2010-26951

FR Doc 2010-26951[Federal Register: October 26, 2010 (Volume 75, Number 206)]

[Proposed Rules]

[Page 65586-65593]

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

[DOCID:fr26oc10-19]

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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 1

RIN 3038-AD23

Agricultural Commodity Definition

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of proposed rulemaking.

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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''). 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

promulgated a definition of that term for purposes of the CEA or CFTC

regulations. This notice reviews the statutory and regulatory history

of the term ``agricultural commodity'' in the context of the CEA and

Commission regulations and proposes a definition of that term for

purposes of the CEA and Commission regulations.

DATES: Comments must be received on or before November 26, 2010. The

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

ADDRESSES: You may submit comments, identified by RIN number 3038-AD21,

by any of the following methods:

Federal eRulemaking Portal: http://www.regulations.gov.

Follow the instructions for submitting comments.

E-mail for Comments: [email protected] Include the RIN

number 3038-AD21 in the subject line of the message.

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. Comments will be posted as received to

http://www.cftc.gov. You should submit only information that you wish

to make available publicly. If you wish the Commission to consider

information that is exempt from disclosure under the Freedom of

Information Act, a petition for confidential treatment of the exempt

information may be submitted according to the established procedures in

CFTC Regulation 145.9.\1\

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\1\ 17 CFR 145.9.

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The Commission reserves the right, but shall have no obligation, to

review, pre-screen, filter, redact, refuse or remove any or all of your

submission from http://www.cftc.gov that it may deem to be

inappropriate for publication, such as obscene language. All

submissions that have been redacted or removed that contain comments on

the merits of the rulemaking will be retained in the public comment

file and will be considered as required under the Administrative

Procedure Act and other applicable laws, and may be accessible under

the Freedom of Information Act.

FOR FURTHER INFORMATION CONTACT: Donald Heitman, Senior Special

Counsel, (202) 418-5041, [email protected], or Ryne Miller, Attorney

Advisor, (202) 418-5921, [email protected], 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.\2\ Title VII of the Dodd-Frank Act

\3\ amended the CEA \4\ 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.

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\2\ 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.

\3\ Pursuant to Sec. 701 of the Dodd-Frank Act, Title VII may

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

2010.''

\4\ 7 U.S.C. 1 et seq.

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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 promulgated a definition of that term for

purposes of the CEA or CFTC regulations. This notice reviews the

statutory and regulatory history of the term ``agricultural commodity''

in the context of the CEA and Commission regulations and proposes a

definition of that term for purposes of the CEA and Commission

regulations.

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

1. The Commodity Exchange Act

In developing a proposed definition of ``agricultural commodity''

for purposes of the CEA and CFTC regulations, the Commission first

considered the historical development of federal commodities regulation

in the United States. Before 1974, the Commodity Exchange Act, 7 U.S.C.

1 et seq., gave the Commodity Exchange Authority \5\ jurisdiction over

only those commodities specifically enumerated in the Act. Starting

with the 1936 Act, the CEA applied to certain transactions in

commodities then being traded for future delivery on certain U.S.

futures exchanges, including wheat, cotton, rice, corn, oats, barley,

rye, flaxseed, grain sorghum, mill feeds, butter, eggs, and Solanum

tuberosum (Irish potatoes).\6\ As the exchanges regulated under the CEA

added futures contracts for additional commodities, all of which were

agricultural in nature, subsequent amendments to the Act added those

[[Page 65587]]

additional commodities to the Act's list of enumerated commodities.\7\

Thus, prior to 1974, the CEA provided authority exclusively for the

regulation of futures transactions in those commodities enumerated in

the statute, all of which were agricultural in nature.

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\5\ The Commodity Exchange Authority was an agency of the United

States Department of Agriculture and was established to administer

the CEA. For a detailed history of the evolution of the various

agencies charged with administering the CEA, see http://

www.archives.gov/research/guide-fed-records/groups/180.html. The

Commodity Exchange Authority was the predecessor of the CFTC.

