[Federal Register Volume 76, Number 134 (Wednesday, July 13, 2011)]
[Rules and Regulations]
[Pages 41048-41056]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-17626]


=======================================================================
-----------------------------------------------------------------------

COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 1

RIN 3038-AD23


Agricultural Commodity Definition

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rule.

-----------------------------------------------------------------------

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''). The Dodd-Frank Act, 
which amends the Commodity Exchange Act (``CEA'' or ``Act''), includes 
provisions applicable to ``a swap in an agricultural commodity (as 
defined by the [CFTC]).'' Neither Congress nor the CFTC has previously 
defined that term for purposes of the CEA or CFTC regulations. On 
October 26, 2010, the Commission requested comment on a proposed 
definition. After reviewing the comments submitted in response to the 
proposed definition, the Commission has determined to issue these final 
rules in essentially the same form as originally proposed, subject to a 
minor revision to the commodity-based index provision.

DATES: Effective Date--September 12, 2011.

FOR FURTHER INFORMATION CONTACT: Donald Heitman, Senior Special 
Counsel, (202) 418-5041, [email protected], or Ryne Miller, Attorney 
Advisor, (202) 418-5921, [email protected], Division of Market 
Oversight, Commodity Futures Trading Commission, Three Lafayette 
Centre, 1155 21st Street, NW., Washington, DC 20581.

SUPPLEMENTARY INFORMATION:

Part 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 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.
---------------------------------------------------------------------------

    \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 section 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.
---------------------------------------------------------------------------

    The Dodd-Frank Act includes provisions applicable to ``a swap in an 
agricultural commodity (as defined by the [CFTC]).'' Neither Congress 
nor the CFTC has previously defined ``agricultural commodity'' for 
purposes of the CEA or CFTC regulations. On October 26, 2010, the 
Commission issued a notice of proposed rulemaking requesting comment on 
a proposed definition of agricultural commodity (the ``NPRM'').\4\ 
After reviewing the comments submitted in response to the proposed 
definition,\5\ the Commission has determined to issue this final 
definition in essentially the same form as originally proposed, subject 
to a minor revision to the commodity-based index provision, for 
purposes of the CEA and Commission regulations.
---------------------------------------------------------------------------

    \4\ 75 FR 65586, Oct. 26, 2010.
    \5\ Those comments are available on the Commission's Web site 
at: http://comments.cftc.gov/PublicComments/CommentList.aspx?id=868.

---------------------------------------------------------------------------

[[Page 41049]]

A. Statutory Framework--``Agricultural Commodity''

1. Pre Dodd-Frank Act
    For a detailed discussion of the pre Dodd-Frank statutory history 
relating to the term agricultural commodity, please review the NPRM at 
75 FR 65586-65587.
2. The Dodd-Frank Act
    In addition to deleting two existing CEA provisions that referenced 
agricultural commodities,\6\ the Dodd-Frank Act contains several new 
provisions relating to agricultural commodities. Section 721(a)(21) of 
the Dodd-Frank Act adds a new section 1a(47) to the CEA defining the 
term ``swap.'' As part of the definition, clause (iii) of section 
1a(47)(A) provides that a swap includes ``any agreement, contract, or 
transaction commonly known as * * * an agricultural swap. * * *'' \7\
---------------------------------------------------------------------------

    \6\ Pre Dodd Frank CEA sections 2(g) and 5a(b)(2)(F).
    \7\ See new CEA section 1a(47)(A)(iii)(XX) as added by section 
721(a)(21) of the Dodd-Frank Act.
---------------------------------------------------------------------------

    Section 723(c)(3)(A) of the Dodd-Frank Act, which is a free-
standing provision that does not amend the CEA, contains a general rule 
whereby, except as provided in section 723(c)(3)(B), ``no person shall 
offer to enter into, enter into, or confirm the execution of, any swap 
in an agricultural commodity (as defined by the [CFTC]).'' Section 
723(c)(3)(B) provides that a swap in an agricultural commodity may be 
permitted pursuant to the Commission's exemptive authority under CEA 
section 4(c), ``or any rule, regulation, or order issued thereunder 
(including any rule, regulation, or order in effect as of the date of 
enactment of this Act) by the [CFTC] to allow swaps under such terms 
and conditions as the Commission shall prescribe.''
    Section 733 of the Dodd-Frank Act adds a new section 5h to the CEA 
that governs the registration and regulation of swap execution 
facilities. New CEA section 5h(b)(2) provides that a swap execution 
facility ``may not list for trading or confirm the execution of any 
swap in an agricultural commodity (as defined by the Commission) except 
pursuant to a rule or regulation of the Commission allowing the swap 
under such terms and conditions as the Commission shall prescribe.''
    Section 737 of the Dodd-Frank Act amends CEA section 4a and 
specifically directs the Commission to adopt position limits for 
futures, DCM-traded options, and swaps that are economically equivalent 
to futures and exchange-traded options for physical commodities other 
than excluded commodities--that is, exempt and agricultural 
commodities. Section 737 also sets timeframes for the adoption of such 
position limits for both exempt and agricultural commodities.

