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2010-24198

  • FR Doc 2010-24198[Federal Register: September 28, 2010 (Volume 75, Number 187)]

    [Proposed Rules]

    [Page 59666-59670]

    From the Federal Register Online via GPO Access [wais.access.gpo.gov]

    [DOCID:fr28se10-19]

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    COMMODITY FUTURES TRADING COMMISSION

    17 CFR Part 35

    Agricultural Swaps

    AGENCY: Commodity Futures Trading Commission.

    ACTION: Advanced notice of proposed rulemaking and request for comment.

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    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''). Section 723(c)(3) of

    the Dodd-Frank Act provides that swaps in an ``agricultural commodity''

    (as defined by the Commission) are prohibited unless entered into

    pursuant to a rule, regulation or order of the Commission adopted

    pursuant to section 4(c) of the Commodity Exchange Act (``CEA'' or

    ``Act''). This advance notice of proposed rulemaking (``ANPRM'')

    requests comment on the appropriate conditions, restrictions or

    protections to be included in any such rule, regulation or order

    governing the trading of agricultural swaps.

    DATES: Comments must be received on or before October 28, 2010. The

    Commission is not inclined to grant extensions of this comment period.

    ADDRESSES: You may submit comments, identified with ``Agricultural

    Swaps ANPRM'' in the subject line, by any of the following methods:

    E-mail for comments: agswapsANPR@cftc.gov.

    Mail: David A. Stawick, Secretary of the Commission,

    Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st

    Street, NW., Washington, DC 20581.

    Hand Delivery/Courier: Same as mail above.

    All comments must be submitted in English, or if not, accompanied

    by an English translation. All comments provided in any electronic form

    or on paper will be published on the CFTC Web site, without review and

    without removal of personally identifying information. All comments are

    subject to the CFTC privacy policy.

    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:

    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

    [[Page 59667]]

    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.

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    \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 Sec. 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.

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    Section 723(c)(3) of the Dodd-Frank Act provides that swaps in an

    ``agricultural commodity'' (as defined by the Commission) are

    prohibited unless entered into pursuant to a rule, regulation or order

    of the Commission adopted pursuant to Sec. 4(c) of the Commodity

    Exchange Act. This ANPRM reviews the current statutory and regulatory

    framework governing agricultural swaps, as well as the Dodd-Frank Act

    provisions applicable to agricultural swaps. The ANPRM then requests

    comment on the appropriate conditions, restrictions or protections to

    be included in any Commission rule, regulation or order governing the

    trading of agricultural swaps.

    A. Current Statutory Framework for OTC Agricultural Swaps, Including

    Options Swaps

    Since 2000, bilateral over-the-counter (``OTC'') swaps \4\ between

    certain sophisticated counterparties have been generally exempted from

    the Commission's jurisdiction pursuant to current CEA Sec. 2(g),\5\

    which was added to the CEA by the Commodity Futures Modernization Act

    of 2000 (``CFMA'').\6\ However, current Sec. 2(g) specifically

    excludes an ``agreement, contract, or transaction'' in an

    ``agricultural commodity'' from the CFMA swaps exemption.

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    \4\ Prior to the Dodd-Frank Act, the Commission had defined a

    ``swap'' as follows: ``A swap is a privately negotiated exchange of

    one asset or cash flow for another asset or cash flow. In a

    commodity swap [including an agricultural swap], at least one of the

    assets or cash flows is related to the price of one or more

    commodities.'' (See 72 FR 66099, note 7 (November 27, 2007)). See

    new CEA Sec. 1a(47) for the statutory definition of a ``swap,'' as

    added to the CEA by Sec. 721 of the Dodd-Frank Act.

    \5\ Current Sec. 2(g) provides:

    Excluded swap transactions.

