May 19,2009 

David Stawick, Secretary 

Received CFTC 

RecOrds Section 

Commodity Futures Trading Commission 

Three Lafayette Centre 

1155 21st Street, NW 

Washington, DC 20581 

or-1 

Q· 

C.F.T.C. 

OFFICE OF THE SECRETARIAT 

2009 PlBY 29 PPl 2 15 

. ,- .. 

COMMENT 

RE: Whether to Eliminate the Bona Fide Hedge Exemption for Certain Swaps Dealers and 

Create a New Limited Risk Management Exemption from Speculative Position Limits 

Dear Secretary Stawick: 

Cargill is an international provider of food, agricultural, and risk management products and services. As 

a merchandiser, processor and exporter of commodities, the company relies heavily upon efficient and 

well-functioning futures markets and over-the-counter markets. 

We are pleased to submit public comments as part of the Commodity Futures Trading Commission's 

(CFTC) Advance Notice for Proposed Rulemaking (ANPR) published in the Federal Register on March 

24, 2009. Our response to the questions outlined in the ANPR's request for comment provides the basis 

for CFTC actions that would: 

• Ensure that position limits or accountability limits on exchange-traded markets can be accurately 

enforced. 

• Provide a much greater degree of transparency and reporting for over-the-counter markets. 

Cargill encourages policymakers to develop regulatory systems that foster efficient, well-functioning 

exchange-traded and over-the-counter markets. As an active participant in the markets, we appreciate 

the CFTC's work on this issue and look forward to working with the agency as this issue develops. 

Sincerely, 

David Dines 

President 

Cargill Risk Management 

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CFTC Concept Release: 

Whether to Eliminate the Bona Fide Hedge Exemption for Certain Swaps Dealers and 

Create a New Limited Risk Management Exemption from Speculative Position Limits 

-Public CommentsA. General Advisability of Eliminating the Existing Bona Fide Hedge Exemption for Swap 

Dealers in Favor of a Limited Risk Management Exemption 

1. Should swap dealers no longer be allowed to qualify for exemption under the existing bona fide 

hedge definition? 

Swap dealers should be granted an exemption that allows them to facilitate market 

transactions and serve all customer needs. This does not need to necessarily be the 

existing hedge definition, but could be a risk management exemption as long as the 

exemption permits the swap dealer to offset its obligations on swaps. 

• If the dealer is facilitating a customer trade by offsetting the dealer's risk on the 

trade, the swap dealer should have an exemption. 

• To the extent a swap dealer acts as a speculator for its own account in a market 

with speculative position limits, the dealer should comply with a speculative 

position limit. 

2. If so, should the Commission create a limited risk-management exemption for swap dealers 

based upon the nature of their clients (e.g., being allowed an exemption to the extent a client is a 

traditional commercial hedger)? 

The nature of the client should determine the application of position limits for the client. 

• lfthe client is a speculator, a position limit should apply to the client, based on the 

futures equivalent amount of the swap. 

• If the client is a hedger, the hedge exemption should apply to the client. 

Since the swap dealer is facilitating market transactions, the swap dealer should be 

granted an exemption, limited risk-management or otherwise, that allows the dealer to 

- serve the needs of all customers, whether they are speculators or hedgers, as long as the 

client is acting within the client's own limits. 

3. If the bona fide hedge exemption were eliminated for swap dealers, and replaced with a new, 

limited risk management exemption, how should the new rules be applied to existing futures 

positions that no longer qualify for the new risk-management exemption? 

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• Swap dealers have a contractual liability and obligation on the OTC swap until 

expiration. Therefore, existing futures positions should be grandfathered in and 

allowed to remain in place until the corresponding OTC swap expires. 

• In addition, parties to the swap have relied on the swap in entering into other 

related transactions which might not be able to be unwound prior to their 

maturity. 

