[Federal Register Volume 75, Number 187 (Tuesday, September 28, 2010)]
[Proposed Rules]
[Pages 59666-59670]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-24198]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 35


Agricultural Swaps

AGENCY: Commodity Futures Trading Commission.

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

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SUMMARY: The Commodity Futures Trading Commission (``Commission'' or 
``CFTC'') is charged with proposing rules to implement new statutory 
provisions enacted by Title VII of the Dodd-Frank Wall Street Reform 
and Consumer Protection Act (``Dodd-Frank Act''). Section 723(c)(3) of 
the Dodd-Frank Act provides that swaps in an ``agricultural commodity'' 
(as defined by the Commission) are prohibited unless entered into 
pursuant to a rule, regulation or order of the Commission adopted 
pursuant to section 4(c) of the Commodity Exchange Act (``CEA'' or 
``Act''). This advance notice of proposed rulemaking (``ANPRM'') 
requests comment on the appropriate conditions, restrictions or 
protections to be included in any such rule, regulation or order 
governing the trading of agricultural swaps.

DATES: Comments must be received on or before October 28, 2010. The 
Commission is not inclined to grant extensions of this comment period.

ADDRESSES: You may submit comments, identified with ``Agricultural 
Swaps ANPRM'' in the subject line, by any of the following methods:
    <bullet> E-mail for comments: <a href="/cdn-cgi/l/email-protection#7e1f190d091f0e0d3f302e2c3e1d180a1d50191108"><span class="__cf_email__" data-cfemail="0b6a6c787c6a7b784a455b594b686d7f68256c647d">[email protected]</span></a>.
    <bullet> Mail: David A. Stawick, Secretary of the Commission, 
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st 
Street, NW., Washington, DC 20581.
    <bullet> Hand Delivery/Courier: Same as mail above.
    All comments must be submitted in English, or if not, accompanied 
by an English translation. All comments provided in any electronic form 
or on paper will be published on the CFTC Web site, without review and 
without removal of personally identifying information. All comments are 
subject to the CFTC privacy policy.

FOR FURTHER INFORMATION CONTACT: Donald Heitman, Senior Special 
Counsel, (202) 418-5041, <a href="/cdn-cgi/l/email-protection#86e2eee3eff2ebe7e8c6e5e0f2e5a8e1e9f0"><span class="__cf_email__" data-cfemail="6c0804090518010d022c0f0a180f420b031a">[email protected]</span></a>, or Ryne Miller, Attorney 
Advisor, (202) 418-5921, <a href="/cdn-cgi/l/email-protection#f6849b9f9a9a9384b695908295d8919980"><span class="__cf_email__" data-cfemail="5527383c3939302715363321367b323a23">[email protected]</span></a>, Division of Market 
Oversight, Commodity Futures Trading Commission, Three Lafayette 
Centre, 1155 21st Street, NW., Washington, DC 20581.

SUPPLEMENTARY INFORMATION:

I. Background

    On July 21, 2010, President Obama signed the Dodd-Frank Wall Street 
Reform and Consumer Protection Act.\1\ Title VII of the Dodd-Frank Act 
\2\ amended the CEA\3\ to establish a comprehensive new regulatory 
framework for swaps and security-based

[[Page 59667]]

swaps. The legislation was enacted to reduce risk, increase 
transparency, and promote market integrity within the financial system 
by, among other things: (1) Providing for the registration and 
comprehensive regulation of swap dealers and major swap participants; 
(2) imposing clearing and trade execution requirements on standardized 
derivative products; (3) creating robust recordkeeping and real-time 
reporting regimes; and (4) enhancing the Commission's rulemaking and 
enforcement authorities with respect to, among others, all registered 
entities and intermediaries subject to the Commission's oversight.
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    \1\ See Dodd-Frank Wall Street Reform and Consumer Protection 
Act, Public Law 111-203, 124 Stat. 1376 (2010). The text of the 
Dodd-Frank Act may be accessed at http://www.cftc.gov./
LawRegulation/OTCDERIVATIVES/index.htm.
    \2\ Pursuant to Sec.  701 of the Dodd-Frank Act, Title VII may 
be cited as the ``Wall Street Transparency and Accountability Act of 
2010.''
    \3\ 7 U.S.C. 1 et seq.
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    Section 723(c)(3) of the Dodd-Frank Act provides that swaps in an 
``agricultural commodity'' (as defined by the Commission) are 
prohibited unless entered into pursuant to a rule, regulation or order 
of the Commission adopted pursuant to Sec.  4(c) of the Commodity 
Exchange Act. This ANPRM reviews the current statutory and regulatory 
framework governing agricultural swaps, as well as the Dodd-Frank Act 
provisions applicable to agricultural swaps. The ANPRM then requests 
comment on the appropriate conditions, restrictions or protections to 
be included in any Commission rule, regulation or order governing the 
trading of agricultural swaps.