\6\ See Act of June 15, 1936, Public Law 74-675, 49 Stat. 1491

(1936), which, among other things, set out the original list of

enumerated commodities and changed the name of the ``Grain Futures

Act'' to the ``Commodity Exchange Act.'' However, the CEA did not

apply to all commodity futures markets then in existence, such as

markets for coffee, cocoa, sugar, and metals.

\7\ Wool tops were added in 1938. Commodity Exchange Act

Amendment of 1938, Public Law 75-471, 52 Stat. 205 (1938). Fats and

oils, cottonseed meal, cottonseed, peanuts, soybeans and soybean

meal were added in 1940. Commodity Exchange Act Amendment of 1940,

Public Law No. 76-818, 54 Stat. 1059 (1940). Livestock, livestock

products, and frozen concentrated orange juice were added in 1968.

Commodity Exchange Act Amendment of 1968, Public Law 90-258, 82

Stat. 26 (1968) (livestock and livestock products); Act of July 23,

1968, Public Law 90-418, 82 Stat. 413 (1968) (frozen concentrated

orange juice). Trading in onion futures on United States exchanges

was prohibited in 1958. Commodity Exchange Act Amendment of 1958,

Public Law 85-839, 72 Stat. 1013 (1958).

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With the enactment of the Commodity Futures Trading Commission Act

of 1974 (``the 1974 Act''),\8\ Congress overhauled the CEA and created

the Commodity Futures Trading Commission, an independent regulatory

agency with powers greater than those of its predecessor agency, the

Commodity Exchange Authority. For the purposes of this Notice, the most

significant change was that, while the Commodity Exchange Authority

only regulated those commodities enumerated in the CEA, which were all

agricultural in nature, the 1974 Act granted the CFTC exclusive

jurisdiction over futures trading in all commodities traded for future

delivery, including not only the enumerated commodities, but also ``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.'' \9\ For the first time, the CEA would apply to all U.S.

futures exchanges and to the full range of commodities that were or

could be traded for future delivery thereon, including many commodities

that did not fall under the enumerated agricultural category--for

example, coffee, sugar, cocoa, metals and energy products, as well as

interest rates, currencies, and other financial commodities.\10\

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\8\ See Commodity Futures Trading Commission Act of 1974, Public

Law 93-463, 88 Stat. 1389 (1974).

\9\ Except, of course, onions, which were excluded in 1958. See

cite in footnote 7, above.

\10\ See the pre-Dodd-Frank CEA definition of ``commodity,''

which had remained unchanged since the 1974 amendments: ``The term

``commodity'' means 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.''

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) and adds ``motion picture box

office receipts (or any index, measure, value or data related to

such receipts)'' as a second commodity which, along with onions, is

specifically excluded from the Act's definition of commodity.

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2. The Commodity Futures Modernization Act

In 2000, the Commodity Futures Modernization Act of 2000 (``CFMA'')

\11\added certain exemptions for swaps \12\ transactions to the CEA.

One exemption appears in current CEA Sec. 2(g).\13\ With the Sec.

2(g) swaps exemption, Congress for the first time made an explicit

distinction between agricultural commodities and other commodity

categories. The Sec. 2(g) exemption explicitly excluded any

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

commodity.'' Instead of providing a definition for agricultural

commodity in this context, Congress used the term in conjunction with

the definition of exempt commodity--defined as neither an agricultural

commodity nor an excluded commodity.\14\ Excluded commodities were in

turn defined at current CEA Sec. 1a(13) to include financial

commodities such as interest rates, currencies, economic indexes, and

other similar items. Thus, of the three operative terms, only

agricultural commodity was not ascribed a formal definition.\15\

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\11\ The CFMA was enacted into law as Appendix E to Public Law

106-554, the Consolidated Appropriations Act, 2001 (2000).

\12\ 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.

\13\ Current Sec. 2(g) provides:

Excluded swap transactions

No provision of this Act (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. Sec. 2(g). Current CEA Sec. 2(g) was

added to the CEA by Sec. 105(b) of the CFMA, enacted as Appendix E

to Public Law 106-554.

\14\ ``The term `exempt commodity' means a commodity that is not

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

Sec. 1a(14).

