41048 Federal Register / Vol. 76, No. 134 / Wednesday, July 13, 2011 / Rules and Regulations 

1See 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. 

2Pursuant to section 701 of the Dodd-Frank Act, 

Title VII may be cited as the ‘‘Wall Street 

Transparency and Accountability Act of 2010.’’ 

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

4 75 FR 65586, Oct. 26, 2010. 

5Those comments are available on the 

Commission’s Web site at: http:// 

comments.cftc.gov/PublicComments/ 

CommentList.aspx?id=868. 

proposed rulemaking, the opportunity 

for public participation, and a delay in 

effective date, are inapplicable because 

this regulation involves a military or 

foreign affairs function of the United 

States. (See 5 U.S.C. 553(a)(1)). This 

final rule implements the United States 

new policy to recognize the new and 

independent state of the Republic of 

South Sudan as announced by the 

President. No other law requires that a 

notice of proposed rulemaking and an 

opportunity for public comment be 

given for this rule. Because a notice of 

proposed rulemaking and an 

opportunity for public comment are not 

required to be given for this rule by 5 

U.S.C. 553, or by any other law, the 

analytical requirements of the 

Regulatory Flexibility Act, 5 U.S.C. 601 

et seq., are not applicable. Therefore, 

this regulation is issued in final form. In 

addition, the Department finds good 

cause under 5 U.S.C. 553(d)(3) to waive 

the 30-day delay in effectiveness for the 

reasons provided above. Accordingly, 

this regulation is made effective 

immediately upon publication. 

List of Subjects 

15 CFR Part 738 

Exports. 

15 CFR Part 740 

Administrative practice and 

procedure, Exports, Reporting and 

recordkeeping requirements. 

Accordingly, parts 738 and 740 of the 

EAR (15 CFR parts 730–774) are 

amended as follows: 

PART 738—[AMENDED] 

■ 1. The authority citation for 15 CFR 

Part 738 continues to read as follows: 

Authority: 50 U.S.C. app. 2401 et seq.; 50 

U.S.C. 1701 et seq.; 10 U.S.C. 7420; 10 U.S.C. 

7430(e); 22 U.S.C. 287c; 22 U.S.C. 3201 et 

seq.; 22 U.S.C. 6004; 30 U.S.C. 185(s), 185(u); 

42 U.S.C. 2139a; 42 U.S.C. 6212; 43 U.S.C. 

1354; 15 U.S.C. 1824a; 50 U.S.C. app. 5; 22 

U.S.C. 7201 et seq.; 22 U.S.C. 7210; E.O. 

13026, 61 FR 58767, 3 CFR, 1996 Comp., p. 

228; E.O. 13222, 66 FR 44025, 3 CFR, 2001 

Comp., p. 783; Notice of August 12, 2010, 75 

FR 50681 (August 16, 2010). 

Supplement No. 1 to Part 738— 

[Amended] 

■ 2. Supplement No. 1 to part 738— 

Commerce Country Chart—is amended 

■ a. By adding in alphabetical order the 

‘‘Country’’ ‘‘South Sudan, Republic of’’; 

and 

■ b. By adding for ‘‘South Sudan, 

Republic of’’ an ‘‘X’’ in columns ‘‘CB1’’, 

‘‘CB2’’, ‘‘NP1’’, ‘‘NS1’’, ‘‘NS2’’, ‘‘MT1’’, 

‘‘RS1’’, ‘‘RS2’’, ‘‘CC1’’ and ‘‘CC3’’. 

PART 740—[AMENDED] 

■ 3. The authority citation for 15 CFR 

Part 740 continues to read as follows: 

Authority: 50 U.S.C. app. 2401 et seq.; 50 

U.S.C. 1701 et seq.; 22 U.S.C. 7201 et seq.; 

E.O. 13026, 61 FR 58767, 3 CFR, 1996 Comp., 

p. 228; E.O. 13222, 66 FR 44025, 3 CFR, 2001 

Comp., p. 783; Notice of August 12, 2010, 75 

FR 50681 (August 16, 2010). 

■ 4. Supplement No. 1 to Part 740— 

Country Groups—is amended by adding 

in alphabetical order ‘‘South Sudan, 

Republic of’’ to ‘‘Country Group B’’. 

Dated: July 6, 2011. 

Kevin J. Wolf, 

Assistant Secretary for Export 

Administration. 

[FR Doc. 2011–17607 Filed 7–8–11; 4:15 pm] 

BILLING CODE 3510–33–P 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Part 1 

RIN 3038–AD23 

Agricultural Commodity Definition 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Final rule. 

SUMMARY: The Commodity Futures 

Trading Commission (‘‘Commission’’ or 

‘‘CFTC’’) is charged with proposing 

rules to implement new statutory 

provisions enacted by Title VII of the 

Dodd-Frank Wall Street Reform and 

Consumer Protection Act (‘‘Dodd-Frank 

Act’’). The Dodd-Frank Act, which 

amends the Commodity Exchange Act 

(‘‘CEA’’ or ‘‘Act’’), includes provisions 

applicable to ‘‘a swap in an agricultural 

commodity (as defined by the [CFTC]).’’ 

Neither Congress nor the CFTC has 

previously defined that term for 

purposes of the CEA or CFTC 

regulations. On October 26, 2010, the 

Commission requested comment on a 

proposed definition. After reviewing the 

comments submitted in response to the 

proposed definition, the Commission 

has determined to issue these final rules 

in essentially the same form as 

originally proposed, subject to a minor 

revision to the commodity-based index 

provision. 

DATES: Effective Date—September 12, 

2011. 

FOR FURTHER INFORMATION CONTACT: 

Donald Heitman, Senior Special 

Counsel, (202) 418–5041, 

dheitman@cftc.gov, or Ryne Miller, 

Attorney Advisor, (202) 418–5921, 

rmiller@cftc.gov, Division of Market 

Oversight, Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1155 21st Street, NW., Washington, DC 

20581. 

SUPPLEMENTARY INFORMATION: 

Part I—Background 

On July 21, 2010, President Obama 

signed the Dodd-Frank Wall Street 

Reform and Consumer Protection Act.1

Title VII of the Dodd-Frank Act 2

amended the CEA 3 to establish a 

comprehensive new regulatory 

framework for swaps and security-based 

swaps. The legislation was enacted to 

reduce risk, increase transparency, and 

promote market integrity within the 

financial system by, among other things: 

(1) Providing for the registration and 

comprehensive regulation of swap 

dealers and major swap participants; (2) 

imposing clearing and trade execution 

requirements on standardized derivative 

products; (3) creating robust 

recordkeeping and real-time reporting 

regimes; and (4) enhancing the 

Commission’s rulemaking and 

enforcement authorities with respect to, 

among others, all registered entities and 

intermediaries subject to the 

Commission’s oversight. 

The Dodd-Frank Act includes 

provisions applicable to ‘‘a swap in an 

agricultural commodity (as defined by 

the [CFTC]).’’ Neither Congress nor the 

CFTC has previously defined 

‘‘agricultural commodity’’ for purposes 

of the CEA or CFTC regulations. On 

October 26, 2010, the Commission 

issued a notice of proposed rulemaking 

requesting comment on a proposed 

definition of agricultural commodity 

(the ‘‘NPRM’’).4 After reviewing the 

comments submitted in response to the 

proposed definition,5 the Commission 

has determined to issue this final 

definition in essentially the same form 

as originally proposed, subject to a 

minor revision to the commodity-based 

index provision, for purposes of the 

CEA and Commission regulations. 

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Federal Register / Vol. 76, No. 134 / Wednesday, July 13, 2011 / Rules and Regulations 41049 

6Pre Dodd Frank CEA sections 2(g) and 

5a(b)(2)(F). 