A. Current Statutory Framework for OTC Agricultural Swaps, Including 
Options Swaps

    Since 2000, bilateral over-the-counter (``OTC'') swaps \4\ between 
certain sophisticated counterparties have been generally exempted from 
the Commission's jurisdiction pursuant to current CEA Sec.  2(g),\5\ 
which was added to the CEA by the Commodity Futures Modernization Act 
of 2000 (``CFMA'').\6\ However, current Sec.  2(g) specifically 
excludes an ``agreement, contract, or transaction'' in an 
``agricultural commodity'' from the CFMA swaps exemption.
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    \4\ Prior to the Dodd-Frank Act, the Commission had defined a 
``swap'' as follows: ``A swap is a privately negotiated exchange of 
one asset or cash flow for another asset or cash flow. In a 
commodity swap [including an agricultural swap], at least one of the 
assets or cash flows is related to the price of one or more 
commodities.'' (See 72 FR 66099, note 7 (November 27, 2007)). See 
new CEA Sec.  1a(47) for the statutory definition of a ``swap,'' as 
added to the CEA by Sec.  721 of the Dodd-Frank Act.
    \5\ Current Sec.  2(g) provides:
    Excluded swap transactions.
    No provision of this chapter (other than section 5a (to the 
extent provided in section 5a(g)), 5b, 5d, or 12(e)(2)) shall apply 
to or govern any agreement, contract, or transaction in a commodity 
other than an agricultural commodity if the agreement, contract, or 
transaction is--
    (1) Entered into only between persons that are eligible contract 
participants at the time they enter into the agreement, contract, or 
transaction;
    (2) subject to individual negotiation by the parties; and
    (3) not executed or traded on a trading facility.
    CEA Sec.  2(g), 7 U.S.C. 2(g).
    \6\ Current CEA Sec.  2(g) was added to the CEA as Sec.  105(b) 
of the CFMA, enacted as Appendix E to PL 106-554.
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    While the term ``agricultural commodity'' is not specifically 
defined in the Act, it is used in the Act in conjunction with the 
definition of the term ``exempt commodity,'' which is defined as 
neither an ``agricultural commodity'' nor an ``excluded commodity.'' 
\7\ There is limited legislative history regarding the CFMA to explain 
Congress' intent in excluding ``agricultural commodities'' from the 
Sec.  2(g) swaps exemption.\8\ However, the legislative history of H.R. 
4541, the predecessor to the CFMA (H.R. 5660),\9\ which included the 
same basic structure of excluded and exempt commodities, indicates that 
Congress did not intend that the term ``agricultural commodity'' be 
limited to those commodities enumerated in the definition of the term 
``commodity'' in current CEA Sec.  1a(4).\10\ The House Committee on 
Agriculture stated the following:
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    \7\ ``The term `exempt commodity' means a commodity that is not 
an excluded commodity or an agricultural commodity.'' Current CEA 
Sec.  1a(14). An ``excluded commodity'' is defined in current CEA 
Sec.  1a(13) to include financial commodities such as interest 
rates, currencies, economic indexes, and other similar items. As 
noted above, of the three operative terms, only ``agricultural 
commodity'' is not defined.
    \8\ H.R. 5660, the final version of the CFMA, which was enacted 
into law as an appendix to Public Law No. 106-554, the Consolidated 
Appropriations Act, 2001, was not accompanied by congressional 
committee reports.
    \9\ H.R. 4541, also titled the Commodity Futures Modernization 
Act of 2000, was reported by all three committees of jurisdiction 
(Agriculture, Commerce, and Banking and Financial Services) in the 
House of Representatives and was passed by the House on October 19, 
2000 by a vote of 377 yeas to 4 nays. On December 14, 2000, H.R. 
5660 was introduced and contained major provisions of the House-
passed version of H.R. 4541.
    \10\ Current CEA Sec.  1a(4) defines the term ``commodity'' to 
include wheat, cotton, rice, corn, oats, barley, rye, flaxseed, 
grain sorghums, mill feeds, butter, eggs, Solanum tuberosum (Irish 
potatoes), wool, wool tops, fats and oils (including lard, tallow, 
cottonseed oil, peanut oil, soybean oil, and all other fats and 
oils), cottonseed meal, cottonseed, peanuts, soybeans, soybean meal, 
livestock, livestock products, and frozen concentrated orange juice, 
and all other goods and articles, except onions as provided in 
Public Law 85-839 (7 U.S.C. 13-1), and all services, rights, and 
interests in which contracts for future delivery are presently or in 
the future dealt in.'' 7 U.S.C. 1a(4). The agricultural commodities 
specifically identified in current CEA Sec.  1a(4) are often 
referred to as the ``enumerated'' agricultural commodities. The 
Dodd-Frank Act redesignates current CEA Sec.  1a(4) as new CEA Sec.  
1a(9).