\15\ Another swap exemption was provided in current CEA Sec.

2(h), which affects transactions in exempt commodities. Current CEA

Sec. 2(h) was added to the CEA by Sec. 106 of the CFMA. Also,

current CEA Sec. 2(d) contains a swap exemption for transactions in

excluded commodities. Current CEA Sec. 2(d) was added to the CEA by

Sec. 103 of the CFMA.

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There is limited legislative history regarding the CFMA to explain

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

Sec. 2(g) swaps exemption.\16\ However, the legislative history of

H.R. 4541 (106th Congress), the predecessor to the CFMA (H.R.

5660),\17\ 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).\18\ The House Committee on Agriculture stated the

following:

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\16\ H.R. 5660, the final version of the CFMA, which was enacted

into law as an appendix to Public Law 106-554, the Consolidated

Appropriations Act, 2001, was not accompanied by congressional

committee reports.

\17\ 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.

\18\ See footnote 10 above.

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.\19\

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\19\ H.R. Rep. No. 106-711, Part 1, at 33 (June 29, 2000).

Notably, the definition of exempt commodity, and its interplay with

both agricultural and excluded commodities, did not change from H.R.

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

3. The Dodd-Frank Act

The Dodd-Frank Act, when it becomes effective, will delete two

references to ``agricultural commodity'' that were added to the CEA by

the CFMA.\20\ First, the Dodd-Frank Act will

[[Page 65588]]

delete the current CEA Sec. 2(g) swaps exemption.\21\ Second, the

Dodd-Frank Act will eliminate a provision, found in current CEA Sec.

5a(b)(2)(F), that deals with the permissibility of trading agricultural

commodities on a derivatives transaction execution facility (``DTEF'').

The Dodd-Frank Act repeals current CEA Sec. 5a \22\ (which provides

for the registration and regulation of DTEFs).\23\

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\20\ Two other references to agricultural commodities that were

added to the CEA by the CFMA will remain in the CEA, but are not

relevant to defining an agricultural commodity. CEA Sec. 5c(c)

provides that a designated contract market must seek prior

Commission approval for any rule amendment that would make material

changes in any futures contract in an enumerated agricultural

commodity, if the rule amendment applies to contracts and delivery

months which have been listed for trading and have open interest.

CEA Sec. 4q requires the Commission to consider procedures to

encourage bona fide hedging on contract markets by domestic

agricultural producers.

Title IV of the CFMA included an additional reference to

``agricultural commodity'' that was not an amendment to the CEA. The

Legal Certainty for Bank Products Act, enacted as Title IV of the

CFMA, includes a definition of ``covered swap agreement'' that

incorporates a reference to ``a commodity other than an agricultural

commodity enumerated in section 1a(4).'' Section 725(g) of the Dodd-

Frank Act deletes all references to ``covered swap agreement,''

including the reference to agricultural commodities, from the Legal

Certainty for Bank Products Act.

\21\ See Sec. 723(a)(1)(A) of the Dodd-Frank Act. That

provision of the Dodd-Frank Act will also delete current CEA Sec.

2(h) regarding swaps in exempt commodities. Current CEA Sec. 2(h)

does not explicitly mention agricultural commodities but, as noted

above, exempt commodities are defined as those that are neither

agricultural nor excluded commodities.

\22\ See Sec. 734(a) of the Dodd-Frank Act.

\23\ In addition, CEA Sec. 5(e)(2), which was added to the CEA

by the CFMA, provides that the Commission, through notice and

comment rulemaking, may allow futures and options in agricultural

commodities to trade on DTEFs. Once the Dodd-Frank Act repeals the

authority for DTEFs, Sec. 5(e)(2) will no longer have any practical

effect.

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The Dodd-Frank Act also contains several new provisions relating to

agricultural commodities. Section 721(a)(21) of the Dodd-Frank Act adds

a new Sec. 1a(47) to the CEA that defines the term ``swap.'' As part

of the definition, clause (iii) of Sec. 1a(47)(A) provides that a swap

includes ``any agreement, contract, or transaction commonly known as *

* * an agricultural swap * * *.'' \24\ In addition, the Dodd-Frank

Act's definition of swap includes commodity options, other than

exchange-traded options on futures, thus requiring off-exchange options

on agricultural commodities to be regulated as swaps.\25\

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\24\ See new CEA Sec. 1a(47)(A)(iii)(XX) as added by Sec.

