings for Category 3

    agricultural commodities, but we request that a process for public

    comments and appeals be made broadly available in the context of

    including or excluding an agricultural commodity under any category

    of the definition.\21\

    ---------------------------------------------------------------------------

    \21\ See letter from CMC.

    On this topic, NGFA commented that in order to accommodate situations

    that could arise in the future as new products are developed, it would

    be prudent for the Commission to maintain some flexibility to consider

    or reconsider the status of any particular commodity as questions may

    arise in the context of specific markets or transactions.

    In considering these comments, the Commission has determined that

    the proposed definition, in conjunction with the Commission's existing

    rules, already accommodates any concerns raised. With respect to

    commodities already listed in categories one or two, the NPRM that

    preceded these final rules provided an opportunity to question or

    challenge the inclusion or exclusion of any commodity listed in those

    categories. With respect to commodities not covered by the first two

    categories, category three of the proposed definition permits the

    Commission to designate any particular commodity as an ``agricultural

    commodity,'' but only after notice and an opportunity for hearing.

    Therefore, any time the Commission wishes to designate a particular

    commodity as an ``agricultural commodity,'' it must

    [[Page 41051]]

    follow the procedures attendant to a normal notice and comment

    rulemaking (i.e., issuing a notice of proposed rulemaking, allowing a

    comment period, and then issuing a final rule or order). In addition,

    any action by the Commission to remove a commodity from the definition

    would constitute a regulatory amendment that would similarly require a

    notice and comment rulemaking.

    To the extent interested parties want to request that the

    Commission amend or add to the definition on their own initiative, they

    may submit a petition for issuance, amendment, or repeal of any rule

    pursuant to Commission regulation 13.2.

    New or innovative commodity products. While generally supportive of

    the proposed definition, a comment letter from IATP expressed concern

    with respect to the commercial commodification of currently

    experimental commodities, ``It perhaps goes without saying that the

    modification of traditional commodities by synthetic biology and other

    nanotechnologies will pose many and complex regulatory challenges to

    protect the public interest, should these commodities be traded under

    contracts subject to CFTC rules.''\22\

    ---------------------------------------------------------------------------

    \22\ See letter from IATP.

    ---------------------------------------------------------------------------

    The Commission believes that categories two and three of the

    definition, as proposed, appropriately provide for the inclusion of new

    or innovative commodities within the definition of ``agricultural

    commodity''--should such a determination become necessary.\23\ These

    ``new'' commodities will likely fall under category two of the

    agricultural commodity definition as being ``used primarily for human

    food, shelter, animal feed or natural fiber.'' And if they do not fall

    under category two, the Commission may use category three to issue a

    rule or order labeling them as agricultural commodities.

    ---------------------------------------------------------------------------

    \23\ In this context, the Commission believes that the

    definition is appropriately flexible to incorporate food substitutes

    and other similar products should there be a need to do so at some

    point in the future.

    ---------------------------------------------------------------------------

    Commodity-based indexes. Several commenters focused on subparagraph

    four of the proposed definition, which would include ``commodity-based

    contracts based wholly or principally on a single underlying

    agricultural commodity.'' \24\ MGEX commented that subparagraph four

    should be withdrawn altogether, arguing that cash-settled and

    electronically traded contracts on indexes (such as contracts on MGEX's

    various wheat, corn, and soybean cash-bid indexes) should remain

    outside of the definition of agricultural commodity.\25\

    ---------------------------------------------------------------------------

    \24\ See NPRM at 75 FR 65586 at 65593, Oct. 26, 2010.

    \25\ As will be discussed further below, MGEX's comment may be

    based in part on confusion in the Commission's wording of

    subparagraph four. As proposed, subparagraph four applies to

    ``commodity-based contracts'' when in fact the wording should have

    read ``commodity-based indexes,'' and has been so corrected in the

    final rule.

    ---------------------------------------------------------------------------

    The NCFC commented that, without information on the practical

    effects of using a larger or smaller threshold than the proposed ``more

    than 50%'' to define ``principally,'' it supports the more than 50%

    level of a single commodity as proposed. However, they suggested future

    review of that level if concerns are raised or potential issues need to

    be addressed.\26\

    ---------------------------------------------------------------------------

    \26\ See letter from NCFC.