    The Committee notes that the term ``exempt commodity'' means a 
commodity other than an ``excluded commodity'' or an ``agricultural 
commodity.'' For purposes of this definition, the Committee intends 
``agricultural commodity'' to include all agricultural commodities, 
whether or not such agricultural commodities are specifically 
enumerated in the definition of ``commodity'' in section 1a[4] of 
the CEA.\11\
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    \11\ H.R. Rep. No. 106-711, Part 1, at 33 (June 29, 2000).

Notably, the definition of exempt commodity did not change from H.R. 
4541 to H.R. 5660, the final version of the CFMA as enacted into law.
    The effect of excluding agricultural commodities from current CEA 
Sec.  2(g) was that swaps involving exempt and excluded commodities 
were allowed to transact largely outside of the Commission's 
jurisdiction or oversight, while swaps involving agricultural 
commodities, including both the enumerated agricultural commodities and 
other non-enumerated agricultural commodities, remained subject to the 
Commission's pre-CFMA swaps regulations as set forth in 17 CFR part 
35.\12\
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    \12\ Notably, current CEA Sec.  2(g) is not the only statutory 
provision that excludes or exempts bilateral swaps between eligible 
contract participants from the Commission's jurisdiction. Current 
CEA Sec.  2(d)(1) excludes any such bilateral ``agreement, contract, 
or transaction'' in excluded commodities from Commission 
jurisdiction, while CEA Sec.  2(h)(1) creates a similar exemption 
for a ``contract, agreement or transaction'' in exempt commodities. 
The overlap between these two provisions and the swap exemption in 
CEA Sec.  2(g) serves to reinforce Congress' clear intent to not 
exclude agricultural swaps from the Commission's jurisdiction 
through the CFMA.
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Options
    The Dodd-Frank Act defines the term ``swap'' to include not only 
the various types of swaps listed in the definition, including 
commodity swaps and agricultural swaps, but also OTC options of any 
kind.\13\ Commodity options are subject to the Commission's plenary 
authority under CEA Sec.  4c(b).\14\ Based on Sec.  4c(b)'s general 
prohibition of any option transactions contrary to any

[[Page 59668]]

Commission rule, regulation or order prohibiting options, or allowing 
them under such conditions as the Commission may prescribe, the only 
options currently authorized under the CEA are those specifically 
provided for in the Commission's regulations.
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    \13\ Exchange-traded futures and options on futures are 
specifically excluded from the Dodd-Frank swaps definition. See new 
CEA Sec.  1a(47)(B), as added to the CEA by Sec.  721 of the Dodd-
Frank Act.
    \14\ Section 4c(b) provides:
    Regulated option trading
    No person shall offer to enter into, enter into or confirm the 
execution of, any transaction involving any commodity regulated 
under this Act which is of the character of, or is commonly known to 
the trade as, an ``option'', ``privilege'', ``indemnity'', ``bid'', 
``offer'', ``put'', ``call'', ``advance guaranty'', or ``decline 
guaranty'', contrary to any rule, regulation, or order of the 
Commission prohibiting any such transaction or allowing any such 
transaction under such terms and conditions as the Commission shall 
prescribe. Any such order, rule, or regulation may be made only 
after notice and opportunity for hearing, and the Commission may set 
different terms and conditions for different markets. CEA Sec.  
4c(b); 7 U.S.C. 6c(b).
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B. Current Regulatory Framework