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

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

8 17 CFR part 32 and 17 CFR part 35. 

9The proposal to treat agricultural swaps the 

same as swaps in other commodities was issued 

following an advance notice of proposed 

rulemaking (‘‘ANPRM’’) that specifically asked 

whether swaps in an agricultural commodity 

should be treated any differently than other swaps. 

See 75 FR 59666, Sept. 28, 2010. The overwhelming 

majority of the comments supported adopting a rule 

that would treat swaps in an agricultural 

commodity the same as all other swaps, and the 

proposed agricultural swaps rules that followed the 

ANPRM so provide. (See: Commodity Options and 

Agricultural Swaps, 76 FR 6095, February 3, 2011). 

If the final agricultural swaps rules should reverse 

course and prohibit or limit agricultural swaps, the 

Commission will take appropriate action to address 

any impact such rule change might have with 

respect to the definition set out herein. 

10See § 737(a) of the Dodd-Frank Act; see also 

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

2011. 

11 75 FR 65586, Oct. 26, 2010. 

12The comment file also includes records of 

discussions with three external parties (Land 

O’Lakes, Inc., a mixed group of agricultural and 

academic interests, and an agricultural risk manager 

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

issues tangential to the agricultural commodity 

definition rulemaking were discussed between 

visitors and Commission representatives. 

A. Statutory Framework—‘‘Agricultural 

Commodity’’ 

1. Pre Dodd-Frank Act 

For a detailed discussion of the pre 

Dodd-Frank statutory history relating to 

the term agricultural commodity, please 

review the NPRM at 75 FR 65586– 

65587. 

2. The Dodd-Frank Act 

In addition to deleting two existing 

CEA provisions that referenced 

agricultural commodities,6 the DoddFrank Act contains several new 

provisions relating to agricultural 

commodities. Section 721(a)(21) of the 

Dodd-Frank Act adds a new section 

1a(47) to the CEA defining the term 

‘‘swap.’’ As part of the definition, clause 

(iii) of section 1a(47)(A) provides that a 

swap includes ‘‘any agreement, contract, 

or transaction commonly known as 

* * * an agricultural swap. * * *’’ 7

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

provision that does not amend the CEA, 

contains a general rule whereby, except 

as provided in section 723(c)(3)(B), ‘‘no 

person shall offer to enter into, enter 

into, or confirm the execution of, any 

swap in an agricultural commodity (as 

defined by the [CFTC]).’’ Section 

723(c)(3)(B) provides that a swap in an 

agricultural commodity may be 

permitted pursuant to the Commission’s 

exemptive authority under CEA section 

4(c), ‘‘or any rule, regulation, or order 

issued thereunder (including any rule, 

regulation, or order in effect as of the 

date of enactment of this Act) by the 

[CFTC] to allow swaps under such terms 

and conditions as the Commission shall 

prescribe.’’ 

Section 733 of the Dodd-Frank Act 

adds a new section 5h to the CEA that 

governs the registration and regulation 

of swap execution facilities. New CEA 

section 5h(b)(2) provides that a swap 

execution facility ‘‘may not list for 

trading or confirm the execution of any 

swap in an agricultural commodity (as 

defined by the Commission) except 

pursuant to a rule or regulation of the 

Commission allowing the swap under 

such terms and conditions as the 

Commission shall prescribe.’’ 

Section 737 of the Dodd-Frank Act 

amends CEA section 4a and specifically 

directs the Commission to adopt 

position limits for futures, DCM-traded 

options, and swaps that are 

economically equivalent to futures and 

exchange-traded options for physical 

commodities other than excluded 

commodities—that is, exempt and 

agricultural commodities. Section 737 

also sets timeframes for the adoption of 

such position limits for both exempt 

and agricultural commodities. 

B. Regulatory Framework— 

‘‘Agricultural Commodity’’ 

For a detailed discussion of the 

history surrounding the Commission’s 

regulatory framework related to the term 

agricultural commodity, please review 

the NPRM at 75 FR 65588–65589. Under 

current regulations, the term 

agricultural commodity is significant 

primarily for parts 32 and 35.8 The final 

definition is not anticipated to have any 

significant substantive impact outside of 

those rules. 

In relation to parts 32 (dealing with 

commodity options) and 35 (dealing 

with swaps), the Commission, in a 

separate proposed rulemaking, has 

proposed (1) to treat all commodity 

options that fall within the Dodd-Frank 

definition of swap (including options on 

either agricultural or non-agricultural 

commodities) the same as any other 

swap, thereby doing away with the need 

to distinguish between an agricultural 

commodity and any other type of 

commodity for the purpose of 

identifying the applicable options rules, 

and (2) to treat swaps in an agricultural 

commodity the same as any other swap, 

thereby doing away with the need to 

distinguish between an agricultural 

commodity and any other type of 

commodity for the purpose of 

identifying the applicable swaps rules.9

The definition will also inform the 

Commission’s planned rulemaking 

addressing speculative position limits 

on both agricultural and exempt 

commodities.10

Part II—Summary of Comments; 

Commission Response to Comments 

As noted above, on October 26, 2010 

the Commission published for comment 

a notice of proposed rulemaking that 

proposed a definition of ‘‘agricultural 

commodity’’ for purposes of the 

Commodity Exchange Act and 

Commission regulations.11 The NPRM 

proposed a four category definition, 

including: 

1. The enumerated commodities listed 

in section 1a of the CEA, including such 

things as wheat, cotton, corn, the 

soybean complex, livestock, etc.; 

2. A general operational definition 

that covers: ‘‘All other commodities that 

are, or once were, or are derived from, 

living organisms, including plant, 

animal and aquatic life, which are 

generally fungible, within their 

respective classes, and are used 

primarily for human food, shelter, 

animal feed, or natural fiber;’’ 

3. A catch-all category for 

commodities that would generally be 

recognized as agricultural in nature, but 

which do not fit within the general 

operational definition. In addition to the 

specified commodities named in 

category three (tobacco and the products 

of horticulture), category three would 

also include other commodities that, in 

future, would be classified as 

‘‘agricultural commodities’’ as a result 

of Commission action: ‘‘Tobacco, 

products of horticulture, and such other 

commodities used or consumed by 

animals or humans as the Commission 

may by rule, regulation, or order 

designate after notice and opportunity 

for hearing;’’ and 

4. Finally, a provision applicable to: 

‘‘Commodity-based contracts based 

wholly or principally on a single 

underlying agricultural commodity.’’ 

In response to the NPRM, the 

Commission received twelve formal 

comment letters 12 representing a broad 

range of interests, including producers, 

merchants, swap dealers, commodity 

funds, futures industry organizations, 

academics, and policy organizations. In 

particular, comment letters were 

received from the following persons or 

entities: The Agricultural Swaps 

Working Group (‘‘Ag Swaps Working 

Group’’), comprised of financial 

institutions that provide risk 

management and investment products 

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41050 Federal Register / Vol. 76, No. 134 / Wednesday, July 13, 2011 / Rules and Regulations 

13See 76 FR 25274, May 4, 2011. 

14 Illustrated by the following quote from the 

NMPF letter, the majority of the comments filed for 

the June 3, 2011 deadline addressed issues outside 

of the scope of the agricultural commodity 

definition; e.g. end user concerns, cooperative 

associations, and the general regulatory regime for 

swaps: 

NMPF agrees that the proposed rule provides a 

reasonable definition of ‘‘agricultural commodity’’, 

with respect to milk, dairy products, and common 

dairy feedstuffs. 