B. Regulatory Framework--``Agricultural Commodity''

    For a detailed discussion of the history surrounding the 
Commission's regulatory framework related to the term agricultural 
commodity, please review the NPRM at 75 FR 65588-65589. Under current 
regulations, the term agricultural commodity is significant primarily 
for parts 32 and 35.\8\ The final definition is not anticipated to have 
any significant substantive impact outside of those rules.
---------------------------------------------------------------------------

    \8\ 17 CFR part 32 and 17 CFR part 35.
---------------------------------------------------------------------------

    In relation to parts 32 (dealing with commodity options) and 35 
(dealing with swaps), the Commission, in a separate proposed 
rulemaking, has proposed (1) to treat all commodity options that fall 
within the Dodd-Frank definition of swap (including options on either 
agricultural or non-agricultural commodities) the same as any other 
swap, thereby doing away with the need to distinguish between an 
agricultural commodity and any other type of commodity for the purpose 
of identifying the applicable options rules, and (2) to treat swaps in 
an agricultural commodity the same as any other swap, thereby doing 
away with the need to distinguish between an agricultural commodity and 
any other type of commodity for the purpose of identifying the 
applicable swaps rules.\9\ The definition will also inform the 
Commission's planned rulemaking addressing speculative position limits 
on both agricultural and exempt commodities.\10\
---------------------------------------------------------------------------

    \9\ The proposal to treat agricultural swaps the same as swaps 
in other commodities was issued following an advance notice of 
proposed rulemaking (``ANPRM'') that specifically asked whether 
swaps in an agricultural commodity should be treated any differently 
than other swaps. See 75 FR 59666, Sept. 28, 2010. The overwhelming 
majority of the comments supported adopting a rule that would treat 
swaps in an agricultural commodity the same as all other swaps, and 
the proposed agricultural swaps rules that followed the ANPRM so 
provide. (See: Commodity Options and Agricultural Swaps, 76 FR 6095, 
February 3, 2011). If the final agricultural swaps rules should 
reverse course and prohibit or limit agricultural swaps, the 
Commission will take appropriate action to address any impact such 
rule change might have with respect to the definition set out 
herein.
    \10\ See Sec.  737(a) of the Dodd-Frank Act; see also Position 
Limits for Derivatives, 76 FR 4752, Jan. 26, 2011.
---------------------------------------------------------------------------

Part II--Summary of Comments; Commission Response to Comments

    As noted above, on October 26, 2010 the Commission published for 
comment a notice of proposed rulemaking that proposed a definition of 
``agricultural commodity'' for purposes of the Commodity Exchange Act 
and Commission regulations.\11\ The NPRM proposed a four category 
definition, including:
---------------------------------------------------------------------------

    \11\ 75 FR 65586, Oct. 26, 2010.
---------------------------------------------------------------------------

    1. The enumerated commodities listed in section 1a of the CEA, 
including such things as wheat, cotton, corn, the soybean complex, 
livestock, etc.;
    2. A general operational definition that covers: ``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;''
    3. A catch-all category for commodities that would generally be 
recognized as agricultural in nature, but which do not fit within the 
general operational definition. In addition to the specified 
commodities named in category three (tobacco and the products of 
horticulture), category three would also include other commodities 
that, in future, would be classified as ``agricultural commodities'' as 
a result of Commission action: ``Tobacco, products of horticulture, and 
such other commodities used or consumed by animals or humans as the 
Commission may by rule, regulation, or order designate after notice and 
opportunity for hearing;'' and
    4. Finally, a provision applicable to: ``Commodity-based contracts 
based wholly or principally on a single underlying agricultural 
commodity.''
    In response to the NPRM, the Commission received twelve formal 
comment letters \12\ representing a broad range of interests, including 
producers, merchants, swap dealers, commodity funds, futures industry 
organizations, academics, and policy organizations. In particular, 
comment letters were received from the following persons or entities: 
The Agricultural Swaps Working Group (``Ag Swaps Working Group''), 
comprised of financial institutions that provide risk management and 
investment products