Swaps
    As mentioned previously, Part 35 of the Commission's regulations 
provides a broad-based exemption for certain swap agreements. Adopted 
by the Commission under its Sec.  4(c) exemptive authority in 1993,\15\ 
Part 35 allows for swaps to transact OTC if certain conditions are met: 
(1) The swap agreements are entered into solely between eligible swap 
participants; (2) the swap agreements are not part of a fungible class 
of agreements that are standardized as to their material economic 
terms; (3) the creditworthiness of any party having an actual or 
potential obligation under the swap agreement must be a material 
consideration in entering into or determining the terms of the swap 
agreement, including pricing, cost, or credit enhancement terms; and 
(4) the swap agreement is not entered into and traded on or through a 
multilateral transaction execution facility.\16\
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    \15\ See 58 FR 5587 (Jan. 22, 1993). Note that because Part 35 
was implemented pursuant to a Sec.  4(c) exemption, agricultural 
swaps that rely on Part 35 for their legal authority will continue 
to be permitted under the Dodd-Frank language whereby existing 
agricultural swaps provisions adopted pursuant to Sec.  4(c), 
including Part 35, are grandfathered. This is discussed more fully 
at section C, below.
    \16\ See id. at 5590-5591; see also 17 C.F.R. Sec.  35.2(a)-(d).
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    After the CFMA amendments to the CEA, which excluded swaps on 
``exempt'' and ``excluded'' commodities from virtually all of the 
Commission's jurisdiction, Part 35 remained relevant only for 
agricultural swaps. With the exception of three outstanding Sec.  4(c) 
exemptions related to cleared agricultural basis and calendar 
swaps,\17\ Part 35 is the sole authority under which market 
participants may transact agricultural swaps that are not options.
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    \17\ Part 35, at Sec.  35.2(d), also provides that ``any person 
may apply to the Commission for exemption from any of the provisions 
of the Act (except 2(a)(1)(B) [liability of principal for act of 
agent]) for other arrangements or facilities, on such terms and 
conditions as the Commission deems appropriate, including but not 
limited to, the applicability of other regulatory regimes.'' See 17 
CFR 35.2(d). The Commission has granted three such exemptions, which 
have in each instance been styled as Sec.  4(c) exemptive orders. 
See:
    Order: (1) Pursuant to Section 4(c) of the Commodity Exchange 
Act (a) Permitting Eligible Swap Participants To Submit for Clearing 
and ICE Clear U.S., Inc. and Futures Commission Merchants To Clear 
Certain Over-The-Counter Agricultural Swaps and (b) Determining 
Certain Floor Brokers and Traders To Be Eligible Swap Participants; 
and (2) Pursuant to Section 4d of the Commodity Exchange Act, 
Permitting Certain Customer Positions in the Foregoing Swaps and 
Associated Property To Be Commingled With Other Property Held in 
Segregated Accounts, 73 FR 77015 (Dec. 18, 2008);
    Order (1) Pursuant to Section 4(c) of the Commodity Exchange 
Act, Permitting the Chicago Mercantile Exchange to Clear Certain 
Over-the-Counter Agricultural Swaps and (2) Pursuant to Section 4d 
of the Commodity Exchange Act, Permitting Customer Positions in Such 
Cleared-Only Contracts and Associated Funds To Be Commingled With 
Other Positions and Funds Held in Customer Segregated Accounts, 74 
FR 12316 (March 24, 2009); and
    Order (1) Pursuant to Section 4(c) of the Commodity Exchange 
Act, Permitting the Kansas City Board of Trade Clearing Corporation 
To Clear Over-the-Counter Wheat Calendar Swaps and (2) Pursuant to 
Section 4d of the Commodity Exchange Act, Permitting Customer 
Positions in Such Cleared-Only Swaps and Associated Funds To Be 