However, this agreement must be seen in the 

context of our concerns about the potential overregulation of farmers, farmer cooperative 

associations, and other commercial end users, 

including small and limited resource farmers. 

See letter from NMPF. 

15See letter from NGFA. 

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

Swaps Working Group. 

17 In fact, the Commission has recently proposed 

to treat agricultural swaps the same as any other 

swap: See Commodity Options and Agricultural 

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

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

Working Group, Gavilon, and DFA. 

19See CEA section 1a(4). 

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

2010. 

21See letter from CMC. 

to agricultural end users; BOK Financial 

(‘‘BOK’’); Better Markets, Inc. (‘‘Better 

Markets’’); Commodity Markets Council 

(‘‘CMC’’); Dairy Farmers of America, 

Inc. (‘‘DFA’’); the Gavilon Group, LLC 

(‘‘Gavilon’’); Institute for Agriculture 

and Trade Policy (‘‘IATP’’); CME Group, 

Inc. (‘‘CME Group’’); Minneapolis Grain 

Exchange (‘‘MGEX’’); National Council 

of Farmer Cooperatives (‘‘NCFC’’); 

National Grain and Feed Association 

(‘‘NGFA’’); and Michael Greenberger 

(‘‘Professor Greenberger’’), a professor 

from the University of Maryland Law 

School. In addition, on May 4, 2011, the 

Commission re-opened the comment 

period on several of the Dodd-Frank 

rulemakings, including the proposed 

agricultural commodity definition, to 

June 3, 2011.13 Of the additional 

comments received, three specifically 

addressed substantive concerns related 

to the proposed agricultural commodity 

definition—one letter from Chris 

Barnard, discussed below; one letter 

from the National Milk Producers 

Federation (‘‘NMPF’’), generally 

supporting the proposed definition; and 

one letter from MGEX, reiterating the 

arguments made in its earlier 

comments.14

With minor variations discussed 

below, the majority of commenters 

supported the definition of agricultural 

commodity as proposed. The following 

statement from the NGFA is 

representative: 

The NGFA is supportive of the 

Commission’s efforts to define the term 

‘‘agricultural commodity’’ for purposes of 

implementing provisions of the Dodd-Frank 

Wall Street Reform and Consumer Protection 

Act. Generally, we believe the proposed rule 

takes a straightforward and common-sense 

approach to the issue and we have no current 

objection to the categorization of various 

agricultural commodities as detailed in the 

proposed rule. 

In response to the Commission’s questions, 

the NGFA at this time is not aware of 

additional commodities that should be 

included in the definition, though they may 

not fit neatly into the proposed rule; nor are 

we aware of commodities that do fit the 

proposed definition but should not be 

included. However, to accommodate 

situations that could arise in the future as 

new products are developed, the NGFA 

agrees that it would be prudent for the 

Commission to maintain some flexibility to 

consider or reconsider the status of any 

particular commodity as questions may arise 

in the context of specific markets or 

transactions.15

Many of the commenters specifically 

supported the fact that the proposed 

definition excludes biofuels.16 In 

addition, several commenters further 

noted the appropriateness of the 

definition in a regulatory regime where 

the Commission may decide to treat 

agricultural swaps as it does all other 

swaps.17

General support for the proposed 

definition; request for clarification on 

category two. Several commenters 

offered their general support for the 

definition as proposed, requesting only 

that the Commission clarify in any final 

rule that the second category of the 

agricultural commodity definition is 

self-effectuating and will encompass 

commodities that are now, or in the 

future may be, subject to swaps, futures, 

and options trading, without the need 

for additional CFTC action.18 These 

commenters suggested that such 

clarification would be consistent with 

Congress’ definition of ‘‘commodity’’ in 

the CEA, which includes certain 

enumerated commodities and ‘‘all other 

goods and articles, * * * and all 

services, rights, and interests in which 

contracts for future delivery are 

presently or in the future dealt in.’’ 19

In response to this request, the 

Commission wishes to clarify that the 

general operational definition found in 

the second category is self-executing 

and will encompass commodities that 

are now, or in the future may become 

subject to swaps, futures, and options 

trading, without the need for additional 

CFTC action. In this regard, the rule 

defines those commodities that are 

agricultural commodities. It does not 

matter whether futures, swaps, or 

options are being traded in the 

commodity—either now or in the future. 

Request for consideration of public 

comment regarding the classification of 

new commodities. Other commenters 

asked that the Commission provide a 

means for the public to comment upon 

and appeal any Commission decision to 

include or exclude a particular 

commodity from the list of agricultural 

commodities under any category of the 

definition. As proposed, such a 

comment and appeal process is 

contemplated only for commodities that 

may fall under category three of the 

Commission’s definition. In particular, 

subparagraph three of the agricultural 

commodity definition would allow the 

Commission to designate any other 

commodity used or consumed by 

animals or humans to be an agricultural 

commodity ‘‘by rule, regulation or order 

* * * after notice and opportunity for 

hearing.’’ 20 CMC asked for a 

clarification or expansion of this 

process: 

We therefore urge the Commission to 

provide for an appeals process for new 

instruments. To elaborate, we request that a 

consistent process and time period be 

instated for appealing a CFTC decision to 

include or exclude a particular commodity 

from the list of agricultural commodities. We 

acknowledge that the CFTC in its [NPRM] 

has made a provision for public hearings for 

Category 3 agricultural commodities, but we 

request that a process for public comments 

and appeals be made broadly available in the 

context of including or excluding an 

agricultural commodity under any category 

of the definition.21

On this topic, NGFA commented that in 

order to accommodate situations that 

could arise in the future as new 

products are developed, it would be 

prudent for the Commission to maintain 

some flexibility to consider or 

reconsider the status of any particular 

commodity as questions may arise in 

the context of specific markets or 

transactions. 

In considering these comments, the 

Commission has determined that the 

proposed definition, in conjunction 

with the Commission’s existing rules, 

already accommodates any concerns 

raised. With respect to commodities 

already listed in categories one or two, 

the NPRM that preceded these final 

rules provided an opportunity to 

question or challenge the inclusion or 

exclusion of any commodity listed in 

those categories. With respect to 

commodities not covered by the first 

two categories, category three of the 

proposed definition permits the 

Commission to designate any particular 

commodity as an ‘‘agricultural 

commodity,’’ but only after notice and 

an opportunity for hearing. Therefore, 

any time the Commission wishes to 

designate a particular commodity as an 

‘‘agricultural commodity,’’ it must 

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Federal Register / Vol. 76, No. 134 / Wednesday, July 13, 2011 / Rules and Regulations 41051 

22See letter from IATP. 

23 In this context, the Commission believes that 

the definition is appropriately flexible to 

incorporate food substitutes and other similar 

products should there be a need to do so at some 

point in the future. 

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

2010. 

25As will be discussed further below, MGEX’s 

comment may be based in part on confusion in the 

Commission’s wording of subparagraph four. As 

proposed, subparagraph four applies to 

‘‘commodity-based contracts’’ when in fact the 

wording should have read ‘‘commodity-based 

indexes,’’ and has been so corrected in the final 

rule. 

26See letter from NCFC. 

27Better Markets proposed that subparagraph four 

read as follows: ‘‘Commodity-based contracts based 

on a single underlying agricultural commodity; 

provided that contracts based on composite prices 

in the form of an index, which composite prices 

include one or more agricultural commodities, shall 

be considered to be one or more commodity-based 

contracts pro-rata based on the relevant weighting 

of each such single agricultural commodity in the 

index.’’ 

28See footnote 9, above. 

follow the procedures attendant to a 

normal notice and comment rulemaking 

(i.e., issuing a notice of proposed 

rulemaking, allowing a comment period, 

and then issuing a final rule or order). 