[[Page 41050]]

to agricultural end users; BOK Financial (``BOK''); Better Markets, 
Inc. (``Better Markets''); Commodity Markets Council (``CMC''); Dairy 
Farmers of America, Inc. (``DFA''); the Gavilon Group, LLC 
(``Gavilon''); Institute for Agriculture and Trade Policy (``IATP''); 
CME Group, Inc. (``CME Group''); Minneapolis Grain Exchange (``MGEX''); 
National Council of Farmer Cooperatives (``NCFC''); National Grain and 
Feed Association (``NGFA''); and Michael Greenberger (``Professor 
Greenberger''), a professor from the University of Maryland Law School. 
In addition, on May 4, 2011, the Commission re-opened the comment 
period on several of the Dodd-Frank rulemakings, including the proposed 
agricultural commodity definition, to June 3, 2011.\13\ Of the 
additional comments received, three specifically addressed substantive 
concerns related to the proposed agricultural commodity definition--one 
letter from Chris Barnard, discussed below; one letter from the 
National Milk Producers Federation (``NMPF''), generally supporting the 
proposed definition; and one letter from MGEX, reiterating the 
arguments made in its earlier comments.\14\
---------------------------------------------------------------------------

    \12\ The comment file also includes records of discussions with 
three external parties (Land O'Lakes, Inc., a mixed group of 
agricultural and academic interests, and an agricultural risk 
manager from Kansas). At those meetings and/or phone calls, issues 
tangential to the agricultural commodity definition rulemaking were 
discussed between visitors and Commission representatives.
    \13\ See 76 FR 25274, May 4, 2011.
    \14\ Illustrated by the following quote from the NMPF letter, 
the majority of the comments filed for the June 3, 2011 deadline 
addressed issues outside of the scope of the agricultural commodity 
definition; e.g. end user concerns, cooperative associations, and 
the general regulatory regime for swaps:
    NMPF agrees that the proposed rule provides a reasonable 
definition of ``agricultural commodity'', with respect to milk, 
dairy products, and common dairy feedstuffs.
    However, this agreement must be seen in the context of our 
concerns about the potential over-regulation of farmers, farmer 
cooperative associations, and other commercial end users, including 
small and limited resource farmers.
    See letter from NMPF.
---------------------------------------------------------------------------

    With minor variations discussed below, the majority of commenters 
supported the definition of agricultural commodity as proposed. The 
following statement from the NGFA is representative:

    The NGFA is supportive of the Commission's efforts to define the 
term ``agricultural commodity'' for purposes of implementing 
provisions of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act. Generally, we believe the proposed rule takes a 
straightforward and common-sense approach to the issue and we have 
no current objection to the categorization of various agricultural 
commodities as detailed in the proposed rule.
    In response to the Commission's questions, the NGFA at this time 
is not aware of additional commodities that should be included in 
the definition, though they may not fit neatly into the proposed 
rule; nor are we aware of commodities that do fit the proposed 
definition but should not be included. However, to accommodate 
situations that could arise in the future as new products are 
developed, the NGFA agrees that it would be prudent for the 
Commission to maintain some flexibility to consider or reconsider 
the status of any particular commodity as questions may arise in the 
context of specific markets or transactions.\15\
---------------------------------------------------------------------------

    \15\ See letter from NGFA.

Many of the commenters specifically supported the fact that the 
proposed definition excludes biofuels.\16\ In addition, several 
commenters further noted the appropriateness of the definition in a 
regulatory regime where the Commission may decide to treat agricultural 
swaps as it does all other swaps.\17\
---------------------------------------------------------------------------

    \16\ See, e.g., letters from Gavilon, IATP, and the Ag Swaps 
Working Group.
    \17\ In fact, the Commission has recently proposed to treat 
agricultural swaps the same as any other swap: See Commodity Options 
and Agricultural Swaps, 75 FR 6095, Feb. 3, 2011.
---------------------------------------------------------------------------