    ---------------------------------------------------------------------------

    Two commenters, Professor Greenberger and Better Markets, objected

    to the fact that the ``based wholly or principally on a single

    underlying agricultural commodity'' approach used in the proposed

    definition would fail to include indexes that contained several

    different agricultural commodities but had no concentration of greater

    than 50% of any one commodity. Professor Greenberger argued that, ``The

    Commission should include a contract based on an index that includes

    agricultural commodities within the definition of agricultural

    commodity, so that it may be subject, inter alia, to the later

    rulemakings on speculative position limits under [section] 737 of the

    Dodd-Frank Act.'' Better Markets expressed the concern that the

    proposed definition could enable a person to avoid compliance with

    other regulatory provisions specific to agricultural commodities, such

    as speculative position limits. As a potential solution, Better Markets

    proposed a revision to subparagraph four that would evaluate commodity-

    based indexes on a pro-rata basis, with no minimum or maximum

    percentage criterion. Under the Better Markets proposal, any contract

    on a commodity-based index could be both (1) a contract on agricultural

    commodities for that percentage of the index that is based on any

    agricultural commodity, and (2) a contract on non-agricultural

    commodities for that percentage of the index that is based on any non-

    agricultural commodity.\27\ Thus, for example, a person holding a

    contract on an index that is equally weighted in corn and soybeans

    would be considered to have a position in both corn and soybeans and

    this position would be aggregated with other corn and/or soybeans

    positions held by that trader for purposes of complying with

    speculative position limits applicable to either commodity.

    ---------------------------------------------------------------------------

    \27\ Better Markets proposed that subparagraph four read as

    follows: ``Commodity-based contracts based on a single underlying

    agricultural commodity; provided that contracts based on composite

    prices in the form of an index, which composite prices include one

    or more agricultural commodities, shall be considered to be one or

    more commodity-based contracts pro-rata based on the relevant

    weighting of each such single agricultural commodity in the index.''

    ---------------------------------------------------------------------------

    Chris Barnard's letter similarly suggested that the Commission

    should revise category four to apply to ``commodity-based [indexes]

    based wholly or principally on underlying agricultural commodities.''

    In considering these comments, the Commission has determined to

    refine category four as follows:

    (a) In the final rule, the Commission has removed references to

    contracts and added references to indexes, confirming that category

    four applies to commodity-based indexes, rather than commodity-based

    contracts on an index.

    (b) In addition to the revisions described in (a), the text of

    category four has been revised to include commodity-based indexes

    ``based wholly or principally on underlying agricultural

    commodities''--as opposed to ``based wholly or principally on a single

    underlying agricultural commodity.'' As a general matter, the Dodd-

    Frank Act gives the Commission the authority to prohibit or otherwise

    limit swaps in an agricultural commodity. In the event that the

    Commission did take steps to generally prohibit or otherwise limit

    swaps in an agricultural commodity, there would be legitimate concern

    about the potential proliferation of ``agricultural commodity-based

    indexes'' (and contracts thereon) being designed to replicate the

    economic terms of otherwise prohibited swaps in an agricultural

    commodity.

    However, because the Commission has proposed to permit swaps in an

    agricultural commodity to transact subject to the same rules applicable

    to all other swaps, that concern is almost certainly moot.\28\ There

    will be no incentive for regulatory arbitrage as between an

    agricultural swap and a swap on an index that is economically

    equivalent to an agricultural swap because both transactions would be

    subject to the same regulatory scheme. Nonetheless, in response to

    certain concerns raised by Professor Greenberger, Better Markets, and

    Mr. Barnard, the Commission is expanding the commodity-based index

    category of the agricultural commodity definition to

    [[Page 41052]]

    include not only any index that is concentrated at greater than 50% in

    a single agricultural commodity, but also any index concentrated at

    greater than 50% in agricultural commodities generally. Thus, for

    example, an index composed of 25% each, wheat, corn, soybeans, and gold

    would fall within the definition because more than 50% of that index is

    composed of agricultural commodities, and any contract on that index

    would be a contract on an agricultural commodity.

    ---------------------------------------------------------------------------

    \28\ See footnote 9, above.

    ---------------------------------------------------------------------------

    (c) As described above, the Better Markets comment letter also

    raised a related concern about the potential for avoiding position

    limits by using swaps on an index as an alternative to swaps on an

    agricultural commodity. Professor Greenberger expanded the concern,

    arguing that any multiple commodity index that references any farm

    product should be included in the definition of agricultural commodity.

    The Commission has considered these comments and notes the following:

    (1) As proposed,\29\ position limits would be applied on a contract

    by contract basis. That is, the inquiry into whether an index is an

    ``agricultural commodity'' is not relevant, because there are no

    position limits that would apply broadly to a contract on an

    ``agricultural commodity.'' Rather, the proposed position limits apply

    to positions in specific contracts, known as reference contracts (for

    example, the CBOT corn contract, the CBOT wheat contract, etc.),

    options thereon, and swaps economically equivalent thereto. The

    relevant inquiry becomes whether a contract on an index (or pro rata

    portion thereof) is economically equivalent to a reference contract, as

    defined in the proposed position limit rules, and not whether an index

    is or is not an agricultural commodity.

    ---------------------------------------------------------------------------

    \29\ See Position Limits for Derivatives, 76 FR 4752, Jan. 26,

    2011.