In addition, any action by the 

Commission to remove a commodity 

from the definition would constitute a 

regulatory amendment that would 

similarly require a notice and comment 

rulemaking. 

To the extent interested parties want 

to request that the Commission amend 

or add to the definition on their own 

initiative, they may submit a petition for 

issuance, amendment, or repeal of any 

rule pursuant to Commission regulation 

13.2. 

New or innovative commodity 

products. While generally supportive of 

the proposed definition, a comment 

letter from IATP expressed concern with 

respect to the commercial 

commodification of currently 

experimental commodities, ‘‘It perhaps 

goes without saying that the 

modification of traditional commodities 

by synthetic biology and other 

nanotechnologies will pose many and 

complex regulatory challenges to protect 

the public interest, should these 

commodities be traded under contracts 

subject to CFTC rules.’’22

The Commission believes that 

categories two and three of the 

definition, as proposed, appropriately 

provide for the inclusion of new or 

innovative commodities within the 

definition of ‘‘agricultural 

commodity’’—should such a 

determination become necessary.23

These ‘‘new’’ commodities will likely 

fall under category two of the 

agricultural commodity definition as 

being ‘‘used primarily for human food, 

shelter, animal feed or natural fiber.’’ 

And if they do not fall under category 

two, the Commission may use category 

three to issue a rule or order labeling 

them as agricultural commodities. 

Commodity-based indexes. Several 

commenters focused on subparagraph 

four of the proposed definition, which 

would include ‘‘commodity-based 

contracts based wholly or principally on 

a single underlying agricultural 

commodity.’’ 24 MGEX commented that 

subparagraph four should be withdrawn 

altogether, arguing that cash-settled and 

electronically traded contracts on 

indexes (such as contracts on MGEX’s 

various wheat, corn, and soybean cashbid indexes) should remain outside of 

the definition of agricultural 

commodity.25

The NCFC commented that, without 

information on the practical effects of 

using a larger or smaller threshold than 

the proposed ‘‘more than 50%’’ to 

define ‘‘principally,’’ it supports the 

more than 50% level of a single 

commodity as proposed. However, they 

suggested future review of that level if 

concerns are raised or potential issues 

need to be addressed.26

Two commenters, Professor 

Greenberger and Better Markets, 

objected to the fact that the ‘‘based 

wholly or principally on a single 

underlying agricultural commodity’’ 

approach used in the proposed 

definition would fail to include indexes 

that contained several different 

agricultural commodities but had no 

concentration of greater than 50% of 

any one commodity. Professor 

Greenberger argued that, ‘‘The 

Commission should include a contract 

based on an index that includes 

agricultural commodities within the 

definition of agricultural commodity, so 

that it may be subject, inter alia, to the 

later rulemakings on speculative 

position limits under [section] 737 of 

the Dodd-Frank Act.’’ Better Markets 

expressed the concern that the proposed 

definition could enable a person to 

avoid compliance with other regulatory 

provisions specific to agricultural 

commodities, such as speculative 

position limits. As a potential solution, 

Better Markets proposed a revision to 

subparagraph four that would evaluate 

commodity-based indexes on a pro-rata 

basis, with no minimum or maximum 

percentage criterion. Under the Better 

Markets proposal, any contract on a 

commodity-based index could be both 

(1) a contract on agricultural 

commodities for that percentage of the 

index that is based on any agricultural 

commodity, and (2) a contract on nonagricultural commodities for that 

percentage of the index that is based on 

any non-agricultural commodity.27

Thus, for example, a person holding a 

contract on an index that is equally 

weighted in corn and soybeans would 

be considered to have a position in both 

corn and soybeans and this position 

would be aggregated with other corn 

and/or soybeans positions held by that 

trader for purposes of complying with 

speculative position limits applicable to 

either commodity. 

Chris Barnard’s letter similarly 

suggested that the Commission should 

revise category four to apply to 

‘‘commodity-based [indexes] based 

wholly or principally on underlying 

agricultural commodities.’’ 

In considering these comments, the 

Commission has determined to refine 

category four as follows: 

(a) In the final rule, the Commission 

has removed references to contracts and 

added references to indexes, confirming 

that category four applies to commoditybased indexes, rather than commoditybased contracts on an index. 

(b) In addition to the revisions 

described in (a), the text of category four 

has been revised to include commoditybased indexes ‘‘based wholly or 

principally on underlying agricultural 

commodities’’—as opposed to ‘‘based 

wholly or principally on a single 

underlying agricultural commodity.’’ As 

a general matter, the Dodd-Frank Act 

gives the Commission the authority to 

prohibit or otherwise limit swaps in an 

agricultural commodity. In the event 

that the Commission did take steps to 

generally prohibit or otherwise limit 

swaps in an agricultural commodity, 

there would be legitimate concern about 

the potential proliferation of 

‘‘agricultural commodity-based 

indexes’’ (and contracts thereon) being 

designed to replicate the economic 

terms of otherwise prohibited swaps in 

an agricultural commodity. 

However, because the Commission 

has proposed to permit swaps in an 

agricultural commodity to transact 

subject to the same rules applicable to 

all other swaps, that concern is almost 

certainly moot.28 There will be no 

incentive for regulatory arbitrage as 

between an agricultural swap and a 

swap on an index that is economically 

equivalent to an agricultural swap 

because both transactions would be 

subject to the same regulatory scheme. 

Nonetheless, in response to certain 

concerns raised by Professor 

Greenberger, Better Markets, and Mr. 

Barnard, the Commission is expanding 

the commodity-based index category of 

the agricultural commodity definition to 

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41052 Federal Register / Vol. 76, No. 134 / Wednesday, July 13, 2011 / Rules and Regulations 

29See Position Limits for Derivatives, 76 FR 4752, 

Jan. 26, 2011. 

30 Ibid. 

31 76 FR 6095, Feb. 3, 2011. 

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

only applies to swaps in an agricultural commodity 

and does not extend to futures on an agricultural 

commodity. 

33Swaps in an agricultural commodity, other than 

those currently permitted (for example, pursuant to 

part 35), are generally prohibited under section 

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

provision cited by BOK. However, section 

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

CEA section 4(c) authority, may expand the 

universe of agricultural swaps that are permitted to 

trade. The Commission’s recent agricultural swaps 

and commodity options proposal would permit 

agricultural swaps transactions to continue subject 

to all rules otherwise applicable to any other swap. 

See 75 FR 6095, Feb. 3, 2011. 

34See Commodity Options and Agricultural 

Swaps, 76 FR 6095, Feb. 3, 2011. 

include not only any index that is 

concentrated at greater than 50% in a 

single agricultural commodity, but also 

any index concentrated at greater than 

50% in agricultural commodities 

generally. Thus, for example, an index 

composed of 25% each, wheat, corn, 

soybeans, and gold would fall within 

the definition because more than 50% of 

that index is composed of agricultural 

commodities, and any contract on that 

index would be a contract on an 

agricultural commodity. 

(c) As described above, the Better 

Markets comment letter also raised a 

related concern about the potential for 

avoiding position limits by using swaps 

on an index as an alternative to swaps 

on an agricultural commodity. Professor 

Greenberger expanded the concern, 

arguing that any multiple commodity 

index that references any farm product 

should be included in the definition of 

agricultural commodity. The 

Commission has considered these 

comments and notes the following: 

(1) As proposed,29 position limits 

would be applied on a contract by 

contract basis. That is, the inquiry into 

whether an index is an ‘‘agricultural 

commodity’’ is not relevant, because 

there are no position limits that would 

apply broadly to a contract on an 

‘‘agricultural commodity.’’ Rather, the 

proposed position limits apply to 

positions in specific contracts, known as 

reference contracts (for example, the 

CBOT corn contract, the CBOT wheat 

contract, etc.), options thereon, and 

swaps economically equivalent thereto. 

