U.S. COMMODITY FUTURES TRADING COMMISSION

Three Lafayette Centre 

1155 21st Street, NW, Washington, DC 20581 

Telephone: (202) 418-5260 

Facsimile: (202) 418-5527 

www.cftc.gov

Division of 

Market Oversight

CFTC letter No. 06-02 

January 11, 2006 

No-Action 

Division of Market Oversight

Ms. Kristin M. Rebertus, Compliance Manager 

Cargill Risk Management 

Cargill, Incorporated 

12700 Whitewater Drive 

Minnetonka, MN 55343-9439 

 Re: Request for No-Action Relief with Regard to Section 32.13(a) of the Commission’s 

 Regulations, Registration Requirements for Agricultural Trade Option Merchants 

Dear Ms. Rebertus: 

This is in response to your letter dated November 30, 2005, to the Division of Market Oversight 

(the “Division”) as well as conversations with Division staff. By your correspondence you 

request on behalf of your employer, Cargill, Incorporated, that the Division provide written 

assurance that, if a to-be-formed, wholly-owned subsidiary of Cargill seeks and obtains 

registration as an agricultural trade option merchant (“ATOM”), the Division will not 

recommend enforcement action to the Commission for failure to comply with the provisions of 

Section 32.13(a) of the Commission’s regulations, which limits ATOM registration to “a 

producer, processor, or commercial user of, or a merchant handling or selling inputs used in the 

production of, the commodity which is the subject of the option transaction ...” 

The Facts 

We understand the facts, as described in your no-action request, to be as follows: Cargill is an 

international provider of food, agricultural and risk management products and services, with 

124,000 employees in 59 countries. Cargill's risk management business unit, Cargill Risk 

Management ("CRM"), develops products that assist producers, processors and commercial users 

of, and merchants handling or selling various commodities, or inputs used in the production of 

commodities, in managing their price risk. Cargill may deliver these price risk management 

products directly to qualified customers via over-the-counter derivatives ("OTCs") or indirectly, 

as components of formula pricing to be used to price commodities bought or sold by Cargill (the 

"Embedded Contract(s)"). At present, such contracts are being offered only in accordance with 

various exclusions or exemptions from the Commodity Exchange Act (“the Act”) and CFTC 

regulations, including: in the case of Embedded Contracts, the forward contracts exclusion, 

Section 1a(19) of the Act; and in the case of OTC contracts, the swaps exemption, Section 35.2 
2

of the regulations, and the exemption from the agricultural trade option rules found at Section 

32.13(g) of the regulations. 

 Several potential Embedded Contract customers are or may be interested in engaging in OTC 

transactions with Cargill to hedge their commodity price risk but may not qualify to transact with 

Cargill on an OTC basis under current CFTC exemptive regulations, including the net worth 

requirements of Section 32.13(g)(1)(iii) of the agricultural trade option rules. In order to offer 

risk management tools to these customers, Cargill wishes to take advantage of the ATOM 

registration provisions. 

ATOM registration entails reporting, accounting and other compliance requirements that, in light 

of the broad range of businesses operated within Cargill, are not workable for a very large 

privately held company. Therefore, Cargill intends to seek registration as an ATOM of a to-beformed, wholly-owned subsidiary (the “Applicant”). 

Under Section 32.13(a), one of the conditions for registration as an ATOM is that the option 

offeror/registrant must be “a person who is a producer, processor, or commercial user of, or a 

merchant handling or selling inputs used in the production of, the commodity which is the 

subject of the commodity option transaction ...” Since the Applicant would be involved only in 

offering agricultural trade options involving physical commodities, but not in the handling of the 

physical commodities themselves, arguably it would not fall within a strict reading of the 

provisions of Section 32.13(a). However, you contend that ATOM registration of the Applicant 

would be within the general intent of the ATOM regulations. 