Commingled With Other Positions and Funds Held in Customer 
Segregated Accounts, 75 FR 34983 (June 21, 2010).
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Options
    As noted above, the Commission maintains plenary authority over 
options pursuant to CEA Sec.  4c(b). It has used that authority to, 
among other things, issue Part 32 of the Commission's regulations, 
which includes a general ban on OTC options,\18\ but allows for OTC 
option transactions under certain conditions. Part 32 allows OTC 
options on agricultural commodities in two instances.\19\
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    \18\ See Commission regulation 32.11, 17 CFR 32.11.
    \19\ Note that Part 32 was not issued under the Commission's 
Sec.  4(c) exemptive authority. After the effective date of the 
Dodd-Frank Act, options on agricultural commodities will also fall 
under the Dodd-Frank Act's provisions governing the trading of swaps 
(and, specifically, agricultural swaps) since options on commodities 
fall within the Act's definition of a swap. Accordingly, it is 
important to identify what options on agricultural commodities are 
currently being traded pursuant to part 32.
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    Rule 32.13 establishes rules for trading OTC options on the 
``enumerated'' agricultural commodities (``agricultural trade options'' 
or ``ATOs'') whereby ATOs may only be sold by an Agricultural Trade 
Option Merchant (``ATOM''), who must first register with the Commission 
as such pursuant to CFTC rule 3.13. Since its 1998 adoption and one 
amendment in 1999,\20\ the ATOM registration scheme has attracted only 
one registrant, which registrant has since withdrawn its ATOM 
registration. Accordingly, ATOs currently may only be transacted 
pursuant to an exemptive provision found at Sec.  32.13(g)(1). The 
exemption at Sec.  32.13(g)(1) allows ATOs to be sold when: (1) The 
option is offered to a commercial (``a producer, processor, or 
commercial user of, or a merchant handling'' the underlying commodity); 
(2) the commercial enters the transaction solely for purposes related 
to its business as such; and (3) each party to the option contract has 
a net worth of not less than $10 million.
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    \20\ 63 FR 18821 (April 16, 1998); and 64 FR 68011 (December 6, 
1999), respectively.
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    In either case (whether transacted pursuant to the ATOM 
registration scheme or accomplished via the exemption at Sec.  
32.13(g)), the phrase ``agricultural trade option'' refers specifically 
to an OTC option on an enumerated agricultural commodity.
    In addition to the Sec.  32.13(g) ATO exemption, Part 32 includes, 
at Sec.  32.4, a basic trade option exemption applicable to options on 
commodities other than the enumerated agricultural commodities. The 
terms of the Sec.  32.4 exemption are essentially the same as those of 
the Sec.  32.13(g) exemption with one significant difference. Under 
Sec.  32.4, the option must be offered to a producer, processor, or 
commercial user of, or a merchant handling, the commodity, who enters 
into the commodity option transaction solely for purposes related to 
its business as such. However, Sec.  32.4 does not include any net 
worth requirement.
    Because the term ``agricultural commodity'' in the Act refers to 
more than just the enumerated commodities, the Commission recognizes 
that certain options authorized under Sec.  32.4 (e.g. options on 
coffee, sugar, cocoa, and other agricultural products that do not 
appear in the enumerated commodity list) would also fall under the 
Dodd-Frank Act's general prohibition of agricultural swaps (see 
discussion below of the Dodd-Frank rules for agricultural swaps and 
their implication for the existing agricultural swaps markets, 
including OTC options on agricultural commodities).