The relevant inquiry becomes whether a 

contract on an index (or pro rata portion 

thereof) is economically equivalent to a 

reference contract, as defined in the 

proposed position limit rules, and not 

whether an index is or is not an 

agricultural commodity. 

(2) The position limit rules directly 

address contracts on a commodity-based 

index that would be used in an attempt 

to circumvent the position limit rules. 

Specifically, the proposed position limit 

rules provide that ‘‘a commodity index 

contract that incorporates the price of a 

commodity underlying a referenced 

contract’s commodity, which is used to 

circumvent speculative position limits, 

shall be considered to be a referenced 

contract for the purpose of applying the 

[proposed position limit rules].’’ 30

(d) As indicated above, MGEX favored 

withdrawing category four altogether, 

arguing that cash-settled and 

electronically traded contracts on 

indexes (such as contracts on MGEX’s 

various wheat, corn, and soybean cashbid indexes) should remain outside of 

the definition of agricultural 

commodity. In response, the 

Commission initially notes that DoddFrank directs the Commission to adopt 

a definition of agricultural commodity. 

Pursuant to section 723(c)(3) of the 

Dodd-Frank Act, swaps in an 

agricultural commodity (as defined by 

the Commission) are prohibited unless 

permitted by a CEA section 4(c) 

exemption. However, because the 

agricultural swaps proposal 31 will, if 

adopted as proposed, permit 

agricultural swaps to transact subject to 

the same rules applicable to any other 

swap, it appears that the practical effect 

of being labeled an agricultural 

commodity (or avoiding the label of 

agricultural commodity) will be 

immaterial. 

Still, the Commission will retain the 

authority, pursuant to section 723(c)(3) 

of the Dodd-Frank Act, to revise or 

amend the agricultural swaps rules and 

to place further limitations or 

restrictions on swaps in an agricultural 

commodity in the future.32 For that 

reason, the Commission is taking the 

step now, via the agricultural 

commodity definition, to remove any 

incentive for regulatory gaming that 

could result from being able to avoid the 

label of agricultural commodity by, for 

example, creating indexes, and then 

executing contracts thereon, that act as 

the functional or economic equivalent of 

otherwise limited or prohibited swaps 

on an agricultural commodity. 

Accordingly, the Commission is 

retaining the commodity-based index 

component in its agricultural 

commodity definition, as revised herein. 

Customer hedging. BOK submitted a 

comment letter requesting an exemption 

from section 723(c)(3)(A) of the DoddFrank Act 33 for transactions that hedge 

customer positions, irrespective of 

whether the underlying commodity is 

agricultural or non-agricultural. That is, 

BOK’s letter requests that the 

Commission provide a confirmation that 

hedging transactions involving 

agricultural commodities will not be 

subject to the Dodd-Frank Act’s general 

prohibition of swaps in an agricultural 

commodity. The Commission believes 

that the concerns raised by BOK’s letter 

have generally been addressed in the 

Commission’s proposed rules for 

agricultural swaps and commodity 

options. Those rules would treat 

agricultural swaps, whether they 

constitute hedging or speculation, the 

same as other swaps. Thus, hedging 

transactions involving agricultural 

swaps would be subject to the same 

standards as hedging transactions 

involving other commodities.34

Category two determinations. MGEX 

also commented briefly on the 

Commission’s explanatory example in 

the NPRM regarding the phrase ‘‘used 

primarily’’ in category two. Category 

two covers: ‘‘All other commodities that 

are, or once were, or are derived from, 

living organisms, including plant, 

animal and aquatic life, which are 

generally fungible, within their 

respective classes, and are used 

primarily for human food, shelter, 

animal feed, or natural fiber.’’ The 

NPRM explained that the phrase ‘‘used 

primarily’’ means that if ‘‘50% of the 

peaches harvested, plus one, are used 

for human food’’ then peaches are an 

agricultural commodity. MGEX 

commented that this definition could 

lead to a slippery slope of managing the 

use for each crop and that the definition 

did not appear to provide for legal 

certainty. 

The Commission has considered 

MGEX’s comment and determined to 

retain category two as proposed, 

including the above-quoted explanation 

of the phrase ‘‘used primarily.’’ Initially, 

and as noted above, the difference 

between being labeled an agricultural 

commodity and any other type of 

commodity is likely to have minimal or 

no impact because: (1) The Commission 

has proposed rules to treat agricultural 

swaps the same as any other swap; and 

(2) the position limit rules proposed by 

the Commission would apply on a 

contract-by-contract basis and do not 

key on whether or not a particular 

commodity is agricultural. 

Beyond that, the Commission is not 

aware of, and MGEX did not identify, 

any actual commodity where the 

‘‘amount used for human food, shelter, 

animal feed, or natural fiber’’ is so close 

to 50% as to present a danger of being 

gamed for the purpose of avoiding the 

application of the agricultural 

commodity definition. The point of the 

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Federal Register / Vol. 76, No. 134 / Wednesday, July 13, 2011 / Rules and Regulations 41053 

35The NPRM specifically noted: 

[I]f the definition of an agricultural commodity is 

made effective upon the publication of a final rule, 

it would provide clarity as to what swaps are or are 

not eligible for the exemptions found in current 

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

which their repeal by the Dodd-Frank Act becomes 

effective. Is there any reason not to make the 

definition of agricultural commodity effective upon 

the publication of a final rule? Are there swaps 

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

[section] 2(h) that would be considered transactions 

in an agricultural commodity (and thus potentially, 

temporarily illegal) under the definition proposed 

herein? If so, should the effective date of the 

definition be postponed until the repeal of current 

CEA [sections] 2(g) and 2(h), for all purposes other 

than for the setting of speculative position limits, 

which will become effective prior to the repeal? 

See NPRM at 65592. 

36See Effective Date for Swap Regulation, 76 FR 

35372, June 17, 2011. 

37Petroleum products clearly would not fall 

within the enumerated commodities. ‘‘These 

itemized commodities are agricultural in nature.’’ 

Philip McBride Johnson, Commodities Regulation, 

§ 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. 

Commission’s proposed definition and 

accompanying explanation was to draw 

a reasonable and common sense line 

between that which is agricultural and 

that which is not. To the extent the 

prospect of gaming this aspect of 

category two of the agricultural 

commodity definition arises in the 

future, the Commission also points out 

that it may use category three of the 

definition to declare any particular 

commodity to be agricultural by issuing 

a rule, regulation, or order so 

designating ‘‘after notice and 

opportunity for hearing.’’ 

Effective date. The final question 

facing the Commission was: ‘‘What 

should be the effective date of the final 

definition?’’ 35 CME Group noted that 

‘‘[o]nce adopted, the definition will also 

clarify the scope of the exemptions 

under CEA sections 2(g) and 2(h)—at 

least until Dodd-Frank takes effect and 

eliminates these exemptions.’’ However, 

any clarification needed as between the 

agricultural commodity definition and 

pre Dodd-Frank CEA provisions is being 

addressed in the Commission’s DoddFrank transition period relief.36 Beyond 

concerns related to pre Dodd-Frank CEA 

provisions, NCFC noted that it was 

‘‘unaware of any reason not to make the 

definition of agricultural commodity 

effective upon the publication of the 

final rule.’’ 

Therefore, the Commission has 

determined that the effective date of the 

final agricultural commodity definition 

shall be sixty days after the publication 

of this final rule, as required by the 

Dodd-Frank Act. By providing that the 

definition becomes effective as early as 

is allowed by the Dodd-Frank Act, the 

Commission intends to provide legal 

certainty for market participants as they 

plan for the regulatory regime that will 

follow the Dodd-Frank transition relief. 