    ---------------------------------------------------------------------------

    (2) The position limit rules directly address contracts on a

    commodity-based index that would be used in an attempt to circumvent

    the position limit rules. Specifically, the proposed position limit

    rules provide that ``a commodity index contract that incorporates the

    price of a commodity underlying a referenced contract's commodity,

    which is used to circumvent speculative position limits, shall be

    considered to be a referenced contract for the purpose of applying the

    [proposed position limit rules].'' \30\

    ---------------------------------------------------------------------------

    \30\ Ibid.

    ---------------------------------------------------------------------------

    (d) As indicated above, MGEX favored withdrawing category four

    altogether, arguing that cash-settled and electronically traded

    contracts on indexes (such as contracts on MGEX's various wheat, corn,

    and soybean cash-bid indexes) should remain outside of the definition

    of agricultural commodity. In response, the Commission initially notes

    that Dodd-Frank directs the Commission to adopt a definition of

    agricultural commodity. Pursuant to section 723(c)(3) of the Dodd-Frank

    Act, swaps in an agricultural commodity (as defined by the Commission)

    are prohibited unless permitted by a CEA section 4(c) exemption.

    However, because the agricultural swaps proposal \31\ will, if adopted

    as proposed, permit agricultural swaps to transact subject to the same

    rules applicable to any other swap, it appears that the practical

    effect of being labeled an agricultural commodity (or avoiding the

    label of agricultural commodity) will be immaterial.

    ---------------------------------------------------------------------------

    \31\ 76 FR 6095, Feb. 3, 2011.

    ---------------------------------------------------------------------------

    Still, the Commission will retain the authority, pursuant to

    section 723(c)(3) of the Dodd-Frank Act, to revise or amend the

    agricultural swaps rules and to place further limitations or

    restrictions on swaps in an agricultural commodity in the future.\32\

    For that reason, the Commission is taking the step now, via the

    agricultural commodity definition, to remove any incentive for

    regulatory gaming that could result from being able to avoid the label

    of agricultural commodity by, for example, creating indexes, and then

    executing contracts thereon, that act as the functional or economic

    equivalent of otherwise limited or prohibited swaps on an agricultural

    commodity. Accordingly, the Commission is retaining the commodity-based

    index component in its agricultural commodity definition, as revised

    herein.

    ---------------------------------------------------------------------------

    \32\ Note that the authority under section 723(c)(3) only

    applies to swaps in an agricultural commodity and does not extend to

    futures on an agricultural commodity.

    ---------------------------------------------------------------------------

    Customer hedging. BOK submitted a comment letter requesting an

    exemption from section 723(c)(3)(A) of the Dodd-Frank Act \33\ for

    transactions that hedge customer positions, irrespective of whether the

    underlying commodity is agricultural or non-agricultural. That is,

    BOK's letter requests that the Commission provide a confirmation that

    hedging transactions involving agricultural commodities will not be

    subject to the Dodd-Frank Act's general prohibition of swaps in an

    agricultural commodity. The Commission believes that the concerns

    raised by BOK's letter have generally been addressed in the

    Commission's proposed rules for agricultural swaps and commodity

    options. Those rules would treat agricultural swaps, whether they

    constitute hedging or speculation, the same as other swaps. Thus,

    hedging transactions involving agricultural swaps would be subject to

    the same standards as hedging transactions involving other

    commodities.\34\

    ---------------------------------------------------------------------------

    \33\ Swaps in an agricultural commodity, other than those

    currently permitted (for example, pursuant to part 35), are

    generally prohibited under section 723(c)(3)(A) of the Dodd-Frank

    Act, which is the provision cited by BOK. However, section

    723(c)(3)(B) provides that the Commission, using its CEA section

    4(c) authority, may expand the universe of agricultural swaps that

    are permitted to trade. The Commission's recent agricultural swaps

    and commodity options proposal would permit agricultural swaps

    transactions to continue subject to all rules otherwise applicable

    to any other swap. See 75 FR 6095, Feb. 3, 2011.

    \34\ See Commodity Options and Agricultural Swaps, 76 FR 6095,

    Feb. 3, 2011.

    ---------------------------------------------------------------------------

    Category two determinations. MGEX also commented briefly on the

    Commission's explanatory example in the NPRM regarding the phrase

    ``used primarily'' in category two. Category two covers: ``All other

    commodities that are, or once were, or are derived from, living

    organisms, including plant, animal and aquatic life, which are

    generally fungible, within their respective classes, and are used

    primarily for human food, shelter, animal feed, or natural fiber.'' The

    NPRM explained that the phrase ``used primarily'' means that if ``50%

    of the peaches harvested, plus one, are used for human food'' then

    peaches are an agricultural commodity. MGEX commented that this

    definition could lead to a slippery slope of managing the use for each

    crop and that the definition did not appear to provide for legal

    certainty.