    No provision of this chapter (other than section 5a (to the

    extent provided in section 5a(g)), 5b, 5d, or 12(e)(2)) shall apply

    to or govern any agreement, contract, or transaction in a commodity

    other than an agricultural commodity if the agreement, contract, or

    transaction is--

    (1) Entered into only between persons that are eligible contract

    participants at the time they enter into the agreement, contract, or

    transaction;

    (2) subject to individual negotiation by the parties; and

    (3) not executed or traded on a trading facility.

    CEA Sec. 2(g), 7 U.S.C. 2(g).

    \6\ Current CEA Sec. 2(g) was added to the CEA as Sec. 105(b)

    of the CFMA, enacted as Appendix E to PL 106-554.

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    While the term ``agricultural commodity'' is not specifically

    defined in the Act, it is used in the Act in conjunction with the

    definition of the term ``exempt commodity,'' which is defined as

    neither an ``agricultural commodity'' nor an ``excluded commodity.''

    \7\ There is limited legislative history regarding the CFMA to explain

    Congress' intent in excluding ``agricultural commodities'' from the

    Sec. 2(g) swaps exemption.\8\ However, the legislative history of H.R.

    4541, the predecessor to the CFMA (H.R. 5660),\9\ which included the

    same basic structure of excluded and exempt commodities, indicates that

    Congress did not intend that the term ``agricultural commodity'' be

    limited to those commodities enumerated in the definition of the term

    ``commodity'' in current CEA Sec. 1a(4).\10\ The House Committee on

    Agriculture stated the following:

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    \7\ ``The term `exempt commodity' means a commodity that is not

    an excluded commodity or an agricultural commodity.'' Current CEA

    Sec. 1a(14). An ``excluded commodity'' is defined in current CEA

    Sec. 1a(13) to include financial commodities such as interest

    rates, currencies, economic indexes, and other similar items. As

    noted above, of the three operative terms, only ``agricultural

    commodity'' is not defined.

    \8\ H.R. 5660, the final version of the CFMA, which was enacted

    into law as an appendix to Public Law No. 106-554, the Consolidated

    Appropriations Act, 2001, was not accompanied by congressional

    committee reports.

    \9\ H.R. 4541, also titled the Commodity Futures Modernization

    Act of 2000, was reported by all three committees of jurisdiction

    (Agriculture, Commerce, and Banking and Financial Services) in the

    House of Representatives and was passed by the House on October 19,

    2000 by a vote of 377 yeas to 4 nays. On December 14, 2000, H.R.

    5660 was introduced and contained major provisions of the House-

    passed version of H.R. 4541.

    \10\ Current CEA Sec. 1a(4) defines the term ``commodity'' to

    include 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,

    and all other goods and articles, except onions as provided in

    Public Law 85-839 (7 U.S.C. 13-1), and all services, rights, and

    interests in which contracts for future delivery are presently or in

    the future dealt in.'' 7 U.S.C. 1a(4). The agricultural commodities

    specifically identified in current CEA Sec. 1a(4) are often

    referred to as the ``enumerated'' agricultural commodities. The

    Dodd-Frank Act redesignates current CEA Sec. 1a(4) as new CEA Sec.

    1a(9).

    The Committee notes that the term ``exempt commodity'' means a

    commodity other than an ``excluded commodity'' or an ``agricultural

    commodity.'' For purposes of this definition, the Committee intends

    ``agricultural commodity'' to include all agricultural commodities,

    whether or not such agricultural commodities are specifically

    enumerated in the definition of ``commodity'' in section 1a[4] of

    the CEA.\11\

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    \11\ H.R. Rep. No. 106-711, Part 1, at 33 (June 29, 2000).

    Notably, the definition of exempt commodity did not change from H.R.

    4541 to H.R. 5660, the final version of the CFMA as enacted into law.