Part III—Explanation of the Definition 

A. Terms of the Final Definition 

Except for the revisions to category 

four (explained more fully below), the 

terms of the final definition are the same 

as the terms of the definition as 

proposed in the NPRM. 

B. Explaining the Definition 

Category One—Enumerated Agricultural 

Commodities 

Category one includes the 

‘‘enumerated agricultural commodities’’ 

specified in current section 1a(4) of the 

Act (renumbered as section 1a(9) under 

the Dodd-Frank Act). While there is 

considerable overlap between categories 

one and two, category one includes 

some commodities that would not 

qualify under category two. For 

example, ‘‘fats and oils’’ would include 

plant-based oils, such as tung oil and 

linseed oil, which are used solely for 

industrial purposes (and thus would not 

fall within category two). Section 1a(4)’s 

reference to ‘‘oils’’ would not, however, 

extend to petroleum products.37

Category Two: Operative Definition of 

Agricultural Commodities 

As a general matter, Category 2 seeks 

to draw a line between products derived 

from living organisms that are used for 

human food, shelter, animal feed or 

natural fiber (covered by the definition) 

and products that are produced through 

processing plant or animal-based inputs 

to create products largely used as 

industrial inputs (outside the 

definition). This general operational 

definition is self-executing and will 

encompass commodities that are now or 

in the future may become subject to 

swaps, futures, and options trading, 

without the need for additional CFTC 

action. In this regard, the rule defines 

those commodities that are agricultural 

commodities. It does not matter whether 

futures, swaps, or options are being 

traded in the commodity—either now or 

in the future. Thus, a commodity 

evaluated under category two either is 

or is not an agricultural commodity 

regardless of its trading status. 

Some of the terms used in describing 

the second category require further 

clarification, particularly the terms, 

‘‘generally fungible,’’ ‘‘used primarily,’’ 

‘‘human food’’ and ‘‘natural fiber.’’ 

‘‘Generally fungible’’—means 

substitutable or interchangeable within 

general classes. For example, apples, 

coffee beans, and cheese are generally 

fungible within general classes, even 

though there are various grades and 

types, and so they would be agricultural 

commodities. On the other hand, 

commodities that have been processed 

and have taken on a unique identity 

would not be generally fungible. Thus, 

while flax or mohair are generally 

fungible natural fibers, lace and linen 

garments made from flax, or sweaters 

made from mohair, are not generally 

fungible and would not be agricultural 

commodities under category two. 

‘‘Used primarily’’—means any 

amount of usage over 50%. For 

example, if 50% of the peaches 

harvested, plus one, are used for human 

food, then peaches fall within category 

two. 

‘‘Human food’’—includes drink. Thus 

fruit juice, wine, and beer are ‘‘food’’ for 

purposes of the definition of 

‘‘agricultural commodity.’’ 

‘‘Natural fiber’’—means any naturally 

occurring fiber that is capable of being 

spun into a yarn or made into a fabric 

by bonding or by interlacing in a variety 

of methods including weaving, knitting, 

braiding, felting, twisting, or webbing, 

and which is the basic structural 

element of textile products. 

Based on the foregoing, therefore, 

category two would include such 

products as: Fruits and fruit juices; 

vegetables and edible vegetable 

products; edible products of enumerated 

commodities, such as wheat flour and 

corn meal; poultry; milk and milk 

products, including cheese, nonfat dry 

milk and dry whey; distiller’s dried 

grain; eggs; cocoa beans, cocoa butter 

and cocoa; coffee beans and ground 

coffee; sugarcane, sugar beets, beet pulp 

(used as animal feed), raw sugar, 

molasses and refined sugar; honey; beer 

and wine; shrimp; and silk, flax and 

mohair. 

Category two would also include stud 

lumber, plywood, strand board and 

structural panels because they are 

derived from living organisms (trees), 

are generally fungible (e.g., random 

length 2 × 4s and 4 × 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 

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41054 Federal Register / Vol. 76, No. 134 / Wednesday, July 13, 2011 / Rules and Regulations 

38The MGEX agricultural index products are 

currently available for corn, soybeans, and various 

types of wheat. These index products are 

financially settled to a spot index of country origin 

pricing as calculated by a firm called Data 

Transmission Network (‘‘DTN’’). Cash settlement is 

based upon the simple average of the spot prices 

published on the last three trading days of the 

settlement month. 

39See Commodity Options and Agricultural 

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

40New section 1a (19)(iii) as renumbered under 

the Dodd-Frank Act. 

41 7 U.S.C. 13–1. 

42See Commodity Options and Agricultural 

Swaps, 76 FR 6095, Feb. 3, 2011. 

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

the Commission is required to adopt speculative 

position limits for agricultural commodities. 

used primarily for human food, shelter, 

animal feed or natural fibers. On the 

other hand, maple syrup and maple 

sugar, also derived from trees, would be 

‘‘agricultural commodities.’’ Rayon, 

which is a fiber derived from trees or 

other plants, falls out of category two 

because it is not a natural fiber—i.e., it 

must be chemically processed from 

cellulose before it becomes fiber. 

Category two would include high 

fructose corn syrup, but not corn-based 

products such as polylactic acid (a corn 

derivative used in biodegradable 

packaging), butanol (a chemical derived 

from cornstarch and used in 

plasticizers, resins, and brake fluid) or 

other plant-based industrial products. 

Category two would include pure 

ethanol, which is derived from living 

organisms (corn and other plants), is 

generally fungible, and may be used for 

human food (as an ingredient of 

alcoholic beverages). However, it would 

not include denatured ethanol, which is 

used for fuel and for other industrial 

uses, because denatured ethanol cannot 

be used for human food. Likewise, 

neither would Category 2 include other 

plant or animal based renewable fuels, 

such as methane or biodiesel. Fertilizer 

and other agricultural chemicals, even 

though they are used almost exclusively 

in agriculture, would not fall within the 

definition because they would not fit 

into the food, shelter, animal feed, or 

natural fiber category. 

Category Three—Other Agricultural 

Commodities 

Category three would include 

commodities that do not readily fit into 

the first two categories, but would 

nevertheless be widely recognized as 

commodities of an agricultural nature. 

Such commodities would include, for 

example, tobacco, products of 

horticulture (e.g., ornamental plants), 

and such other commodities used or 

consumed by animals or humans as the 

Commission may by rule, regulation or 

order designate after notice and 

opportunity for hearing. The 

Commission would determine the status 

of any such other commodities for 

purposes of the Act and CFTC 

regulations on a case-by-case basis as 

questions arise in the context of specific 

markets or transactions. 

Category Four—Commodity-Based 

Indexes 

The term, ‘‘agricultural commodity,’’ 

also includes a commodity-based index 

based wholly or principally on 

underlying agricultural commodities. 

Thus, for example, the Minneapolis 

Grain Exchange (‘‘MGEX’’) wheat, corn 

and soybean price index contracts 38

would be considered contracts on 

agricultural commodities—that is the 

underlying single commodity index is 

an agricultural commodity. Also, any 

index made up of more than 50% of 

agricultural commodities, since it is 

based principally on underlying 

agricultural commodities, would be 

considered an agricultural commodity 

for purposes of including it within the 

agricultural commodity definition. 

Thus, for example, a commodity-based 

index composed of 20% each, wheat, 

corn, soybeans, crude oil and gold, since 

it is composed of more than 50% 

agricultural commodities, would be an 

agricultural commodity. Therefore, 

swaps on such an index would be 

subject to special rules (if any) that 

might be adopted for agricultural 

commodity swaps.39

The definition of an ‘‘excluded 

commodity’’ in current CEA section 

1a(13)(iii) 40 could be read to include 

any index of agricultural commodities. 