    The Commission has considered MGEX's comment and determined to

    retain category two as proposed, including the above-quoted explanation

    of the phrase ``used primarily.'' Initially, and as noted above, the

    difference between being labeled an agricultural commodity and any

    other type of commodity is likely to have minimal or no impact because:

    (1) The Commission has proposed rules to treat agricultural swaps the

    same as any other swap; and (2) the position limit rules proposed by

    the Commission would apply on a contract-by-contract basis and do not

    key on whether or not a particular commodity is agricultural.

    Beyond that, the Commission is not aware of, and MGEX did not

    identify, any actual commodity where the ``amount used for human food,

    shelter, animal feed, or natural fiber'' is so close to 50% as to

    present a danger of being gamed for the purpose of avoiding the

    application of the agricultural commodity definition. The point of the

    [[Page 41053]]

    Commission's proposed definition and accompanying explanation was to

    draw a reasonable and common sense line between that which is

    agricultural and that which is not. To the extent the prospect of

    gaming this aspect of category two of the agricultural commodity

    definition arises in the future, the Commission also points out that it

    may use category three of the definition to declare any particular

    commodity to be agricultural by issuing a rule, regulation, or order so

    designating ``after notice and opportunity for hearing.''

    Effective date. The final question facing the Commission was:

    ``What should be the effective date of the final definition?'' \35\ CME

    Group noted that ``[o]nce adopted, the definition will also clarify the

    scope of the exemptions under CEA sections 2(g) and 2(h)--at least

    until Dodd-Frank takes effect and eliminates these exemptions.''

    However, any clarification needed as between the agricultural commodity

    definition and pre Dodd-Frank CEA provisions is being addressed in the

    Commission's Dodd-Frank transition period relief.\36\ Beyond concerns

    related to pre Dodd-Frank CEA provisions, NCFC noted that it was

    ``unaware of any reason not to make the definition of agricultural

    commodity effective upon the publication of the final rule.''

    ---------------------------------------------------------------------------

    \35\ The NPRM specifically noted:

    [I]f the definition of an agricultural commodity is made

    effective upon the publication of a final rule, it would provide

    clarity as to what swaps are or are not eligible for the exemptions

    found in current CEA [sections] 2(g) and 2(h) until the point at

    which their repeal by the Dodd-Frank Act becomes effective. Is there

    any reason not to make the definition of agricultural commodity

    effective upon the publication of a final rule? Are there swaps

    currently being transacted under [section] 2(g) or [section] 2(h)

    that would be considered transactions in an agricultural commodity

    (and thus potentially, temporarily illegal) under the definition

    proposed herein? If so, should the effective date of the definition

    be postponed until the repeal of current CEA [sections] 2(g) and

    2(h), for all purposes other than for the setting of speculative

    position limits, which will become effective prior to the repeal?

    See NPRM at 65592.

    \36\ See Effective Date for Swap Regulation, 76 FR 35372, June

    17, 2011.

    ---------------------------------------------------------------------------

    Therefore, the Commission has determined that the effective date of

    the final agricultural commodity definition shall be sixty days after

    the publication of this final rule, as required by the Dodd-Frank Act.

    By providing that the definition becomes effective as early as is

    allowed by the Dodd-Frank Act, the Commission intends to provide legal

    certainty for market participants as they plan for the regulatory

    regime that will follow the Dodd-Frank transition relief.

    Part III--Explanation of the Definition

    A. Terms of the Final Definition

    Except for the revisions to category four (explained more fully

    below), the terms of the final definition are the same as the terms of

    the definition as proposed in the NPRM.

    B. Explaining the Definition

    Category One--Enumerated Agricultural Commodities

    Category one includes the ``enumerated agricultural commodities''

    specified in current section 1a(4) of the Act (renumbered as section

    1a(9) under the Dodd-Frank Act). While there is considerable overlap

    between categories one and two, category one includes some commodities

    that would not qualify under category two. For example, ``fats and

    oils'' would include plant-based oils, such as tung oil and linseed

    oil, which are used solely for industrial purposes (and thus would not

    fall within category two). Section 1a(4)'s reference to ``oils'' would

    not, however, extend to petroleum products.\37\

    ---------------------------------------------------------------------------

    \37\ Petroleum products clearly would not fall within the

    enumerated commodities. ``These itemized commodities are

    agricultural in nature.'' Philip McBride Johnson, Commodities

    Regulation, Sec. 1.01, p. 3 (1982). The Commission has never even

    considered treating petroleum products as agricultural commodities.

    Nor would petroleum products fall within the second category. Even

    though they could be viewed as derived from living organisms--albeit

    organisms that lived millions of years ago--such products would not

    qualify under the ``used primarily for human food, shelter, animal

    feed or natural fiber'' standard of category two.