    The effect of excluding agricultural commodities from current CEA

    Sec. 2(g) was that swaps involving exempt and excluded commodities

    were allowed to transact largely outside of the Commission's

    jurisdiction or oversight, while swaps involving agricultural

    commodities, including both the enumerated agricultural commodities and

    other non-enumerated agricultural commodities, remained subject to the

    Commission's pre-CFMA swaps regulations as set forth in 17 CFR part

    35.\12\

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    \12\ Notably, current CEA Sec. 2(g) is not the only statutory

    provision that excludes or exempts bilateral swaps between eligible

    contract participants from the Commission's jurisdiction. Current

    CEA Sec. 2(d)(1) excludes any such bilateral ``agreement, contract,

    or transaction'' in excluded commodities from Commission

    jurisdiction, while CEA Sec. 2(h)(1) creates a similar exemption

    for a ``contract, agreement or transaction'' in exempt commodities.

    The overlap between these two provisions and the swap exemption in

    CEA Sec. 2(g) serves to reinforce Congress' clear intent to not

    exclude agricultural swaps from the Commission's jurisdiction

    through the CFMA.

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    Options

    The Dodd-Frank Act defines the term ``swap'' to include not only

    the various types of swaps listed in the definition, including

    commodity swaps and agricultural swaps, but also OTC options of any

    kind.\13\ Commodity options are subject to the Commission's plenary

    authority under CEA Sec. 4c(b).\14\ Based on Sec. 4c(b)'s general

    prohibition of any option transactions contrary to any

    [[Page 59668]]

    Commission rule, regulation or order prohibiting options, or allowing

    them under such conditions as the Commission may prescribe, the only

    options currently authorized under the CEA are those specifically

    provided for in the Commission's regulations.

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    \13\ Exchange-traded futures and options on futures are

    specifically excluded from the Dodd-Frank swaps definition. See new

    CEA Sec. 1a(47)(B), as added to the CEA by Sec. 721 of the Dodd-

    Frank Act.

    \14\ Section 4c(b) provides:

    Regulated option trading

    No person shall offer to enter into, enter into or confirm the

    execution of, any transaction involving any commodity regulated

    under this Act which is of the character of, or is commonly known to

    the trade as, an ``option'', ``privilege'', ``indemnity'', ``bid'',

    ``offer'', ``put'', ``call'', ``advance guaranty'', or ``decline

    guaranty'', contrary to any rule, regulation, or order of the

    Commission prohibiting any such transaction or allowing any such

    transaction under such terms and conditions as the Commission shall

    prescribe. Any such order, rule, or regulation may be made only

    after notice and opportunity for hearing, and the Commission may set

    different terms and conditions for different markets. CEA Sec.

    4c(b); 7 U.S.C. 6c(b).

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    B. Current Regulatory Framework

    Swaps

    As mentioned previously, Part 35 of the Commission's regulations

    provides a broad-based exemption for certain swap agreements. Adopted

    by the Commission under its Sec. 4(c) exemptive authority in 1993,\15\

    Part 35 allows for swaps to transact OTC if certain conditions are met:

    (1) The swap agreements are entered into solely between eligible swap

    participants; (2) the swap agreements are not part of a fungible class

    of agreements that are standardized as to their material economic

    terms; (3) the creditworthiness of any party having an actual or

    potential obligation under the swap agreement must be a material

    consideration in entering into or determining the terms of the swap

    agreement, including pricing, cost, or credit enhancement terms; and

    (4) the swap agreement is not entered into and traded on or through a

    multilateral transaction execution facility.\16\

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    \15\ See 58 FR 5587 (Jan. 22, 1993). Note that because Part 35

    was implemented pursuant to a Sec. 4(c) exemption, agricultural

    swaps that rely on Part 35 for their legal authority will continue

    to be permitted under the Dodd-Frank language whereby existing

    agricultural swaps provisions adopted pursuant to Sec. 4(c),

    including Part 35, are grandfathered. This is discussed more fully

    at section C, below.

    \16\ See id. at 5590-5591; see also 17 C.F.R. Sec. 35.2(a)-(d).