C. Dodd-Frank Provisions

Non-Agricultural Swaps
    Under the CEA, as amended by the Dodd-Frank Act, only eligible 
contract participants (``ECPs'') \21\ may enter into a swap, unless 
such swap is entered into on a designated contract market 
(``DCM''),\22\ in which case any person may enter into the swap.\23\
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    \21\ ``Eligible contract participant'' is defined in current CEA 
Sec.  1a(12). Generally speaking, an eligible contract participant 
is considered to be a sophisticated investor.
    \22\ A designated contract market is a board of trade designated 
as a contract market under CEA Sec.  5.
    \23\ See new CEA Sec.  2(e) as added by Sec.  723(a)(2) of the 
Dodd-Frank Act.
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    New CEA Sec.  2(h), as added by Sec.  723(a)(3) of the Dodd-Frank 
Act, establishes a clearing requirement for

[[Page 59669]]

swaps. Under that subsection, the Commission would determine, based on 
factors listed in the statute, whether a swap, or a group, category, 
type, or class of swaps, should be required to be cleared. A swap 
entered into by a commercial end user \24\ is not subject to the 
mandatory clearing requirement; however an end user may opt to submit 
the swap for clearing. A swap that is required to be cleared must be 
executed on a DCM or a swap execution facility (``SEF''),\25\ if a DCM 
or SEF makes the swap available for trading. Swaps that are not 
required to be cleared may be executed bilaterally OTC.
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    \24\ Generally, a commercial end user is described in new CEA 
Sec.  2(h)(7) as a non-financial entity that is using swaps to hedge 
or mitigate commercial risk and that notifies the Commission as to 
how it generally meets its financial obligations associated with 
entering into non-cleared swaps.
    \25\ The requirements for SEFs are set forth in new CEA Sec.  
5h.
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    Section 731 of the Dodd-Frank Act adds a new Sec.  4s to the CEA 
that provides for the registration and regulation of swap dealers and 
major swap participants.\26\ The new requirements for swap dealers and 
major swap participants include, in part, capital and margin 
requirements, business conduct standards, and reporting, recordkeeping, 
and documentation requirements.
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    \26\ ``Swap dealer'' is defined in new CEA Sec.  1a(49), as 
added by Sec.  721(a)(21) of the Dodd-Frank Act. ``Major swap 
participant'' is defined in new CEA Sec.  1a(33), as added by Sec.  
721(a)(16) of the Dodd-Frank Act.
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    Section 737 of the Dodd-Frank Act amends current CEA Sec.  4a 
regarding position limits. Under the Dodd-Frank provisions, the 
Commission must adopt position limits for futures, exchange-traded 
options, and swaps that are economically equivalent to futures and 
exchange-traded options within 180 days of the date of enactment of the 
Dodd-Frank Act for exempt commodities and within 270 days of the date 
of enactment of the Dodd-Frank Act for agricultural commodities.
Agricultural Swaps
    Under Sec.  723(c)(3) of the Dodd-Frank Act, swaps in an 
``agricultural commodity'' (as defined by the Commission) are 
prohibited unless the swap is entered into pursuant to an exemption 
granted under CEA Sec.  4(c). Generally speaking, Sec.  4(c) provides 
that, in order to grant an exemption, the Commission must determine 
that: (1) The exemption would be consistent with the public interest 
and the purposes of the CEA; (2) any agreement, contract, or 
transaction affected by the exemption would be entered into by 
``appropriate persons'' as defined in Sec.  4(c); and (3) any 
agreement, contract, or transaction affected by the exemption would not 
have a material adverse effect on the ability of the Commission or any 
contract market to discharge its regulatory or self-regulatory duties 
under the CEA.
    Section 723(c)(3) includes a ``grandfather'' clause that provides 
that any rule, regulation, or order regarding agricultural swaps that 
was issued pursuant to Sec.  4(c), and that was in effect on the date 
of enactment of the Dodd-Frank Act, would continue to be permitted. 
Such rules, regulations or orders would include Part 35 with respect to 
agricultural swaps and the agricultural basis and calendar swaps noted 
above, but would not include options entered into pursuant to Part 32.

D. Agricultural Commodities Definition

    As noted above, Sec.  723(c)(3) of the Dodd-Frank Act applies to 
any swap in an agricultural commodity ``as defined by the Commodity 
Futures Trading Commission.'' The Commission plans to publish a 
proposed definition of the term ``agricultural commodity'' in the near 
future. That proposed definition will cover all such commodities that 
are, or could in the future be, traded pursuant to a swap or futures 
contract. However, for purposes of commenting on this ANPRM, commenters 
may assume that ``agricultural commodity'' includes the following 
commodities that are currently the subject of derivatives trading, 
whether listed for trading on a futures exchange or traded bilaterally 
OTC: (1) The enumerated commodities that are listed in current Sec.  
1a(4) of the CEA (e.g., corn, wheat, soybeans, livestock, cotton); (2) 
the international ``soft commodities'' (e.g., coffee, sugar, cocoa); 
(3) lumber, plywood and similar wood-derived commodities; (4) contracts 
based on underlying commodities listed in (1)-(3) (e.g., corn and wheat 
basis swaps and calendar swaps); and (5) other commodities derived from 
living organisms, including plant, animal or aquatic life, that are 
used for human food, animal feed or fiber, and that currently are the 
subject of derivatives trading. To the extent that any commenter is 
aware of any agricultural commodity that is not currently the subject 
of derivatives trading, but which they anticipate may be so traded in 
the future, and which might be affected by potential rules governing 
the trading of agricultural swaps, the Commission would welcome 
comments regarding such commodity.