    ---------------------------------------------------------------------------

    Category Two: Operative Definition of Agricultural Commodities

    As a general matter, Category 2 seeks to draw a line between

    products derived from living organisms that are used for human food,

    shelter, animal feed or natural fiber (covered by the definition) and

    products that are produced through processing plant or animal-based

    inputs to create products largely used as industrial inputs (outside

    the definition). This general operational definition is self-executing

    and will encompass commodities that are now or in the future may become

    subject to swaps, futures, and options trading, without the need for

    additional CFTC action. In this regard, the rule defines those

    commodities that are agricultural commodities. It does not matter

    whether futures, swaps, or options are being traded in the commodity--

    either now or in the future. Thus, a commodity evaluated under category

    two either is or is not an agricultural commodity regardless of its

    trading status.

    Some of the terms used in describing the second category require

    further clarification, particularly the terms, ``generally fungible,''

    ``used primarily,'' ``human food'' and ``natural fiber.''

    ``Generally fungible''--means substitutable or interchangeable

    within general classes. For example, apples, coffee beans, and cheese

    are generally fungible within general classes, even though there are

    various grades and types, and so they would be agricultural

    commodities. On the other hand, commodities that have been processed

    and have taken on a unique identity would not be generally fungible.

    Thus, while flax or mohair are generally fungible natural fibers, lace

    and linen garments made from flax, or sweaters made from mohair, are

    not generally fungible and would not be agricultural commodities under

    category two.

    ``Used primarily''--means any amount of usage over 50%. For

    example, if 50% of the peaches harvested, plus one, are used for human

    food, then peaches fall within category two.

    ``Human food''--includes drink. Thus fruit juice, wine, and beer

    are ``food'' for purposes of the definition of ``agricultural

    commodity.''

    ``Natural fiber''--means any naturally occurring fiber that is

    capable of being spun into a yarn or made into a fabric by bonding or

    by interlacing in a variety of methods including weaving, knitting,

    braiding, felting, twisting, or webbing, and which is the basic

    structural element of textile products.

    Based on the foregoing, therefore, category two would include such

    products as: Fruits and fruit juices; vegetables and edible vegetable

    products; edible products of enumerated commodities, such as wheat

    flour and corn meal; poultry; milk and milk products, including cheese,

    nonfat dry milk and dry whey; distiller's dried grain; eggs; cocoa

    beans, cocoa butter and cocoa; coffee beans and ground coffee;

    sugarcane, sugar beets, beet pulp (used as animal feed), raw sugar,

    molasses and refined sugar; honey; beer and wine; shrimp; and silk,

    flax and mohair.

    Category two would also include stud lumber, plywood, strand board

    and structural panels because they are derived from living organisms

    (trees), are generally fungible (e.g., random length 2 x 4s and 4 x 8

    standard sheets of plywood) and are used primarily for human shelter--

    i.e., in the construction of dwellings. Category two would not,

    however, include industrial inputs such as wood pulp, paper or

    cardboard, nor would it include raw rubber, turpentine or rosin.

    Although derived from living organisms--trees--and generally fungible,

    none of these products are

    [[Page 41054]]

    used primarily for human food, shelter, animal feed or natural fibers.

    On the other hand, maple syrup and maple sugar, also derived from

    trees, would be ``agricultural commodities.'' Rayon, which is a fiber

    derived from trees or other plants, falls out of category two because

    it is not a natural fiber--i.e., it must be chemically processed from

    cellulose before it becomes fiber.

    Category two would include high fructose corn syrup, but not corn-

    based products such as polylactic acid (a corn derivative used in

    biodegradable packaging), butanol (a chemical derived from cornstarch

    and used in plasticizers, resins, and brake fluid) or other plant-based

    industrial products. Category two would include pure ethanol, which is

    derived from living organisms (corn and other plants), is generally

    fungible, and may be used for human food (as an ingredient of alcoholic

    beverages). However, it would not include denatured ethanol, which is

    used for fuel and for other industrial uses, because denatured ethanol

    cannot be used for human food. Likewise, neither would Category 2

    include other plant or animal based renewable fuels, such as methane or

    biodiesel. Fertilizer and other agricultural chemicals, even though

    they are used almost exclusively in agriculture, would not fall within

    the definition because they would not fit into the food, shelter,

    animal feed, or natural fiber category.

    Category Three--Other Agricultural Commodities

    Category three would include commodities that do not readily fit

    into the first two categories, but would nevertheless be widely

    recognized as commodities of an agricultural nature. Such commodities

    would include, for example, tobacco, products of horticulture (e.g.,

    ornamental plants), and such other commodities used or consumed by

    animals or humans as the Commission may by rule, regulation or order

    designate after notice and opportunity for hearing. The Commission

    would determine the status of any such other commodities for purposes

    of the Act and CFTC regulations on a case-by-case basis as questions

    arise in the context of specific markets or transactions.