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    After the CFMA amendments to the CEA, which excluded swaps on

    ``exempt'' and ``excluded'' commodities from virtually all of the

    Commission's jurisdiction, Part 35 remained relevant only for

    agricultural swaps. With the exception of three outstanding Sec. 4(c)

    exemptions related to cleared agricultural basis and calendar

    swaps,\17\ Part 35 is the sole authority under which market

    participants may transact agricultural swaps that are not options.

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    \17\ Part 35, at Sec. 35.2(d), also provides that ``any person

    may apply to the Commission for exemption from any of the provisions

    of the Act (except 2(a)(1)(B) [liability of principal for act of

    agent]) for other arrangements or facilities, on such terms and

    conditions as the Commission deems appropriate, including but not

    limited to, the applicability of other regulatory regimes.'' See 17

    CFR 35.2(d). The Commission has granted three such exemptions, which

    have in each instance been styled as Sec. 4(c) exemptive orders.

    See:

    Order: (1) Pursuant to Section 4(c) of the Commodity Exchange

    Act (a) Permitting Eligible Swap Participants To Submit for Clearing

    and ICE Clear U.S., Inc. and Futures Commission Merchants To Clear

    Certain Over-The-Counter Agricultural Swaps and (b) Determining

    Certain Floor Brokers and Traders To Be Eligible Swap Participants;

    and (2) Pursuant to Section 4d of the Commodity Exchange Act,

    Permitting Certain Customer Positions in the Foregoing Swaps and

    Associated Property To Be Commingled With Other Property Held in

    Segregated Accounts, 73 FR 77015 (Dec. 18, 2008);

    Order (1) Pursuant to Section 4(c) of the Commodity Exchange

    Act, Permitting the Chicago Mercantile Exchange to Clear Certain

    Over-the-Counter Agricultural Swaps and (2) Pursuant to Section 4d

    of the Commodity Exchange Act, Permitting Customer Positions in Such

    Cleared-Only Contracts and Associated Funds To Be Commingled With

    Other Positions and Funds Held in Customer Segregated Accounts, 74

    FR 12316 (March 24, 2009); and

    Order (1) Pursuant to Section 4(c) of the Commodity Exchange

    Act, Permitting the Kansas City Board of Trade Clearing Corporation

    To Clear Over-the-Counter Wheat Calendar Swaps and (2) Pursuant to

    Section 4d of the Commodity Exchange Act, Permitting Customer

    Positions in Such Cleared-Only Swaps and Associated Funds To Be

    Commingled With Other Positions and Funds Held in Customer

    Segregated Accounts, 75 FR 34983 (June 21, 2010).

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    Options

    As noted above, the Commission maintains plenary authority over

    options pursuant to CEA Sec. 4c(b). It has used that authority to,

    among other things, issue Part 32 of the Commission's regulations,

    which includes a general ban on OTC options,\18\ but allows for OTC

    option transactions under certain conditions. Part 32 allows OTC

    options on agricultural commodities in two instances.\19\

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    \18\ See Commission regulation 32.11, 17 CFR 32.11.

    \19\ Note that Part 32 was not issued under the Commission's

    Sec. 4(c) exemptive authority. After the effective date of the

    Dodd-Frank Act, options on agricultural commodities will also fall

    under the Dodd-Frank Act's provisions governing the trading of swaps

    (and, specifically, agricultural swaps) since options on commodities

    fall within the Act's definition of a swap. Accordingly, it is

    important to identify what options on agricultural commodities are

    currently being traded pursuant to part 32.

