CFTC gives farmers, elevators break on record keeping

By Stephen Davies

© Copyright Agri-Pulse Communications, Inc.



WASHINGTON, Dec. 18, 2015 - Farmers, ranchers and grain elevator operators who use the commodity futures market to manage risk are getting relief from some record-keeping requirements.

Under a final rule approved today by the Commodity Futures Trading Commission, certain participants in the commodities markets will not have keep written pre-trade communications or records transmitted via text messages regarding transactions that lead to the execution of a commodity interest transaction and related cash or forward transaction.

< Lets Talk Foodp>In addition, “unregistered members are not required to keep their records in any particular form and manner,” the CFTC said in a news release.

An “unregistered member” is one who belongs to a designated contract market (DCM) or swap execution facility (SEF) but is not registered, or required to register, with the commission.

The rule, known as Commission Rule 1.35(a), also excludes commodity trading advisors (CTAs) that are members of a DCM or a SEF from the requirement to record and keep oral pre-trade communications.

CFTC Chairman Timothy Massad said the rule “strikes an appropriate balance between the costs of record-keeping and the benefits to market oversight. This will help ensure that businesses as well as farmers and ranchers that depend on the derivatives markets are able to continue using them effectively and efficiently.”

Senate Agriculture Chairman Pat Roberts, R-Kan., praised the rule but said it didn't go far enough.

“While I am pleased our agriculture producers and commercial end-users will be granted relief from these overreaching and ridiculous record-keeping rules, the CFTC still has more work to do to improve rules for folks managing risk in the commodities markets,” Roberts said. 

“End-users did not cause the 2008 financial crisis, nor were they ever blamed for contributing it. Because of this, Congress did not intend for them to be subject to Title VII of Dodd-Frank. However, these end-users are captured by many rules and regulations stemming from the regulatory implementation of Dodd-Frank. We need the CFTC to continue adequately addressing the concerns of the end-user community, as they have done today.”

Title VII of Dodd-Frank deals with the over-the-counter swaps markets.

CFTC commissioner J. Christopher Giancarlo also said more needs to be done.

“As I have mentioned in the past, I have been fortunate during my time as a commissioner to visit with agricultural and energy producers and intermediaries in Illinois, Indiana, Iowa, Minnesota, Texas, Louisiana and Kentucky,” said Giancarlo. “The common refrain I hear again and again is that Washington does not listen to everyday Americans. It imposes rules and regulations without regard to their obvious impact on ordinary people. Well, I believe this rule benefits from listening to those concerns and is a step in the right direction.”

But Giancarlo warned that “the elimination of unnecessary record-keeping burdens provided in this final rule will be paradoxically tossed aside for many small market participants under proposed rules for Regulation Automated Trading (Regulation AT).

Under Regulation AT, many market participants would be forced to register for the first time with the CFTC as floor traders due to the broad definition of “algorithmic trading,” Giancarlo said. 

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“As new floor traders, these market participants would then be subject to heightened record-keeping requirements under Rule 1.35, such as keeping all ‘written communications provided or received concerning quotes, bids, offers, instructions, trading, and prices that lead to the execution of a transaction.' ” 

The National Grain and Feed Association said the CFTC action “removes unnecessary and unworkable regulatory burdens. …  As we read the final rule, market participants now will satisfy record-keeping requirements of Section 1.35 of the Commission's rules simply by maintaining records generated in the normal course of business.”  

The National Council of Farmer Cooperatives said it supported the change in record-keeping requirements finalized Friday but was still concerned about a disincentive for farmer cooperatives to be join a DCM. “Further, we do not believe the intent of the Dodd-Frank Act was to subject cash purchases and forward cash contracts to the additional new recordkeeping requirements under (the) regulation,” the group said.

In the final rule, the CFTC said that the recordkeeping requirements of Regulation 1.35(a), “including those imposed on unregistered members, are an important component of the commission's efforts to ensure fair, orderly and efficient markets, and to detect and deter abusive, disruptive, fraudulent, and manipulative acts that can harm market integrity and customers.”

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