    Category Four--Commodity-Based Indexes

    The term, ``agricultural commodity,'' also includes a commodity-

    based index based wholly or principally on underlying agricultural

    commodities. Thus, for example, the Minneapolis Grain Exchange

    (``MGEX'') wheat, corn and soybean price index contracts \38\ would be

    considered contracts on agricultural commodities--that is the

    underlying single commodity index is an agricultural commodity. Also,

    any index made up of more than 50% of agricultural commodities, since

    it is based principally on underlying agricultural commodities, would

    be considered an agricultural commodity for purposes of including it

    within the agricultural commodity definition. Thus, for example, a

    commodity-based index composed of 20% each, wheat, corn, soybeans,

    crude oil and gold, since it is composed of more than 50% agricultural

    commodities, would be an agricultural commodity. Therefore, swaps on

    such an index would be subject to special rules (if any) that might be

    adopted for agricultural commodity swaps.\39\

    ---------------------------------------------------------------------------

    \38\ The MGEX agricultural index products are currently

    available for corn, soybeans, and various types of wheat. These

    index products are financially settled to a spot index of country

    origin pricing as calculated by a firm called Data Transmission

    Network (``DTN''). Cash settlement is based upon the simple average

    of the spot prices published on the last three trading days of the

    settlement month.

    \39\ See Commodity Options and Agricultural Swaps, 75 FR 6095,

    Feb. 3, 2011.

    ---------------------------------------------------------------------------

    The definition of an ``excluded commodity'' in current CEA section

    1a(13)(iii) \40\ could be read to include any index of agricultural

    commodities. That definition provides that ``excluded commodity''

    means, among other things, ``any economic or commercial index based on

    prices, rates, values, or levels that are not within the control of any

    party to the relevant contract, agreement, or transaction.'' However,

    such a reading is inconsistent with the requirement in Dodd-Frank that

    swaps in agricultural commodities be permitted only pursuant to a

    section 4(c) order of the Commission. For example, a swap contract

    based on a price index of solely wheat should reasonably be considered

    as a swap in an agricultural commodity. Applying a mechanical

    interpretation of the definition of excluded commodity could permit

    ``gaming'' by allowing an index based principally, or even

    overwhelmingly, on agricultural commodities to evade any potential

    limitations on trading agricultural swaps that are found in the Dodd-

    Frank Act. For this reason, the definition issued herein would include

    an index based wholly or principally on underlying agricultural

    commodities.

    ---------------------------------------------------------------------------

    \40\ New section 1a (19)(iii) as renumbered under the Dodd-Frank

    Act.

    ---------------------------------------------------------------------------

    Onions

    Onions present a unique case in that onions are the only

    agricultural product specifically excluded from the enumerated

    commodities list in current CEA section 1a(4). Also, Public Law 85-839

    prohibits the trading of onion futures on any board of trade in the

    United States.\41\ Nothing in the definition issued herein affects the

    prohibition on onion futures trading.

    ---------------------------------------------------------------------------

    \41\ 7 U.S.C. 13-1.

    ---------------------------------------------------------------------------

    In defining an agricultural commodity, given that term's statutory

    history, as well as the Act's grammatical construction, it would appear

    that ``agricultural commodity'' is a subset of ``commodity'' and, since

    onions are excluded from the definition of ``commodity,'' onions cannot

    be considered an ``agricultural commodity.'' However, under the Dodd-

    Frank Act, the definition of ``swap'' in new section 1a(47) of the CEA

    is not limited to transactions based upon ``commodities'' as defined in

    current section 1a(4) of the Act. Therefore, under the CEA as amended

    by Dodd-Frank, a swap may be based upon an item that is not defined as

    a ``commodity.'' Thus, onion swaps would seem to be permissible, but

    would not be considered to be swaps in an ``agricultural commodity''

    under the definition contained herein.

    C. Effects of Applying the Definition

    It is also important to consider the uses to which the definition

    will be put--i.e., what would be the practical effect of a commodity

    being classified as an ``agricultural commodity'' under the definition

    contained herein? One effect is that the commodity would be covered by

    any rules the Commission ultimately adopts for agricultural swaps. If,

    based on the current commodity options and agricultural swaps

    proposal,\42\ it is determined that agricultural swaps should be

    treated the same as other physical commodity swaps, the definition

    should have no effect in the agricultural swaps context.

    ---------------------------------------------------------------------------

    \42\ See Commodity Options and Agricultural Swaps, 76 FR 6095,

    Feb. 3, 2011.