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    Rule 32.13 establishes rules for trading OTC options on the

    ``enumerated'' agricultural commodities (``agricultural trade options''

    or ``ATOs'') whereby ATOs may only be sold by an Agricultural Trade

    Option Merchant (``ATOM''), who must first register with the Commission

    as such pursuant to CFTC rule 3.13. Since its 1998 adoption and one

    amendment in 1999,\20\ the ATOM registration scheme has attracted only

    one registrant, which registrant has since withdrawn its ATOM

    registration. Accordingly, ATOs currently may only be transacted

    pursuant to an exemptive provision found at Sec. 32.13(g)(1). The

    exemption at Sec. 32.13(g)(1) allows ATOs to be sold when: (1) The

    option is offered to a commercial (``a producer, processor, or

    commercial user of, or a merchant handling'' the underlying commodity);

    (2) the commercial enters the transaction solely for purposes related

    to its business as such; and (3) each party to the option contract has

    a net worth of not less than $10 million.

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    \20\ 63 FR 18821 (April 16, 1998); and 64 FR 68011 (December 6,

    1999), respectively.

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    In either case (whether transacted pursuant to the ATOM

    registration scheme or accomplished via the exemption at Sec.

    32.13(g)), the phrase ``agricultural trade option'' refers specifically

    to an OTC option on an enumerated agricultural commodity.

    In addition to the Sec. 32.13(g) ATO exemption, Part 32 includes,

    at Sec. 32.4, a basic trade option exemption applicable to options on

    commodities other than the enumerated agricultural commodities. The

    terms of the Sec. 32.4 exemption are essentially the same as those of

    the Sec. 32.13(g) exemption with one significant difference. Under

    Sec. 32.4, the option must be offered to a producer, processor, or

    commercial user of, or a merchant handling, the commodity, who enters

    into the commodity option transaction solely for purposes related to

    its business as such. However, Sec. 32.4 does not include any net

    worth requirement.

    Because the term ``agricultural commodity'' in the Act refers to

    more than just the enumerated commodities, the Commission recognizes

    that certain options authorized under Sec. 32.4 (e.g. options on

    coffee, sugar, cocoa, and other agricultural products that do not

    appear in the enumerated commodity list) would also fall under the

    Dodd-Frank Act's general prohibition of agricultural swaps (see

    discussion below of the Dodd-Frank rules for agricultural swaps and

    their implication for the existing agricultural swaps markets,

    including OTC options on agricultural commodities).

    C. Dodd-Frank Provisions

    Non-Agricultural Swaps

    Under the CEA, as amended by the Dodd-Frank Act, only eligible

    contract participants (``ECPs'') \21\ may enter into a swap, unless

    such swap is entered into on a designated contract market

    (``DCM''),\22\ in which case any person may enter into the swap.\23\

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    \21\ ``Eligible contract participant'' is defined in current CEA

    Sec. 1a(12). Generally speaking, an eligible contract participant

    is considered to be a sophisticated investor.

    \22\ A designated contract market is a board of trade designated

    as a contract market under CEA Sec. 5.

    \23\ See new CEA Sec. 2(e) as added by Sec. 723(a)(2) of the

    Dodd-Frank Act.

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    New CEA Sec. 2(h), as added by Sec. 723(a)(3) of the Dodd-Frank

    Act, establishes a clearing requirement for

    [[Page 59669]]

    swaps. Under that subsection, the Commission would determine, based on

    factors listed in the statute, whether a swap, or a group, category,

    type, or class of swaps, should be required to be cleared. A swap

    entered into by a commercial end user \24\ is not subject to the

    mandatory clearing requirement; however an end user may opt to submit

    the swap for clearing. A swap that is required to be cleared must be

    executed on a DCM or a swap execution facility (``SEF''),\25\ if a DCM

    or SEF makes the swap available for trading. Swaps that are not

    required to be cleared may be executed bilaterally OTC.

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    \24\ Generally, a commercial end user is described in new CEA

    Sec. 2(h)(7) as a non-financial entity that is using swaps to hedge

    or mitigate commercial risk and that notifies the Commission as to

    how it generally meets its financial obligations associated with

    entering into non-cleared swaps.

    \25\ The requirements for SEFs are set forth in new CEA Sec.

    5h.