B. Scope of a Potential New Limited Risk Management Exemption for Swap Dealers 

4. Should the reinterpretation of bona fide hedging and any new limited risk management 

exemption extend to other physical commodities, such as energy and metals, which are subject to 

exchange position limits or position accountability rules? 

• The changes should be consistently applied to those commodities that currently 

have position limits or accountability limits. 

• The changes should not be extep.ded to new commodities that do not have 

position limits or accountability limits. The Commission and the SROs should 

retain their existing authority to review these as necessary. 

C. Terms of a Potential New Limited Risk Management Exemption for Swap Dealers 

5. If a new limited risk management exemption were to be permitted to the extent a swap dealer is 

taking on risk on behalf of commercial clients, how should the rules define what constitutes a 

commercial client? 

The Limited Risk Management Exemption should allow a swap dealer to offset its risks 

in the futures markets on all swaps for which it acts as dealer, regardless of the nature of 

the customer. 

Commercial customers should be defined as clients who are hedging physical input or 

output based on the following definition and who would continue to receive a bona fide 

hedge exemption: 

• Bona fide hedging transactions -

General definition: Bona fide hedging transactions and positions shall mean 

transactions or positions in a contract for future delivery on any contract market, 

or in a commodity option, where such transactions or positions normally represent 

a substitute for transactions to be made or positions to be taken at a later time in a 

physical marketing channel, and where they are economically appropriate to the 

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reduction of risks in the conduct and management of a commercial enterprise, and 

where they arise from: 

• The potential change in the value of assets which a person owns, produces, 

manufactures, processes, or merchandises or anticipates owning, 

producing, manufacturing, processing, or merchandising, 

• The potential change in the value of liabilities which a person owns or 

anticipates incurring, or 

• The potential change in the value of services which a person provides, 

purchases, or anticipates providing or purchasing. 

6. How should the Commission (and, if applicable, the responsible industry self-regulatory 

organization (SRO)) and the swap dealer itself verify that a dealer's clients are commercial? Is 

certification by the dealer sufficient or would something more be required from either the dealer 

or the client? If so, what should be reported and how often-weekly, monthly, etc.? 

• Swap dealers could, similar to an FCM, obtain representation in writing from its 

hedging customers that they are hedging, and the swap dealer is entitled to rely on 

this unless it has other information to contradict the representation. 

Apart from obtaining such a representation, the swap dealer's responsibility should be to: 

• Verify that a client is an Eligible Swap Participant or Eligible Contract 

Participant, as applicable. 

The Commission should continue the Special Call Report on a monthly basis to capture 

position information. For customers whose positions are large enough to be reported, the 

Commission could follow the model of the Large Trader Reporting Program and require 

that a form similar to Form 40 be filed by those customers: 

• To state whether the activity is hedging 

• To identify other accounts or swaps under common ownership or control with the 

reporting trader's swap positions 

7. For a swap dealer's noncommercial clients, should the rules distinguish between different 

classes of non-commercials-for example: (1) clients who are speculators (e.g., a hedge fund); 

(2) clients who are index funds trading passively on behalf of many participants; and (3) clients 

who are intermediaries (e.g., another swap dealer trading on behalf of undisclosed clients, some 

of whom may be commercials)? 

Yes, this will enhance transparency. 

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Category (1) would include traditional speculators (e.g. hedge funds), who would be 

required to abide by speculative position limits. 

Category (2) would include those hedging the potential change in value of liabilities 

which a person owes or anticipates incurring (e.g., pension funds, index funds) who 

would be placed in a different category. 

• Pension fund participants have commodity exposure in their retirement 

costs, so it's reasonable for pension funds to want offsetting (long) 

commodity exposure. To the extent that the hedge is long-only, a pension 

fund attempting to hedge their inflation adjusted exposure should be 

defined in this category. 

• To keep the positions of index and pension funds from distorting the 

market, or impacting contract functionality and performance, position 

limits could be established with discretion given to the SRO or CFTC to 

ensure overall market performance and functionality. 