    ---------------------------------------------------------------------------

    The other significant effect of a commodity being classified as an

    ``agricultural commodity'' is that the commodity would be subject to

    the timeframes for speculative position limits for agricultural

    commodities,\43\ rather than the timeframes for speculative limits for

    exempt commodities. As discussed above, the classification of a given

    commodity as

    [[Page 41055]]

    ``agricultural'' vs. ``exempt'' should have no long-term practical

    effect on the commodity or how it is traded in the speculative limits

    context because: (1) The definition will only apply to commodities that

    are the subject of actual swaps or futures trading; and (2) the

    speculative limits for any such commodities, as proposed, will be based

    not on any general across-the-board definition or principle, but on the

    individual characteristics of each commodity, its swaps/futures market,

    and its underlying cash market.\44\

    ---------------------------------------------------------------------------

    \43\ Pursuant to section 737 of the Dodd-Frank Act, the

    Commission is required to adopt speculative position limits for

    agricultural commodities.

    \44\ See Position Limits for Derivatives, 76 FR 4752, Jan. 26,

    2011.

    ---------------------------------------------------------------------------

    Part IV--Related Matters

    A. Paperwork Reduction Act

    The final rule will not impose any new recordkeeping or information

    collection requirements, or other collections of information that

    require approval of the Office of Management and Budget under the

    Paperwork Reduction Act.\45\ In the proposed rule, the Commission

    invited public comment on the accuracy of its estimate that no

    additional recordkeeping or information collection requirements or

    changes to existing collection requirements would result from the

    proposed rule. The Commission received no comments on the accuracy of

    its estimate.

    ---------------------------------------------------------------------------

    \45\ 44 U.S.C. 3501 et seq.

    ---------------------------------------------------------------------------

    B. Cost Benefit Considerations

    Section 15(a) of the CEA requires the Commission to consider the

    costs and benefits of its actions before issuing new regulations under

    the Act. Section 15(a) does not require the Commission to quantify the

    costs and benefits of new regulations or to determine whether the

    benefits of adopted regulations outweigh their costs. Rather, section

    15(a) requires the Commission to consider the costs and benefits of the

    subject regulations in light of five broad areas of market and public

    concern: (1) Protection of market participants and the public; (2)

    market efficiency, competitiveness, and financial integrity; (3) price

    discovery; (4) sound risk management practices; and (5) other public

    interest considerations. The Commission may, in its discretion, give

    greater weight to any one of the five enumerated areas of concern and

    may, in its discretion, determine that, not withstanding its costs, a

    particular regulation is necessary or appropriate to protect the public

    interest or to effectuate any of the provisions or accomplish any of

    the purposes of the CEA.

    The agricultural commodity definition is not expected to impose any

    significant costs on industry participants. In addition, we believe

    that public interest considerations required by CEA section 15(a) weigh

    strongly in favor of adopting and issuing the agricultural commodity

    definition. The public interest benefit is that the definition provides

    legal certainty for indentifying those commodities that are

    agricultural commodities--and which may be the subject of a ``swap in

    an agricultural commodity (as defined by the [CFTC]).'' See Dodd-Frank

    section 723(c)(3).\46\ And as stated in the NPRM, defining an

    agricultural commodity for purposes of the CEA would seem to have

    limited immediate practical effects. The NPRM noted that the definition

    will be necessary for other substantive rulemakings, such as the

    timeframes for setting speculative position limits for exempt and

    agricultural commodities under section 737 of the Dodd-Frank Act and

    determining the permissibility of trading agricultural swaps under

    section 723(c)(3) and section 733 of the Dodd-Frank Act. Those other

    rulemakings were discussed in the original cost benefit analysis in the

    NPRM. As those rules have now been proposed, the respective costs and

    benefits of those rules are discussed in those proposed rules.\47\

    ---------------------------------------------------------------------------

    \46\ The Commission views this language as a Congressional

    directive to provide a formal definition of the term ``agricultural

    commodity,'' and by issuing this definition, the Commission is

    following that directive.

    \47\ See Position Limits for Derivatives, 76 FR 4752, Jan. 26,

    2011, and Commodity Options and Agricultural Swaps, 76 FR 6095, Feb.

    3, 2011.

    ---------------------------------------------------------------------------

    Regarding comments received concerning costs and benefits,

    Professor Greenberger stressed that the cost benefit analysis should

    concentrate on protecting the public interest. The professor noted that

    reasonable food prices are in the public interest and expressed his

    view that speculative position limits are an effective tool to curb

    excessive speculation that can artificially raise food prices.

    Professor Greenberger argued that any multiple commodity index that

    references any farm product should be included in the definition of

    agricultural commodity. Much like Professor Greenberger, IATP believed

    that public interest considerations, including food security, should be

    paramount in the cost benefit analysis. As noted in the summary of

    comments above, the proposed position limits rulemaking contains a

    provision designed to prevent ``gaming'' of speculative position limits

    in relation to indexes, including indexes with agricultural components.

    In addition, this final rule includes a revised commodity-based index

    provision that would include any index made up of more than 50% of

    agricultural commodities in the agricultural commodity definition. In

    contrast, the proposed rule would only have included an index made up

    of more than 50% of a single agricultural commodity.