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    Section 731 of the Dodd-Frank Act adds a new Sec. 4s to the CEA

    that provides for the registration and regulation of swap dealers and

    major swap participants.\26\ The new requirements for swap dealers and

    major swap participants include, in part, capital and margin

    requirements, business conduct standards, and reporting, recordkeeping,

    and documentation requirements.

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    \26\ ``Swap dealer'' is defined in new CEA Sec. 1a(49), as

    added by Sec. 721(a)(21) of the Dodd-Frank Act. ``Major swap

    participant'' is defined in new CEA Sec. 1a(33), as added by Sec.

    721(a)(16) of the Dodd-Frank Act.

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    Section 737 of the Dodd-Frank Act amends current CEA Sec. 4a

    regarding position limits. Under the Dodd-Frank provisions, the

    Commission must adopt position limits for futures, exchange-traded

    options, and swaps that are economically equivalent to futures and

    exchange-traded options within 180 days of the date of enactment of the

    Dodd-Frank Act for exempt commodities and within 270 days of the date

    of enactment of the Dodd-Frank Act for agricultural commodities.

    Agricultural Swaps

    Under Sec. 723(c)(3) of the Dodd-Frank Act, swaps in an

    ``agricultural commodity'' (as defined by the Commission) are

    prohibited unless the swap is entered into pursuant to an exemption

    granted under CEA Sec. 4(c). Generally speaking, Sec. 4(c) provides

    that, in order to grant an exemption, the Commission must determine

    that: (1) The exemption would be consistent with the public interest

    and the purposes of the CEA; (2) any agreement, contract, or

    transaction affected by the exemption would be entered into by

    ``appropriate persons'' as defined in Sec. 4(c); and (3) any

    agreement, contract, or transaction affected by the exemption would not

    have a material adverse effect on the ability of the Commission or any

    contract market to discharge its regulatory or self-regulatory duties

    under the CEA.

    Section 723(c)(3) includes a ``grandfather'' clause that provides

    that any rule, regulation, or order regarding agricultural swaps that

    was issued pursuant to Sec. 4(c), and that was in effect on the date

    of enactment of the Dodd-Frank Act, would continue to be permitted.

    Such rules, regulations or orders would include Part 35 with respect to

    agricultural swaps and the agricultural basis and calendar swaps noted

    above, but would not include options entered into pursuant to Part 32.

    D. Agricultural Commodities Definition

    As noted above, Sec. 723(c)(3) of the Dodd-Frank Act applies to

    any swap in an agricultural commodity ``as defined by the Commodity

    Futures Trading Commission.'' The Commission plans to publish a

    proposed definition of the term ``agricultural commodity'' in the near

    future. That proposed definition will cover all such commodities that

    are, or could in the future be, traded pursuant to a swap or futures

    contract. However, for purposes of commenting on this ANPRM, commenters

    may assume that ``agricultural commodity'' includes the following

    commodities that are currently the subject of derivatives trading,

    whether listed for trading on a futures exchange or traded bilaterally

    OTC: (1) The enumerated commodities that are listed in current Sec.

    1a(4) of the CEA (e.g., corn, wheat, soybeans, livestock, cotton); (2)

    the international ``soft commodities'' (e.g., coffee, sugar, cocoa);

    (3) lumber, plywood and similar wood-derived commodities; (4) contracts

    based on underlying commodities listed in (1)-(3) (e.g., corn and wheat

    basis swaps and calendar swaps); and (5) other commodities derived from

    living organisms, including plant, animal or aquatic life, that are

    used for human food, animal feed or fiber, and that currently are the

    subject of derivatives trading. To the extent that any commenter is

    aware of any agricultural commodity that is not currently the subject

    of derivatives trading, but which they anticipate may be so traded in

    the future, and which might be affected by potential rules governing

    the trading of agricultural swaps, the Commission would welcome

    comments regarding such commodity.

