The Commodity Futures Trading Commission (CFTC) last Thursday finalized amendments requiring commodity pool operators (CPO) and commodity trading advisers (CTA) to bring their swaps activities under the agency’s oversight. They will be required to register with the Commission, giving their customers the benefit of the protections of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The rule, in effect, reinstates the regulatory requirements in place prior to 2003 for registered investment companies that trade more than a de minimis amount in commodities or market themselves as commodity funds.

“These amendments addressed the concerns raised by the National Futures Association in its petition requesting the Commission to reinstate [its] oversight of CPOs and CTAs for futures that existed prior to 2003…It is critical to bring the pools that have been in the dark since 2003 back into the light so their customers can benefit from the CFTC’s oversight,” said CFTC Chairman Gary Gensler.

The rule, which passed 4-1, will take effect 60 days after publication in the Federal Register.

In separate action, two financial trade organizations have called on the U.S. District Court for the District of Columbia to postpone implementation of the CFTC’s final rule to curb speculation in derivative markets while it considers the groups’ challenge that was lodged late last year.

The International Swaps and Derivatives Association (ISDA) and the Securities Industry and Financial Markets Association (SIFMA) petitioned the district court last week to put the CFTC’s final rule on hold while it mulls their challenge.

In December the groups challenged the CFTC rule which would limit the number of contracts a trader can hold, in both district court and the U.S. Court of Appeals for the District of Columbia Circuit (see NGI, Dec. 12, 2011). They argued that the agency adopted the rule without first determining that there was excessive speculation in commodity and swaps markets and failed to conduct a meaningful cost-benefit analysis of the rule.

ISDA and SIFMA also asked the CFTC to delay implementation of the position limit rule, but they were turned down in January (see NGI, Jan. 9).

The Natural Gas Supply Association (NGSA) and the National Corn Growers Association (NCGA) last Thursday wrote White House officials expressing their concern about the CFTC’s move toward a sweeping definition of “swap dealer” that could include hedge funds and end-users and make them subject to regulation under Dodd-Frank.

“After more than a year of work with the CFTC, we are increasingly concerned that the CFTC’s implementation of the statute will undermine these important protections with serious implications for agricultural and energy infrastructure investments and the overall economy,” the groups wrote to White House Chief of Staff Jacob Lew and Gene B. Sperling, director of the White House National Economic Council.

“The CFTC’s definition of ‘swap dealer,’ along with its implementation of other aspects of the Dodd-Frank Act, are dangerously close to imposing a de facto clearing mandate, an outcome that Congress explicitly intended to avoid with the incorporation of the general and de minimis exclusions to the swap dealer definition and end-user clearing exception,” they said.

“A broad swap dealer definition appears imminent given recent CFTC draft orders that progressively expand CFTC purview into physical commodity contracts used by commodity producers to hedge business risk inherent in the production of commodities. The breadth of the swap dealer definition is significant because entities designated as swap dealers cannot use the important end-user protections and will be subject to increased levels of margin and other collateral requirements and very significant administrative burdens,” the NGSA and NCGA said.

“If firms that are predominantly hedgers and traders are treated as dealers, $600 billion in capital currently at work in the economy as job-creating investments by businesses with strong balance sheets and assets in the ground will be needlessly sidelined as collateral.”

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