That definition provides that ‘‘excluded 

commodity’’ means, among other things, 

‘‘any economic or commercial index 

based on prices, rates, values, or levels 

that are not within the control of any 

party to the relevant contract, 

agreement, or transaction.’’ However, 

such a reading is inconsistent with the 

requirement in Dodd-Frank that swaps 

in agricultural commodities be 

permitted only pursuant to a section 

4(c) order of the Commission. For 

example, a swap contract based on a 

price index of solely wheat should 

reasonably be considered as a swap in 

an agricultural commodity. Applying a 

mechanical interpretation of the 

definition of excluded commodity could 

permit ‘‘gaming’’ by allowing an index 

based principally, or even 

overwhelmingly, on agricultural 

commodities to evade any potential 

limitations on trading agricultural 

swaps that are found in the Dodd-Frank 

Act. For this reason, the definition 

issued herein would include an index 

based wholly or principally on 

underlying agricultural commodities. 

Onions 

Onions present a unique case in that 

onions are the only agricultural product 

specifically excluded from the 

enumerated commodities list in current 

CEA section 1a(4). Also, Public Law 85– 

839 prohibits the trading of onion 

futures on any board of trade in the 

United States.41 Nothing in the 

definition issued herein affects the 

prohibition on onion futures trading. 

In defining an agricultural 

commodity, given that term’s statutory 

history, as well as the Act’s grammatical 

construction, it would appear that 

‘‘agricultural commodity’’ is a subset of 

‘‘commodity’’ and, since onions are 

excluded from the definition of 

‘‘commodity,’’ onions cannot be 

considered an ‘‘agricultural 

commodity.’’ However, under the DoddFrank Act, the definition of ‘‘swap’’ in 

new section 1a(47) of the CEA is not 

limited to transactions based upon 

‘‘commodities’’ as defined in current 

section 1a(4) of the Act. Therefore, 

under the CEA as amended by DoddFrank, a swap may be based upon an 

item that is not defined as a 

‘‘commodity.’’ Thus, onion swaps 

would seem to be permissible, but 

would not be considered to be swaps in 

an ‘‘agricultural commodity’’ under the 

definition contained herein. 

C. Effects of Applying the Definition 

It is also important to consider the 

uses to which the definition will be 

put—i.e., what would be the practical 

effect of a commodity being classified as 

an ‘‘agricultural commodity’’ under the 

definition contained herein? One effect 

is that the commodity would be covered 

by any rules the Commission ultimately 

adopts for agricultural swaps. If, based 

on the current commodity options and 

agricultural swaps proposal,42 it is 

determined that agricultural swaps 

should be treated the same as other 

physical commodity swaps, the 

definition should have no effect in the 

agricultural swaps context. 

The other significant effect of a 

commodity being classified as an 

‘‘agricultural commodity’’ is that the 

commodity would be subject to the 

timeframes for speculative position 

limits for agricultural commodities,43

rather than the timeframes for 

speculative limits for exempt 

commodities. As discussed above, the 

classification of a given commodity as 

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44See Position Limits for Derivatives, 76 FR 4752, 

Jan. 26, 2011. 

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

46The Commission views this language as a 

Congressional directive to provide a formal 

definition of the term ‘‘agricultural commodity,’’ 

and by issuing this definition, the Commission is 

following that directive. 

47See Position Limits for Derivatives, 76 FR 4752, 

Jan. 26, 2011, and Commodity Options and 

Agricultural Swaps, 76 FR 6095, Feb. 3, 2011. 48 5 U.S.C. 601 et seq. 

‘‘agricultural’’ vs. ‘‘exempt’’ should have 

no long-term practical effect on the 

commodity or how it is traded in the 

speculative limits context because: (1) 

The definition will only apply to 

commodities that are the subject of 

actual swaps or futures trading; and (2) 

the speculative limits for any such 

commodities, as proposed, will be based 

not on any general across-the-board 

definition or principle, but on the 

individual characteristics of each 

commodity, its swaps/futures market, 

and its underlying cash market.44

Part IV—Related Matters 

A. Paperwork Reduction Act 

The final rule will not impose any 

new recordkeeping or information 

collection requirements, or other 

collections of information that require 

approval of the Office of Management 

and Budget under the Paperwork 

Reduction Act.45 In the proposed rule, 

the Commission invited public 

comment on the accuracy of its estimate 

that no additional recordkeeping or 

information collection requirements or 

changes to existing collection 

requirements would result from the 

proposed rule. The Commission 

received no comments on the accuracy 

of its estimate. 

B. Cost Benefit Considerations 

Section 15(a) of the CEA requires the 

Commission to consider the costs and 

benefits of its actions before issuing new 

regulations under the Act. Section 15(a) 

does not require the Commission to 

quantify the costs and benefits of new 

regulations or to determine whether the 

benefits of adopted regulations 

outweigh their costs. Rather, section 

15(a) requires the Commission to 

consider the costs and benefits of the 

subject regulations in light of five broad 

areas of market and public concern: (1) 

Protection of market participants and 

the public; (2) market efficiency, 

competitiveness, and financial integrity; 

(3) price discovery; (4) sound risk 

management practices; and (5) other 

public interest considerations. The 

Commission may, in its discretion, give 

greater weight to any one of the five 

enumerated areas of concern and may, 

in its discretion, determine that, not 

withstanding its costs, a particular 

regulation is necessary or appropriate to 

protect the public interest or to 

effectuate any of the provisions or 

accomplish any of the purposes of the 

CEA. 

The agricultural commodity 

definition is not expected to impose any 

significant costs on industry 

participants. In addition, we believe that 

public interest considerations required 

by CEA section 15(a) weigh strongly in 

favor of adopting and issuing the 

agricultural commodity definition. The 

public interest benefit is that the 

definition provides legal certainty for 

indentifying those commodities that are 

agricultural commodities—and which 

may be the subject of a ‘‘swap in an 

agricultural commodity (as defined by 

the [CFTC]).’’ See Dodd-Frank section 

723(c)(3).46 And as stated in the NPRM, 

defining an agricultural commodity for 

purposes of the CEA would seem to 

have limited immediate practical 

effects. The NPRM noted that the 

definition will be necessary for other 

substantive rulemakings, such as the 

timeframes for setting speculative 

position limits for exempt and 

agricultural commodities under section 

737 of the Dodd-Frank Act and 

determining the permissibility of 

trading agricultural swaps under section 

723(c)(3) and section 733 of the DoddFrank Act. Those other rulemakings 

were discussed in the original cost 

benefit analysis in the NPRM. As those 

rules have now been proposed, the 

respective costs and benefits of those 

rules are discussed in those proposed 

rules.47

Regarding comments received 

concerning costs and benefits, Professor 

Greenberger stressed that the cost 

benefit analysis should concentrate on 

protecting the public interest. The 

professor noted that reasonable food 

prices are in the public interest and 

expressed his view that speculative 

position limits are an effective tool to 

curb excessive speculation that can 

artificially raise food prices. Professor 

Greenberger argued that any multiple 

commodity index that references any 

farm product should be included in the 

definition of agricultural commodity. 

Much like Professor Greenberger, IATP 

believed that public interest 

considerations, including food security, 

should be paramount in the cost benefit 

analysis. As noted in the summary of 

comments above, the proposed position 

limits rulemaking contains a provision 

designed to prevent ‘‘gaming’’ of 

speculative position limits in relation to 

indexes, including indexes with 

agricultural components. In addition, 

this final rule includes a revised 

commodity-based index provision that 

would include any index made up of 

more than 50% of agricultural 

commodities in the agricultural 

commodity definition. In contrast, the 

proposed rule would only have 

included an index made up of more 

than 50% of a single agricultural 

commodity. 

