Agriculture/Commodities: CFTC Issues Proposed Rule on Agricultural Swaps

On February 2, the Commodity Futures Trading Commission published in the Federal Register a notice of proposed rulemaking on agricultural swaps. According to the notice, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) "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 [the] Commodity Exchange Act . . . ." Dodd-Frank also includes options (other than an option on a futures contract) in its definition of swaps.

In general, the proposed rule "would implement regulations whereby swaps in agricultural commodities and all commodity options (including options on both agricultural and non-agricultural commodities), other than options on futures, may transact subject to the same rules as all other swaps. The proposed rules for swaps in an agricultural commodity would repeal and replace the Commission's regulations concerning the exemption of swap agreements. Because the Dodd-Frank Act defines commodity options (other than options on futures) as swaps, the proposed rules for options would substantially amend the Commission's regulations regarding commodity option transactions." The deadline for comments is April 4.