    The Commission also notes that category three of the definition,

    which permits the Commission to designate new agricultural commodities

    after a notice and comment period, is designed to provide an

    appropriate level of flexibility for the Commission as unforeseen

    developments and challenges emerge in relation to agricultural

    commodities.

    The Ag Swaps Working Group, Gavilon, DFA and the CME Group

    commented that clarifying that the general operational definition in

    the second category of the agricultural commodity definition is self-

    executing would increase legal certainty. The Ag Swaps Working Group

    and DFA added that such a clarification would be in the public

    interest. As noted in the summary of comments above, the Commission has

    made such a clarification.

    C. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA'') \48\ requires that

    agencies consider whether the rules they propose will have a

    significant economic impact on a substantial number of small entities

    and, if so, provide a regulatory flexibility analysis respecting the

    impact. The rules contained herein provide a definition that will

    largely be used in other rulemakings and which, by itself, imposes no

    significant new regulatory requirements. Accordingly, the Chairman, on

    behalf of the Commission, hereby certifies pursuant to 5 U.S.C. 605(b)

    that the rules will not have a significant impact on a substantial

    number of small entities.

    ---------------------------------------------------------------------------

    \48\ 5 U.S.C. 601 et seq.

    ---------------------------------------------------------------------------

    List of Subjects in 17 CFR Part 1

    Definitions, Agriculture, Agricultural commodity.

    In consideration of the foregoing, and pursuant to the authority

    contained in the Commodity Exchange Act and, in particular, sections

    2(a)(1), 5h, and 8a thereof, 7 U.S.C. 2, 7b-3, and 12a, and pursuant to

    the authority contained in section 723(c)(3) of the Dodd-Frank Wall

    Street Reform and Consumer Protection Act, Public Law 111-203, 124

    Stat. 1376 (2010), the Commission

    [[Page 41056]]

    hereby amends Chapter 1 of Title 17 of the Code of Federal Regulations

    as follows:

    PART 1--GENERAL REGULATIONS UNDER THE COMMODITY EXCHANGE ACT

    0

    1. The authority citation for Part 1 is revised to read as follows:

    Authority: 7 U.S.C. 1a, 2, 5, 6, 6a-6p, 7, 7a, 7b, 7b-3, 8, 9,

    12, 12a, 12c, 13a, 13a-1, 16, 16a, 19, 21, 23 and 24, unless

    otherwise noted.

    0

    2. Section 1.3 is amended by adding paragraph (zz) to read as follows:

    Sec. 1.3 Definitions.

    * * * * *

    (zz) Agricultural commodity. This term means:

    (1) The following commodities specifically enumerated in the

    definition of a ``commodity'' found in section 1a of the Act: Wheat,

    cotton, rice, corn, oats, barley, rye, flaxseed, grain sorghums, mill

    feeds, butter, eggs, Solanum tuberosum (Irish potatoes), wool, wool

    tops, fats and oils (including lard, tallow, cottonseed oil, peanut

    oil, soybean oil and all other fats and oils), cottonseed meal,

    cottonseed, peanuts, soybeans, soybean meal, livestock, livestock

    products, and frozen concentrated orange juice, but not onions;

    (2) All other commodities that are, or once were, or are derived

    from, living organisms, including plant, animal and aquatic life, which

    are generally fungible, within their respective classes, and are used

    primarily for human food, shelter, animal feed or natural fiber;

    (3) Tobacco, products of horticulture, and such other commodities

    used or consumed by animals or humans as the Commission may by rule,

    regulation or order designate after notice and opportunity for hearing;

    and

    (4) Commodity-based indexes based wholly or principally on

    underlying agricultural commodities.

    * * * * *

    Issued in Washington, DC, on July 7, 2011, by the Commission.

    David A. Stawick,

    Secretary of the Commission.

    Appendices to Agricultural Commodity Definition--Commission Voting

    Summary and Statements of Commissioners

    Note: The following appendices will not appear in the Code of

    Federal Regulations

    Appendix 1--Commission Voting Summary

    On this matter, Chairman Gensler and Commissioners Dunn,

    Sommers, O'Malia and Chilton voted in the affirmative; no

    Commissioner voted in the negative

    Appendix 2--Statement of Chairman Gary Gensler

    I support the final rulemaking that defines the term,

    ``agricultural commodity.'' The Dodd-Frank Act requires that

    agricultural commodities be defined. In a separate rulemaking, the

    Commission will determine the requirements that apply to swaps on

    agricultural commodities.

    [FR Doc. 2011-17626 Filed 7-12-11; 8:45 am]

    BILLING CODE P

    Last Updated: July 13, 2011



See Also:

OpenGov Logo

CFTC's Commitment to Open Government

Gavel and Book

Follow the Status of Enforcement Actions