    General support for the proposed definition; request for 
clarification on category two. Several commenters offered their general 
support for the definition as proposed, requesting only that the 
Commission clarify in any final rule that the second category of the 
agricultural commodity definition is self-effectuating and will 
encompass commodities that are now, or in the future may be, subject to 
swaps, futures, and options trading, without the need for additional 
CFTC action.\18\ These commenters suggested that such clarification 
would be consistent with Congress' definition of ``commodity'' in the 
CEA, which includes certain enumerated commodities and ``all other 
goods and articles, * * * and all services, rights, and interests in 
which contracts for future delivery are presently or in the future 
dealt in.'' \19\
---------------------------------------------------------------------------

    \18\ See, e.g., letters from CME Group, the Ag Swap Working 
Group, Gavilon, and DFA.
    \19\ See CEA section 1a(4).
---------------------------------------------------------------------------

    In response to this request, the Commission wishes to clarify that 
the general operational definition found in the second category is 
self-executing and will encompass commodities that are now, or in the 
future may become subject to swaps, futures, and options trading, 
without the need for additional CFTC action. In this regard, the rule 
defines those commodities that are agricultural commodities. It does 
not matter whether futures, swaps, or options are being traded in the 
commodity--either now or in the future.
    Request for consideration of public comment regarding the 
classification of new commodities. Other commenters asked that the 
Commission provide a means for the public to comment upon and appeal 
any Commission decision to include or exclude a particular commodity 
from the list of agricultural commodities under any category of the 
definition. As proposed, such a comment and appeal process is 
contemplated only for commodities that may fall under category three of 
the Commission's definition. In particular, subparagraph three of the 
agricultural commodity definition would allow the Commission to 
designate any other commodity used or consumed by animals or humans to 
be an agricultural commodity ``by rule, regulation or order * * * after 
notice and opportunity for hearing.'' \20\ CMC asked for a 
clarification or expansion of this process:
---------------------------------------------------------------------------

    \20\ See NPRM at 75 FR 65586 at 65593, Oct. 26, 2010.

    We therefore urge the Commission to provide for an appeals 
process for new instruments. To elaborate, we request that a 
consistent process and time period be instated for appealing a CFTC 
decision to include or exclude a particular commodity from the list 
of agricultural commodities. We acknowledge that the CFTC in its 
[NPRM] has made a provision for public hearings for Category 3 
agricultural commodities, but we request that a process for public 
comments and appeals be made broadly available in the context of 
including or excluding an agricultural commodity under any category 
of the definition.\21\
---------------------------------------------------------------------------

    \21\ See letter from CMC.

On this topic, NGFA commented that in order to accommodate situations 
that could arise in the future as new products are developed, it would 
be prudent for the Commission to maintain some flexibility to consider 
or reconsider the status of any particular commodity as questions may 
arise in the context of specific markets or transactions.
    In considering these comments, the Commission has determined that 
the proposed definition, in conjunction with the Commission's existing 
rules, already accommodates any concerns raised. With respect to 
commodities already listed in categories one or two, the NPRM that 
preceded these final rules provided an opportunity to question or 
challenge the inclusion or exclusion of any commodity listed in those 
categories. With respect to commodities not covered by the first two 
categories, category three of the proposed definition permits the 
Commission to designate any particular commodity as an ``agricultural 
commodity,'' but only after notice and an opportunity for hearing. 
Therefore, any time the Commission wishes to designate a particular 
commodity as an ``agricultural commodity,'' it must

[[Page 41051]]

follow the procedures attendant to a normal notice and comment 
rulemaking (i.e., issuing a notice of proposed rulemaking, allowing a 
comment period, and then issuing a final rule or order). In addition, 
any action by the Commission to remove a commodity from the definition 
would constitute a regulatory amendment that would similarly require a 
notice and comment rulemaking.
    To the extent interested parties want to request that the 
Commission amend or add to the definition on their own initiative, they 
may submit a petition for issuance, amendment, or repeal of any rule 
pursuant to Commission regulation 13.2.
    New or innovative commodity products. While generally supportive of 
the proposed definition, a comment letter from IATP expressed concern 
with respect to the commercial commodification of currently 
experimental commodities, ``It perhaps goes without saying that the 
modification of traditional commodities by synthetic biology and other 
nanotechnologies will pose many and complex regulatory challenges to 
protect the public interest, should these commodities be traded under 
contracts subject to CFTC rules.''\22\
---------------------------------------------------------------------------