Category (3) would be swap intermediaries who could receive an exemption if they: 

• Subject themselves to record keeping and reporting requirements, as 

recommended in question # 6. 

8. If a swap dealer were allowed an exemption for risk taken on against index-fund clients, how 

would the dealer satisfy the Commission that the fund is made up of many participants and is 

passively managed? Is certification by the dealer or fund sufficient or should the dealer or funds 

be required to identify the fund's largest clients? 

• The fund should provide certification that it is made up of many participants and 

is passively managed. 

• The dealer should not be required to identify the fund's largest clients. If this 

information is necessary, it should be acquired directly from the fund. 

9. If a swap dealer were allowed an exemption for risk taken on or against another intermediary, 

how would the dealer satisfy the Commission that its intermediary client does not in turn have 

non-commercial clients that are in excess of position limits? Is certification by the dealer or 

second intermediary sufficient or should the dealer or intermediary be required to separately 

identify the intermediary's largest clients? 

The intermediary swap dealer should be made subject to recordkeeping and reporting rules, 

including the duty to respond to special calls for information. 

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• These intermediary swap dealers would be analogous to omnibus accounts of an 

FCM and could be subject to analogous rules in relation to position limits. 

• The swap dealer trading on the exchange can only identify its own clients and 

should not be asked to identify the intermediary's largest clients. 

10. What futures equivalent position level should trigger the new limited risk management 

exemption reporting requirement? For example, under the rules of the on-going special call to 

swap dealers and index funds described earlier, a swap dealer must report any client in any 

individual months that exceeds 25% of the spot month limit, or the net long or short position of a 

client that in all months combined exceeds 25% of the all-months-combined limit. 

The same position levels that trigger inclusion on the Special Call Report should trigger 

the new limited risk management exemption reporting requirement. 

11. If none of a swap dealer's clients exceed required reporting levels in a given commodity, or 

none of such clients exceed reporting levels in any commodity, what type of report should be 

filed with the Commission--e.g., a certification by the swap dealer to the Commission to that 

effect? 

Yes, the swap dealer can provide certification to that effect. 

12. Should there be an overall limit on a swap dealer's futures and option positions in any one 

market regardless of the commercial or non-commercial nature of their clients? For example, "A 

swap dealer may not hold an individual month or all-months-combined position in an 

agricultural commodity named in 150.2 in excess of 10% ofthe average combined futures and 

delta-adjusted option month-end open interest for the most recent calendar year." 

Appropriate overall limits are already set since the end user of the swap is compliant with 

their speculative or bona fide hedge limit, The swap dealer is in a position analogous to 

an FCM, which does not have an overall limit on its positions as long as its customers are 

compliant with their limits. 

13. If a new limited risk -management exemption for swap dealers is created, what additional 

elements, other than those listed here, should be considered by the Commission in developing 

such an exemption? 

We believe the elements proposed in these comments and answers in response to the 

Advance Notice of Proposed Rulemaking will add the necessary transparency, better 

reporting, and ensure prudent and enforceable position limits. 

D. Other Questions 

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14. How should the two index traders who have received no-action relief from Federal speculative 

position limits (see footnote 15) be treated under any new regulatory scheme as discussed 

herein? 

The Commission should monitor these index traders to ensure that contract performance 

and functionality in the related exchange-regulated commodities are not impeded, and 

retain the authority to act if necessary. 

15. What information should be required in a swap dealer's application for a limited risk 

management exemption? 

If a limited risk management exemption is implemented, the swap dealer should be 

required to certify that it will: 

• Use its Limited Risk Management Exemption in the futures markets to offset its risks 

on swaps for which it acts as dealer 

• Acknowledge its obligations to maintain required records 

• Make required reports and certifications 

• Submit to special calls for information from the Commission and exchanges 

The swap dealer can also certify that futures positions will be terminated by first notice 

day. The swap dealer can apply for hedging authority on its exchange traded contracts in 

the same manner as it does currently. 

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