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

\25\ See new CEA Sec. 1a(47)(A)(i) and new CEA Sec.

1a(47)(B)(i) as added by Sec. 721(a)(21) of the Dodd-Frank Act:

* * * SWAP.--

(A) IN GENERAL.--Except as provided in subparagraph (B), the

term `swap' means any agreement, contract, or transaction--

(i) That is * * * [an] option of any kind that is for the

purchase or sale * * * [of] commodities * * *.

(B) EXCLUSIONS.--The term `swap' does not include--

(i) any contract of sale of a commodity for future delivery (or

option on such a contract) * * *.

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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

that, except as provided in Sec. 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

Sec. 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 Sec. 5h to the CEA

that governs the registration and regulation of swap execution

facilities. New CEA Sec. 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 Sec. 4a to direct the

Commission to 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.

B. Regulatory Framework

1. ``Agricultural Commodity'' in Current Regulations

The term agricultural commodity appears in the Commission's

regulations in multiple places, the most relevant of which are the

rules for swaps and options.

a. Part 35 Swaps Exemption

Regarding the pre Dodd-Frank Act swaps rules, 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,\26\ Part 35 allows for swaps to transact

bilaterally if certain conditions are met.\27\ As mentioned above, the

CFMA swaps exemption, current CEA Sec. Sec. 2(d), 2(g) and 2(h),

provided an even broader exemption for excluded and exempt commodities

than that provided by Part 35. As a result, only swap transactions in

agricultural commodities still rely on the exemption found in Part 35.

With the exception of three outstanding Sec. 4(c) exemptions related

to cleared agricultural basis and calendar swaps,\28\ Part 35 is the

sole authority under which market participants may transact

agricultural swaps that are not options--until such

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time as the Commission issues other or different rules and regulations

for agricultural swaps transactions.\29\

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\26\ 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 (See Dodd-Frank Sec.

723(c)(3)(B)).

\27\ The requirements are: (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. See id. at 5590-5591;

see also 17 CFR 35.2(a)-(d).

\28\ 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 from

Part 35, 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).

\29\ See Agricultural Swaps, Advance Notice of Proposed

Rulemaking and Request for Comment, 75 FR 59666 (September 28, 2010)

(the ``Agricultural Swaps ANPRM'').

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b. Part 32 and Options

The Commission maintains plenary authority over commodity 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 off-exchange options.\30\ However, Part 32 allows for

off-exchange option transactions under certain conditions, including

allowing off-exchange options on agricultural commodities in two

instances.\31\

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\30\ See Commission regulation 32.11, 17 CFR 32.11.

\31\ 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

will fall within the CEA'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 off-exchange 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,\32\ 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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\32\ 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 ATO exemption at Sec.

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

to an off-exchange 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. off-

exchange options on coffee, sugar, cocoa, and other agricultural

products that do not appear in the enumerated commodity list) will be

considered to be swaps in an agricultural commodity--and subject to any

Commission rules that specifically address agricultural swaps.

c. Other Regulations

The definition of agricultural commodity will also apply to any

other Commission regulation that references agricultural commodity and

is not specifically limited to the enumerated agricultural

commodities.\33\ However, the definition is not anticipated to have any

significant substantive impact outside of the Part 35 swaps rules, the

Part 32 options rules, and the position limit rulemaking that will

address agricultural commodities (see discussion in next section).

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\33\ For example, see current Commission regulation 150.5(e)(3)

(17 CFR 150.5(e)(3)), which applies to exchange-set speculative

position limits for, among other things, the ``international soft

agricultural products.'' Section 150.5 may be amended when the

Commission adopts position limits for agricultural commodities

pursuant to Sec. 737(a) of the Dodd-Frank Act.