Part II--Questions for Comment

    Section 723(c)(3) of the Dodd-Frank Act and CEA Sec.  4(c) 
authorize the Commission to impose such terms and conditions as it 
deems appropriate in order for a person to enter into or execute an 
agricultural swap. The Commission is requesting input on the following 
questions:

Current Agricultural Swaps Business

    1. How big is the current agricultural swaps business--including 
both agricultural swaps trading under current part 35 and ATOs under 
Sec. Sec.  32.4 and 32.13(g) of the Commission's regulations?
    2. What types of entities are participating in the current 
agricultural swaps business?
    3. Are agricultural swaps/ATO participants significantly different 
than the types of entities participating in other physical commodity 
swaps/trade options?

Agricultural Swaps Clearing

    4. What percentage of existing agricultural swaps trading is 
cleared vs. non-cleared?
    5. What percentage of existing agricultural swaps would be eligible 
for the commercial end-user exemption from the mandatory clearing 
requirement?
    6. What percentage of trading would be subject to the Dodd-Frank 
clearing requirement, if that requirement applied automatically to 
agricultural swaps (other than those eligible for the commercial end-
user exemption)?
    7. What would be the practical and economic effect of a rule 
requiring agricultural swaps transactions (other than those eligible 
for the commercial end-user exemption) generally to be cleared? The 
Commission is interested in the views of agricultural swaps market 
participants (both users and swap dealers) regarding a potential 
clearing requirement for agricultural swaps.
    8. What would be the practical and economic effect of requiring 
agricultural swaps to be cleared under the Dodd-Frank clearing regime?

Trading

    9. Have current agricultural swaps/ATO participants experienced any 
significant trading problems, including: (a) economic problems (i.e., 
contracts not providing an effective hedging mechanism, or otherwise 
not performing as expected); (b) fraud or other types of abuse; or (c) 
difficulty gaining access to the agricultural swaps market?

Agricultural Swaps Purchasers

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

[[Page 59670]]

participants in other physical commodity swaps/trade options?
    11. If so, why, and what should those protections be?
    12. Would additional protections for agricultural swaps purchasers 
unduly restrict their risk management opportunities?
    13. Should the Commission consider rules to make it easier for 
agricultural producers to participate in agricultural swaps--for 
example, by allowing producers who do not qualify as ECPs to purchase 
agricultural swaps?

Designated Contract Markets

    14. Should agricultural swaps transactions be permitted to trade on 
DCMs to the same extent as all other swaps are permitted on DCMs?
    15. If yes, why?
    16. If no, what other requirements, conditions or limitations 
should apply?

Swap Execution Facilities

    17. Should agricultural swaps transactions be permitted on SEFs to 
the same extent as all other swaps are permitted to transact on SEFs?
    18. If yes, why?
    19. If no, what other requirements, conditions or limitations 
should apply?

Trading Outside of DCMs and SEFs

    20. Should agricultural swaps be permitted to trade outside of a 
DCM or SEF to the same extent as all other swaps?
    21. If yes, why?
    22. If no, what other requirements, conditions or limitations 
should apply?
    23. Should agricultural swaps be permitted to trade outside of a 
DCM or SEF to a different extent than other swaps due to the nature of 
the products and/or participants in the agricultural swaps market?
    24. In general, should agricultural swaps be treated like all other 
physical commodity swaps under Dodd-Frank?
    25. If yes, why?
    26. If no, are there any additional requirements, conditions or 
limitations not already discussed in other answers that should apply?
    27. If agricultural swaps are generally treated like swaps in other 
physical commodities, are there specific agricultural commodities that 
would require special or different protections?

    Issued in Washington, DC, on September 21, 2010, by the 
Commission.
David A. Stawick,
Secretary of the Commission.
[FR Doc. 2010-24198 Filed 9-27-10; 8:45 am]
BILLING CODE 6351-01-P


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