The Commission also notes that 

category three of the definition, which 

permits the Commission to designate 

new agricultural commodities after a 

notice and comment period, is designed 

to provide an appropriate level of 

flexibility for the Commission as 

unforeseen developments and 

challenges emerge in relation to 

agricultural commodities. 

The Ag Swaps Working Group, 

Gavilon, DFA and the CME Group 

commented that clarifying that the 

general operational definition in the 

second category of the agricultural 

commodity definition is self-executing 

would increase legal certainty. The Ag 

Swaps Working Group and DFA added 

that such a clarification would be in the 

public interest. As noted in the 

summary of comments above, the 

Commission has made such a 

clarification. 

C. Regulatory Flexibility Act 

The Regulatory Flexibility Act 

(‘‘RFA’’) 48 requires that agencies 

consider whether the rules they propose 

will have a significant economic impact 

on a substantial number of small entities 

and, if so, provide a regulatory 

flexibility analysis respecting the 

impact. The rules contained herein 

provide a definition that will largely be 

used in other rulemakings and which, 

by itself, imposes no significant new 

regulatory requirements. Accordingly, 

the Chairman, on behalf of the 

Commission, hereby certifies pursuant 

to 5 U.S.C. 605(b) that the rules will not 

have a significant impact on a 

substantial number of small entities. 

List of Subjects in 17 CFR Part 1 

Definitions, Agriculture, Agricultural 

commodity. 

In consideration of the foregoing, and 

pursuant to the authority contained in 

the Commodity Exchange Act and, in 

particular, sections 2(a)(1), 5h, and 8a 

thereof, 7 U.S.C. 2, 7b–3, and 12a, and 

pursuant to the authority contained in 

section 723(c)(3) of the Dodd-Frank 

Wall Street Reform and Consumer 

Protection Act, Public Law 111–203, 

124 Stat. 1376 (2010), the Commission 

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41056 Federal Register / Vol. 76, No. 134 / Wednesday, July 13, 2011 / Rules and Regulations 

hereby amends 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: 

§ 1.3 Definitions. 

* * * * * 

(zz) Agricultural commodity. This 

term means: 

(1) The following commodities 

specifically enumerated in the 

definition of a ‘‘commodity’’ found in 

section 1a of the Act: Wheat, cotton, 

rice, corn, oats, barley, rye, flaxseed, 

grain sorghums, mill feeds, butter, eggs, 

Solanum tuberosum (Irish potatoes), 

wool, wool tops, fats and oils (including 

lard, tallow, cottonseed oil, peanut oil, 

soybean oil and all other fats and oils), 

cottonseed meal, cottonseed, peanuts, 

soybeans, soybean meal, livestock, 

livestock products, and frozen 

concentrated orange juice, but not 

onions; 

(2) All other commodities that are, or 

once were, or are derived from, living 

organisms, including plant, animal and 

aquatic life, which are generally 

fungible, within their respective classes, 

and are used primarily for human food, 

shelter, animal feed or natural fiber; 

(3) Tobacco, products of horticulture, 

and such other commodities used or 

consumed by animals or humans as the 

Commission may by rule, regulation or 

order designate after notice and 

opportunity for hearing; and 

(4) Commodity-based indexes based 

wholly or principally on underlying 

agricultural commodities. 

* * * * * 

Issued in Washington, DC, on July 7, 2011, 

by the Commission. 

David A. Stawick, 

Secretary of the Commission. 

Appendices to Agricultural Commodity 

Definition—Commission Voting 

Summary and Statements of 

Commissioners 

Note: The following appendices will not 

appear in the Code of Federal Regulations 

Appendix 1—Commission Voting 

Summary 

On this matter, Chairman Gensler and 

Commissioners Dunn, Sommers, O’Malia and 

Chilton voted in the affirmative; no 

Commissioner voted in the negative 

Appendix 2—Statement of Chairman 

Gary Gensler 

I support the final rulemaking that defines 

the term, ‘‘agricultural commodity.’’ The 

Dodd-Frank Act requires that agricultural 

commodities be defined. In a separate 

rulemaking, the Commission will determine 

the requirements that apply to swaps on 

agricultural commodities. 

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

BILLING CODE P 

SECURITIES AND EXCHANGE 

COMMISSION 

17 CFR Parts 240 and 249 

[Release No. 34–64832; File No. S7–29–11] 

RIN 3235–AL18 

Amendment to Rule Filing 

Requirements for Dually-Registered 

Clearing Agencies 

AGENCY: Securities and Exchange 

Commission. 

ACTION: Interim final rule; request for 

comment. 

SUMMARY: The Securities and Exchange 

Commission (‘‘SEC’’ or ‘‘Commission’’) 

is adopting an interim final rule to 

amend Rule 19b–4 under the Securities 

Exchange Act of 1934 (‘‘Exchange Act’’). 

The amendment expands the list of 

categories that qualify for summary 

effectiveness under Section 19(b)(3)(A) 

of the Exchange Act to include any 

matter effecting a change in an existing 

service of a clearing agency registered 

with the Commission (‘‘Registered 

Clearing Agency’’) that both primarily 

affects the futures clearing operations of 

the clearing agency with respect to 

futures that are not security futures and 

does not significantly affect any 

securities clearing operations of the 

clearing agency or any related rights or 

obligations of the clearing agency or 

persons using such service. The 

Commission also is making a 

corresponding technical modification to 

the General Instructions for Form 19b– 

4 under the Exchange Act. The 

amendments to Rule 19b–4 and Form 

19b–4 are intended to streamline the 

rule filing process in areas involving 

certain activities concerning nonsecurity products that may be subject to 

overlapping regulation as a result of, in 

part, certain provisions under Section 

763(b) of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act of 

2010 (‘‘Dodd-Frank Act’’) that would 

deem some clearing agencies to be 

registered with the Commission as of 

July 16, 2011. 

DATES: Effective Date: July 15, 2011. 

Comment Date: Comments on the 

interim final rule should be submitted 

on or before September 15, 2011. 

ADDRESSES: Comments may be 

submitted by any of the following 

methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/proposed.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number S7–29–11 on the subject line; 

or 

• Use the Federal eRulemaking Portal 

(http://www.regulations.gov). Follow the 

instructions for submitting comments. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F St., NE., Washington, DC 20549– 

1090. 

All submissions should refer to File 

Number S7–29–11. This file number 

should be included on the subject line 

if e-mail is used. To help us process and 

review your comments more efficiently, 

please use only one method. The 

Commission will post all comments on 

the Commission’s Internet Web site 

(http://www.sec.gov/rules/ 

proposed.shtml). Comments are also 

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F St., NE., 

Washington, DC 20549 on official 

business days between the hours of 

10 a.m. and 3 p.m. All comments 

received will be posted without change; 

the Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

available publicly. 

FOR FURTHER INFORMATION CONTACT: 

Jeffrey S. Mooney, Assistant Director; 

Joseph P. Kamnik, Senior Special 

Counsel; and Andrew R. Bernstein, 

Attorney-Adviser, Office of Clearance 

and Settlement, Division of Trading and 

Markets, Securities and Exchange 

Commission, 100 F Street, NE., 

Washington, DC 20549–7010 at (202) 

551–5710. 

SUPPLEMENTARY INFORMATION: The 

Commission is adopting an amendment 

to Rule 19b–4 under the Exchange Act 

as an interim final rule to expand the 

list of categories that qualify for 

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