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2. ``Agricultural Commodity'' in New CFTC Regulations

The definition of agricultural commodity will also be necessary in

order to provide context for certain rulemakings under the Dodd-Frank

Act. For example, if the Commission proceeds with an agricultural swaps

rulemaking, the definition will identify the scope of commodities that

will be subject to it.\34\ Any such rulemaking would provide rules and

regulations governing the trading of swaps in an agricultural

commodity. The definition will similarly provide a basis for the

Commission's planned rulemaking addressing speculative position limits

on agricultural commodities,\35\ and by reverse implication,

speculative position limits on exempt commodities (defined as a

commodity that is not an excluded commodity or an agricultural

commodity)--i.e., once a definition of agricultural commodity is

adopted, any commodity that does not fall within that definition, or

the definition of excluded commodity, will be considered an exempt

commodity.\36\

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\34\ See Sec. Sec. 723(c)(3) and 733 of the Dodd-Frank Act and

the Agricultural Swaps ANPRM.

\35\ See Sec. 737(a) of the Dodd-Frank Act.

\36\ Id.

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Similarly, defining an agricultural commodity could clarify those

swaps that are eligible for the exemptions in current CEA Sec. 2(g)

and 2(h) (which are not available to swaps in agricultural

commodities). As noted above, the Dodd-Frank Act provides for the

eventual repeal of current CEA Sec. 2(g) and Sec. 2(h). However, if

the definition of an agricultural commodity is made effective prior to

the repeal of those provisions, it would provide greater certainty as

to the proper scope of those provisions during the interim.

Part II--Explanation of the Definition

A. Terms of the Proposed Definition

This notice of proposed rulemaking proposes to add the following

definition to section 1.3, the Definitions section, of the Commission's

regulations:

As used in the Act and CFTC regulations, the term ``agricultural

commodity'' 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 contracts based wholly or principally on a

single underlying agricultural commodity.

B. Explaining the Definition

Category One--Enumerated Agricultural Commodities

Category one includes the ``enumerated agricultural commodities''

[[Page 65590]]

specified in current Sec. 1a(4) of the Act (renumbered as Sec. 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\

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\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.

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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). In that context, 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%. 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 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 Contracts

The term, ``agricultural commodity,'' also covers contracts that

are based wholly or principally on a single underlying agricultural

commodity. Such contracts do not necessarily involve the potential for

physical delivery of the underlying agricultural commodity--for example

basis swaps, calendar swaps or crop yield swaps. The commodity-based

contracts category would also include an index based wholly or

principally on a single underlying agricultural commodity. Thus, for

example, the Minneapolis Grain Exchange (``MGE'') wheat, corn and

soybean price index contracts \38\ would be considered agricultural

commodities. Also, any index made up of more than 50% of any single

agricultural commodity, since it is based principally on a single

underlying agricultural commodity, would be considered a commodity-

based contract for purposes of including it within the agricultural

commodity definition.

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\38\ The MGE 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.

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For purposes of the commodity-based contract category, the soybean

complex

[[Page 65591]]

would be considered a single commodity, so that an index based on the

prices of soybeans, soybean meal and soybean oil would be an

agricultural commodity under this provision. Likewise, for purposes of

this provision, wheat would be considered a single commodity, so that

an index based on the prices of Chicago Board of Trade (``CBT'') soft

red winter wheat, Kansas City Board of Trade (``KCBT'') hard red winter

wheat and MGE hard red spring wheat would be an agricultural commodity

under the commodity-based contract provision.

On the other hand, a contract based on an index of the prices of

multiple agricultural commodities would not be based wholly or

principally on a single agricultural commodity and would not fall

within the commodity-based contract category. Thus, for example, under

the commodity-based contract provision, a swap contract based on a

price index of equal parts wheat, corn and soybeans, or even a swap

based on a price index of 50% corn and 50% wheat, would not be based

wholly or principally on a single underlying agricultural commodity and

so would not fall within the agricultural commodity definition.

Therefore, such index-based swaps would not be subject to special rules

(if any) that might be adopted for agricultural commodity swaps.\39\

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\39\ See the Agricultural Swaps ANPRM.

