CFTC Issues Final Rules Regarding Agricultural Commodity Definition And Large Trader Reporting For Physical Commodity Swaps



The Commodity Futures Trading Commission has approved final rules under the Dodd-Frank Wall Street Reform and Consumer Protection Act regarding an "agricultural commodity" definition and large trader reporting for physical commodity swaps.
United States Finance and Banking
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The Commodity Futures Trading Commission ("CFTC") on July 7, 2011 held a public meeting to consider several final rules under the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act"). The CFTC approved final regulations regarding (1) an "agricultural commodity" definition, and (2) large trader reporting for physical commodity swaps.

Agricultural Commodity Definition

The Dodd-Frank Act amended the Commodity Exchange Act as amended ("CEA") to (1) permit the CFTC to issue rules regarding transacting swaps in an "agricultural commodity," and (2) require the CFTC to issue rules establishing speculative position limits for contracts involving an agricultural commodity. As neither Congress nor the CFTC had previously defined the term agricultural commodity, this rulemaking provides such a definition, which is necessary for the CFTC to fulfill its Dodd-Frank Act mandates.

The final rule1 sets forth the following four categories within the agricultural commodity definition:

  • Specifically itemized commodities that Congress has effectively declared to be agricultural commodities;2
  • General definition (which effectively exempts from the definition of agricultural commodity "products that are produced through processing plant or animal-based inputs to create products largely used as industrial inputs"): "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;"
  • Catch-all category for items that "would generally be recognized as agricultural in nature" but do not necessary fit within the general definition, and would be dealt with by the CFTC on a case-by-case basis: "tobacco, products of horticulture, and such other commodities used or consumed by animals or humans as the [CFTC] may by rule, regulation, or order designate after notice and opportunity for hearing;" and
  • Applicable indexes: "commodity-based indexes based wholly or principally on underlying agricultural commodities."

Large Trader Reporting for Physical Commodity Swaps

The CFTC published final regulations3 creating "a system for reporting swap positions in swaps that are economically equivalent to regulated futures (and option) contracts," enabling the CFTC to fulfill its regulatory responsibilities under the CEA. Forty-six physical commodities4 are covered by the regulations Hardthat will require approximately 100 clearing members, 100 swap dealers, and five clearing organizations to provide routine swap position reports that will be collected by the CFTC in order to conduct "effective market surveillance, enhance its transparency initiatives, and monitor compliance with any trading requirements of the [CEA]."


1 FTC, Agricultural Commodity Definition , 76 Fed. Reg. 41048 (July 13, 2011), available at: @lrfederalregister/documents/file/2011- 17626a.pdf.

2 The term "agricultural commodity" means "the following commodities specifically enumerated in the definition of a 'commodity' found in Section 1a of the [CEA]: 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."

3 CFTC, Final Regulations Regarding Large Trader Reporting for Physical Commodity Swaps, 17 CFR Parts 15 and 20, RIN 3038"AD17; as yet unpublished in the Federal Register, available at: groups/public/@newsroom/documents/file/ federalregister070711e.pdf;. Fact Sheet available at: documents/file/ltr_factsheet_final.pdf; Q&A available at: documents/file/ltr_qa_final.pdf.

4 The "Covered Agricultural and Exempt Futures Contracts" include: Chicago Board of Trade ("CBOT") Corn; CBOT Ethanol; CBOT Oats; CBOT Rough Rice; CBOT Soybean Meal; CBOT Soybean Oil; CBOT Soybeans; CBOT Wheat; Chicago Mercantile Exchange ("CME") Butter; CME Cheese; CME Dry Whey; CME Feeder Cattle; CME Hardthat wood Pulp; CME Lean Hogs; CME Live Cattle; CME Milk Class III; CME Non Fat Dry Milk; CME Random Length Lumber; CME Softwood Pulp; COMEX ("CMX") Copper Grade #1; CMX Gold; CMX Silver; ICE Futures U.S. ("ICUS") Cocoa; ICUS Coffee C; ICUS Cotton No.2; ICUS Frozen Concentrated Orange Juice; ICUS Sugar No. 11; ICUS Sugar No. 16; Kansas City Board of Trade ("KCBT") Wheat; Minneapolis Grain Exchange ("MGEX") Wheat; NYSE Liffe ("NYL") Gold, 100 Troy Oz; NYL Silver, 5000 Troy Oz; New York Mercantile Exchange ("NYMEX") Cocoa; NYMEX Brent Financial; NYMEX Central Appalachian Coal; NYMEX Coffee; NYMEX Cotton; NYMEX Crude Oil, Light Sweet; NYMEX Gasoline Blendstock (RBOB); NYMEX Hot Rolled Coil Steel; NYMEX Natural Gas; NYMEX No.2 Heating Oil, New York Harbor; NYMEX Palladium; NYMEX Platinum; NYMEX Sugar No. 11; NYMEX Uranium. Additionally, "for the purpose of reporting in futures equivalents, paired swaps and swaptions using commodity reference prices that are commonly known diversified indices with publicly available weightings may be reported as if such indices underlie a single futures contract with monthly expirations for each calendar month and year." (See Sections 20.2 and 20.11).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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