In that context, you point to CFTC Interpretive Letter 03-36, November 4, 2003. In that letter, 

the Australian Wheat Board (“AWB”) asked that its US subsidiary, AWBUS, be recognized as 

falling within the terms of the Section 32.13(g)(1)(i) exemption. The requirements for option 

offerees under that exemption and the requirements for ATOM registrants are substantively 

identical. (See Sections 32.13(a) and 32.13(g)(1)(i)) Both must be a “producer, processor, or 

commercial user of, or merchant handling ...” the commodity at issue. As noted in the 

Interpretive Letter, the AWB pointed out that, “While AWBUS would not be directly producing, 

processing, using or handling grain commodities, it would be performing related market-making 

financial transactions.” The same is essentially true of the proposed activities of the Applicant, 

which would be performing related agricultural commodity related risk management financial 

transactions. 

You note that, after reviewing the applicable statutory and regulatory history, the Division found 

that “AWBUS’s proposed commercial wheat trading activities clearly fall within the 

Commission’s intent,” and thus would fall within the exemption, for the following three reasons: 

(1) AWBUS will be entering into option transactions solely for the purpose of facilitating 

the wheat trading activities of its corporate parent and affiliates; (2) the collective 

primary business purpose of AWBUS and its corporate parent and affiliates is the 

commercial trading of wheat commodities; and (3) AWBUS is sophisticated in the wheat 

trade and would have the means to tender or accept physical delivery of wheat, if 

necessary. 
3

You contend that the same rationale is equally applicable to the Applicant and its corporate 

parent, Cargill, since: (1) the Applicant will be entering into options for the purpose of 

facilitating the grain trading and/or risk management activities of its parent, Cargill; (2) both 

entities would be substantially involved in the agricultural commodity trading business or its 

associated price risk management ; and (3) the Applicant could tender or accept physical 

delivery, if necessary. 

Legal Analysis 

The legislative and regulatory history relating to options on agricultural commodities is long and 

rather convoluted.1

 In 1936, responding to a history of price disruptions in the futures markets 

attributed to speculative trading in options, Congress completely prohibited options trading, both 

on- and off-exchange, in the specific list of enumerated agricultural commodities then under 

regulation.2

 In 1974, Congress passed the Commodity Futures Trading Commission Act, 

creating the Commission and giving it jurisdiction over futures trading in all commodities, as 

well as plenary authority to regulate the offer and sale of commodity options. The Commission 

undertook various regulatory initiatives with respect to options on the newly regulated 

commodities.3 The Commission’s actions included exempting “trade options” from most 

regulation, except for the prohibition on fraud.4 However, the earlier prohibition on options 

trading in the enumerated agricultural commodities remained in place as a consequence of both 

statutory provision and Commission rule. See Commission Regulation 32.2. This prohibition 

extended to both exchange-traded options on agricultural commodities and off-exchange 

agricultural trade options. 

In 1982, responding to the success of a Commission pilot program that had allowed exchangetraded options in the non-enumerated commodities, Congress repealed the statutory ban on 

options in the enumerated agricultural commodities. The following year, the Commission 

implemented a pilot program allowing the reintroduction of exchange-traded options on the 

enumerated agricultural commodities.5 However, “in light of the lack of recent experience with 

agricultural options and because the trading of exchange-traded options is subject to more 

comprehensive oversight”6

 the Commission left in place the regulatory ban on (off-exchange) 

agricultural trade options. 

 

1

 For a comprehensive review of this history, see the preamble to the Commission’s Interim Final Rules for Trade 

Options on the Enumerated Agricultural Commodities, 63 FR 18821 (April 16, 1998). 

2

 The specific agricultural commodities (generally referred to as the “enumerated commodities”) listed in the 1936 

Commodity Exchange Act (“the Act”) included the grains, cotton, butter, eggs and potatoes. Later amendments to 

the Act added fats and oils, livestock, soybeans and other agricultural commodities. 

3

 These newly-regulated commodities, which first came under Commission jurisdiction under the 1974 Act, 

included financial instruments, currencies, energy products, metals and “non-enumerated” agricultural commodities 

such as coffee, sugar and cocoa. 