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The definition of an ``excluded commodity'' in current CEA Sec.

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 would frustrate the requirement in Dodd-Frank that swaps

in agricultural commodities be permitted only pursuant to a Sec. 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

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 one agricultural

commodity to evade the limitations on trading agricultural swaps that

are found in the Dodd-Frank Act. For this reason, the definition

proposed herein would include an index based wholly or principally on a

single underlying agricultural commodity.

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

Act.

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Onions

Onions present a unique case in that onions are the only

agricultural product specifically excluded from the enumerated

commodities list in current Sec. 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 proposed herein affects

the prohibition on onion futures trading.

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

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In defining an agricultural commodity, given the foregoing

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 Sec. 1a(47) of the CEA is not limited to transactions

based upon ``commodities'' as defined in current Sec. 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 proposed

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

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

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

based on the comments received on the Agricultural Swaps ANPRM,\42\ it

is determined that agricultural swaps should be treated the same as

other physical commodity swaps, the definition will have no effect in

the agricultural swaps context.

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\42\ See Agricultural Swaps, Advance Notice of Proposed

Rulemaking and Request for Comment, 75 FR 59666 (September 28,

2010).

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The other significant effect of a commodity being classified as an

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

the speculative position limits for agricultural commodities,\43\

rather than the speculative limits for exempt commodities. Again, the

classification of a given commodity as ``agricultural'' vs. ``exempt''

should have no 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 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.

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\43\ The Commission is required to adopt speculative position

limits for agricultural commodities within 270 days of the adoption

of the Dodd-Frank Act.

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Also, as noted above, during the interim period until Sec. Sec.

2(g) and 2(h) are repealed, any commodities falling within the new

``agricultural commodity'' definition could not legally be traded

pursuant to either section (although Part 35 would still be available

to commodities/contracts meeting its requirements).

Part III--Request for Comments Regarding the Proposed Definition

The Commission requests comments on any aspect of the agricultural

commodity definition proposed herein, and also on the following

specific questions:

(1) Are there any commodities that do not fit within the terms of

the definition proposed herein, but which nevertheless should be

considered to be ``agricultural commodities'' for purposes of the CEA

and Commission regulations? If so, why, and what undesirable effects,

if any, might result from omitting such commodities from the

definition?

(2) Are there any commodities that do fit within the terms of the

definition proposed herein, but which nevertheless should not be

considered to be ``agricultural commodities'' for purposes of the CEA

and Commission regulations? If so, why, and what undesirable effects,

if any, might result from including such commodities in the definition?

(3) Does the definition's proposed treatment of commodity-based

contracts, including index contracts, for purposes of the agricultural

commodity definition constitute an appropriate mechanism for

classifying such contracts? If not, what other treatment would be a

better alternative?

(4) Are biofuels, such as methane and biodiesel, appropriately

excluded from the agricultural commodity definition? If not, why should

such products be included in the definition and what undesirable

effects, if any, might result from omitting them from the definition?

(5) Under the proposed definition, lumber, plywood and other

products of

[[Page 65592]]

trees used in human shelter would fall within the agricultural

commodity definition, whereas products of trees used as industrial

inputs, such as wood pulp, paper, raw rubber and turpentine, would fall

outside the definition. Does this formulation draw an appropriate

dividing line between the products of trees that are covered by the

agricultural commodity definition and those that are not?

(6) As noted above, if 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 Sec. Sec. 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 Sec. 2(g) or Sec. 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 Sec. Sec. 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?

Part IV--Related Matters

A. Paperwork Reduction Act

The proposed 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.\44\ The Commission invites

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 rules proposed

herein.

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

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B. Cost Benefit Analysis

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)

efficiency, competitiveness, and financial integrity of the market for

listed derivatives; (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.

Defining an agricultural commodity for purposes of the CEA would

seem to have limited immediate practical effects. However, the

definition will be necessary for later substantive rulemakings, such as

setting speculative position limits for exempt and agricultural

commodities under Sec. 737 of the Dodd-Frank Act and determining the

permissibility of trading agricultural swaps under Sec. 723(c)(3) and

Sec. 733 of the Dodd-Frank Act. Accordingly, this analysis will focus

on the prospective costs/benefits of defining ``agricultural

commodity.''