    Part II--Questions for Comment

    Section 723(c)(3) of the Dodd-Frank Act and CEA Sec. 4(c)

    authorize the Commission to impose such terms and conditions as it

    deems appropriate in order for a person to enter into or execute an

    agricultural swap. The Commission is requesting input on the following

    questions:

    Current Agricultural Swaps Business

    1. How big is the current agricultural swaps business--including

    both agricultural swaps trading under current part 35 and ATOs under

    Sec. Sec. 32.4 and 32.13(g) of the Commission's regulations?

    2. What types of entities are participating in the current

    agricultural swaps business?

    3. Are agricultural swaps/ATO participants significantly different

    than the types of entities participating in other physical commodity

    swaps/trade options?

    Agricultural Swaps Clearing

    4. What percentage of existing agricultural swaps trading is

    cleared vs. non-cleared?

    5. What percentage of existing agricultural swaps would be eligible

    for the commercial end-user exemption from the mandatory clearing

    requirement?

    6. What percentage of trading would be subject to the Dodd-Frank

    clearing requirement, if that requirement applied automatically to

    agricultural swaps (other than those eligible for the commercial end-

    user exemption)?

    7. What would be the practical and economic effect of a rule

    requiring agricultural swaps transactions (other than those eligible

    for the commercial end-user exemption) generally to be cleared? The

    Commission is interested in the views of agricultural swaps market

    participants (both users and swap dealers) regarding a potential

    clearing requirement for agricultural swaps.

    8. What would be the practical and economic effect of requiring

    agricultural swaps to be cleared under the Dodd-Frank clearing regime?

    Trading

    9. Have current agricultural swaps/ATO participants experienced any

    significant trading problems, including: (a) economic problems (i.e.,

    contracts not providing an effective hedging mechanism, or otherwise

    not performing as expected); (b) fraud or other types of abuse; or (c)

    difficulty gaining access to the agricultural swaps market?

    Agricultural Swaps Purchasers

    10. Do agricultural swaps/ATO purchasers need more protections than

    [[Page 59670]]

    participants in other physical commodity swaps/trade options?

    11. If so, why, and what should those protections be?

    12. Would additional protections for agricultural swaps purchasers

    unduly restrict their risk management opportunities?

    13. Should the Commission consider rules to make it easier for

    agricultural producers to participate in agricultural swaps--for

    example, by allowing producers who do not qualify as ECPs to purchase

    agricultural swaps?

    Designated Contract Markets

    14. Should agricultural swaps transactions be permitted to trade on

    DCMs to the same extent as all other swaps are permitted on DCMs?

    15. If yes, why?

    16. If no, what other requirements, conditions or limitations

    should apply?

    Swap Execution Facilities

    17. Should agricultural swaps transactions be permitted on SEFs to

    the same extent as all other swaps are permitted to transact on SEFs?

    18. If yes, why?

    19. If no, what other requirements, conditions or limitations

    should apply?

    Trading Outside of DCMs and SEFs

    20. Should agricultural swaps be permitted to trade outside of a

    DCM or SEF to the same extent as all other swaps?

    21. If yes, why?

    22. If no, what other requirements, conditions or limitations

    should apply?

    23. Should agricultural swaps be permitted to trade outside of a

    DCM or SEF to a different extent than other swaps due to the nature of

    the products and/or participants in the agricultural swaps market?

    24. In general, should agricultural swaps be treated like all other

    physical commodity swaps under Dodd-Frank?

    25. If yes, why?

    26. If no, are there any additional requirements, conditions or

    limitations not already discussed in other answers that should apply?

    27. If agricultural swaps are generally treated like swaps in other

    physical commodities, are there specific agricultural commodities that

    would require special or different protections?

    Issued in Washington, DC, on September 21, 2010, by the

    Commission.

    David A. Stawick,

    Secretary of the Commission.

    [FR Doc. 2010-24198 Filed 9-27-10; 8:45 am]

    BILLING CODE 6351-01-P

    Last Updated: September 28, 2010



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