4

 A “trade option” is an off-exchange (over-the-counter) option offered to a commercial user who is entering into the 

option solely for purposes related to its business as such. See Commission Regulation 32.4. 5

 48 FR 46800 (October 14, 1983). 

6

 Id. 
4

In June of 1997, the Commission published an advance notice of proposed rulemaking7

 seeking 

comment on whether it should lift the prohibition on agricultural trade options and, if so, subject 

to what conditions. In November of 1997, the Commission published proposed rules to allow 

agricultural trade options.8

 In April of 1998, the Commission published Interim Final Rules 

entitled, “Trade Options on the Enumerated Agricultural Commodities.”9

 The rules lifted the 

ban on agricultural trade options, but permitted only those entities that handled the commodity in 

normal cash market channels to buy or sell such options and required vendors of such options to 

register with the Commission as “agricultural trade option merchants” (“ATOMs”) subject to 

various reporting, recordkeeping, disclosure and other requirements. Eligibility to register as an 

ATOM was restricted to “a person who is a producer, processor, or commercial user of, or a 

merchant handling or selling inputs used in the production of, the commodity which is the 

subject of the commodity option transaction, or the products or byproducts thereof ...”10

 

The issue raised by your letter is, then, whether Cargill’s subsidiary, the “Applicant,” falls 

sufficiently within the spirit of the ATOM registration rules – even if, strictly speaking, it might 

not fall within the letter of those rules – such that the Division should give its assurance that, if 

the Applicant sought and obtained registration as an ATOM, the Division would not recommend 

enforcement action to the Commission on the grounds that the Applicant failed to comply with 

the requirements of Section 32.13(a). 

The Division notes that the Section 32.13(a) “producer, processor, or commercial user of, or a 

merchant handling” test, first appeared in the April 1998 Interim Final Rules. The test described 

eligible vendors who (provided they also met the other requirements of the regulations) would be 

allowed to register as ATOMS. The preamble to those rules made clear that the scope of the 

“producer, processor, merchant ...” language was not limited to “first handlers” of a commodity. 

Although first handlers typically would be eligible to become agricultural trade option 

merchants, other categories of commercial users would also be eligible to apply for 

registration. ... Accordingly, grain merchants, investment bankers with active commodity 

trading operations and various types of agricultural processors or commercial users of the 

commodity might be eligible to register to operate as an agricultural trade option 

merchant.11

Clearly, as used in the agricultural trade option regulations, the phrase, “producer, processor, or 

commercial user of, or a merchant handling” a commodity was intended to apply more broadly 

than to just first handlers of commodities. The Division believes that the Applicant, as a whollyowned subsidiary of a grain merchant such as Cargill, is an appropriate candidate for inclusion 

within that broader application of the “producer, processor ...” category. 

Conclusion 

 

7

 62 FR 31375 (June 19, 1997). 

8

 62 FR 59624 (November 4, 1997). 

9

 63 FR 18821 (April 16, 1998). 

10 The agricultural trade option regulations were further amended in 1999 (64 FR 68011, December 6, 1999), but the 

eligibility requirements for ATOM registration remained unchanged. 

11 Id. 63 FR 18821, at 18824. 
5

Thus, it is the Division’s conclusion, based upon the foregoing analysis and the representations 

in your letter, that granting the no-action relief requested would be within the spirit of the ATOM 

registration rules and would not be contrary to the public interest. Therefore, if Cargill’s whollyowned subsidiary, the Applicant, seeks and obtains registration as an ATOM (including meeting 

all the other requirements for registration), the Division will not recommend enforcement action 

to the Commission on the grounds that the Applicant failed to comply with the “producer, 

processor ... commercial user ... merchant handling ...” requirements of Section 32.13(a). 

The position taken herein is based upon the representations you have made to the Division. Any 

different, changed or omitted facts or conditions might require the Division to reach a different 

conclusion. You must notify the Division immediately in the event that there is any significant 

change from the facts presented to us concerning Cargill’s or the Applicant’s agricultural risk 

management activities, as described in your letter. Further, this letter represents the position of 

the Division of Market Oversight only and does not necessarily represent the views of the 

Commission or any other division or office of the Commission. 

If you have any questions concerning this correspondence, please contact Donald H. Heitman, an 

attorney on my staff, by email at dheitman@cftc.gov, or by phone at (202) 418-5041. 

Very truly yours, 

Richard A. Shilts 

Director 

Division of Market Oversight 

cc: Gregory C. Prusik 

 Vice President, Registration 

 National Futures Association