As noted above, Sec. 737(a) of the Dodd-Frank Act amends CEA Sec.

4a(a) to direct the Commission to adopt speculative 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. Under CEA Sec. 4a(a)(3), the Commission in

setting position limits must balance the goals of: (1) Diminishing,

eliminating, or preventing excessive speculation; (2) deterring and

preventing market manipulation, squeezes, and corners; (3) ensuring

sufficient liquidity for bona fide hedgers; and (4) ensuring that the

price discovery function of the underlying market is not disrupted. If

speculative position limits for exempt and agricultural commodities are

set at an inappropriate level, it could have the consequence of not

achieving the optimum blend of these important goals and could be

detrimental to the competitiveness and financial integrity of these

markets.

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

general rule that ``no person shall offer to enter into, or confirm the

execution of, any swap in an agricultural commodity (as defined by the

[CFTC]).'' Section 723(c)(3) contains an exception to that general rule

that provides that a swap in an agricultural commodity may be permitted

pursuant to the Commission's exemptive authority under CEA Sec. 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.''

Also as noted above, Sec. 733 of the Dodd-Frank Act adds a new

Sec. 5h to the CEA that governs the registration and regulation of

swap execution facilities. New CEA Sec. 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.''

Both Sec. 723 and Sec. 733 require the Commission to define an

agricultural commodity if agricultural swaps (beyond those currently

allowed under CEA Sec. 4(c) exemptions) are to be traded. If the

Commission decides to promulgate a rule permitting additional types of

agricultural swaps to trade, such a rule could enhance price discovery

and improve risk management for the agricultural commodities involved.

The Commission invites public comments on its cost-benefit

considerations. Commenters also are invited to submit any data or other

information that they may have quantifying or qualifying the costs and

benefits of the proposal with their comment letters.

C. Regulatory Flexibility Act

The Regulatory Flexibility Act (``RFA'') \45\ 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 proposed by the Commission provide a definition that

will largely be used in future 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 proposed rules will not have a significant

impact on a substantial number of small entities.

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\45\ 5 U.S.C. 601 et seq.

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List of Subjects in 17 CFR Part 1

Definitions, Agriculture, Agricultural commodity.

In consideration of the foregoing, and pursuant to the authority

contained in

[[Page 65593]]

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 hereby proposes to amend Chapter 1 of Title 17

of the Code of Federal Regulations as follows:

PART 1--GENERAL REGULATIONS UNDER THE COMMODITY EXCHANGE ACT

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.

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

follows:

Sec. 1.3 Definitions.

* * * * *

(zz) Agricultural commodity. As used in the Act and CFTC

regulations, 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 contracts based wholly or principally on a

single underlying agricultural commodity.

Issued in Washington, DC, on October 19, 2010, by the

Commission.

David A. Stawick,

Secretary of the Commission.

Statement of Chairman Gary Gensler

Agriculture Commodity Definition

October 19, 2010

I support the proposal to publish for comment a definition of the term,

``agricultural commodity.'' This is necessary as the Dodd-Frank Act

includes two provisions that apply to swaps in an agricultural

commodity, as defined by the CFTC. First, the definition will be used

to fulfill the Dodd-Frank Act's requirement that swaps in an

``agricultural commodity'' be prohibited unless permitted under the

Commission's general exemptive authority. An Advance Notice of Proposed

Rulemaking seeking comment on the appropriate conditions, restrictions

or protections to be included in any rules governing agricultural swaps

is currently out for comment. Second, the Dodd-Frank Act directs the

Commission to adopt speculative position limits for ``agricultural

commodities'' within 270 days of the enactment of Dodd-Frank.

I believe the proposed agricultural commodity definition draws a good

line between agricultural and non-agricultural commodities, though I am

very interested to hear the public's views on this definition.

[FR Doc. 2010-26951 Filed 10-25-10; 8:45 am]

BILLING CODE P

Last Updated: October 26, 2010