    \22\ See letter from IATP.
---------------------------------------------------------------------------

    The Commission believes that categories two and three of the 
definition, as proposed, appropriately provide for the inclusion of new 
or innovative commodities within the definition of ``agricultural 
commodity''--should such a determination become necessary.\23\ These 
``new'' commodities will likely fall under category two of the 
agricultural commodity definition as being ``used primarily for human 
food, shelter, animal feed or natural fiber.'' And if they do not fall 
under category two, the Commission may use category three to issue a 
rule or order labeling them as agricultural commodities.
---------------------------------------------------------------------------

    \23\ In this context, the Commission believes that the 
definition is appropriately flexible to incorporate food substitutes 
and other similar products should there be a need to do so at some 
point in the future.
---------------------------------------------------------------------------

    Commodity-based indexes. Several commenters focused on subparagraph 
four of the proposed definition, which would include ``commodity-based 
contracts based wholly or principally on a single underlying 
agricultural commodity.'' \24\ MGEX commented that subparagraph four 
should be withdrawn altogether, arguing that cash-settled and 
electronically traded contracts on indexes (such as contracts on MGEX's 
various wheat, corn, and soybean cash-bid indexes) should remain 
outside of the definition of agricultural commodity.\25\
---------------------------------------------------------------------------

    \24\ See NPRM at 75 FR 65586 at 65593, Oct. 26, 2010.
    \25\ As will be discussed further below, MGEX's comment may be 
based in part on confusion in the Commission's wording of 
subparagraph four. As proposed, subparagraph four applies to 
``commodity-based contracts'' when in fact the wording should have 
read ``commodity-based indexes,'' and has been so corrected in the 
final rule.
---------------------------------------------------------------------------

    The NCFC commented that, without information on the practical 
effects of using a larger or smaller threshold than the proposed ``more 
than 50%'' to define ``principally,'' it supports the more than 50% 
level of a single commodity as proposed. However, they suggested future 
review of that level if concerns are raised or potential issues need to 
be addressed.\26\
---------------------------------------------------------------------------

    \26\ See letter from NCFC.
---------------------------------------------------------------------------

    Two commenters, Professor Greenberger and Better Markets, objected 
to the fact that the ``based wholly or principally on a single 
underlying agricultural commodity'' approach used in the proposed 
definition would fail to include indexes that contained several 
different agricultural commodities but had no concentration of greater 
than 50% of any one commodity. Professor Greenberger argued that, ``The 
Commission should include a contract based on an index that includes 
agricultural commodities within the definition of agricultural 
commodity, so that it may be subject, inter alia, to the later 
rulemakings on speculative position limits under [section] 737 of the 
Dodd-Frank Act.'' Better Markets expressed the concern that the 
proposed definition could enable a person to avoid compliance with 
other regulatory provisions specific to agricultural commodities, such 
as speculative position limits. As a potential solution, Better Markets 
proposed a revision to subparagraph four that would evaluate commodity-
based indexes on a pro-rata basis, with no minimum or maximum 
percentage criterion. Under the Better Markets proposal, any contract 
on a commodity-based index could be both (1) a contract on agricultural 
commodities for that percentage of the index that is based on any 
agricultural commodity, and (2) a contract on non-agricultural 
commodities for that percentage of the index that is based on any non-
agricultural commodity.\27\ Thus, for example, a person holding a 
contract on an index that is equally weighted in corn and soybeans 
would be considered to have a position in both corn and soybeans and 
this position would be aggregated with other corn and/or soybeans 
positions held by that trader for purposes of complying with 
speculative position limits applicable to either commodity.
---------------------------------------------------------------------------

    \27\ Better Markets proposed that subparagraph four read as 
follows: ``Commodity-based contracts based on a single underlying 
agricultural commodity; provided that contracts based on composite 
prices in the form of an index, which composite prices include one 
or more agricultural commodities, shall be considered to be one or 
more commodity-based contracts pro-rata based on the relevant 
weighting of each such single agricultural commodity in the index.''
---------------------------------------------------------------------------

    Chris Barnard's letter similarly suggested that the Commission 
should revise category four to apply to ``commodity-based [indexes] 
based wholly or principally on underlying agricultural commodities.''
    In considering these comments, the Commission has determined to 
refine category four as follows:
    (a) In the final rule, the Commission has removed references to 
contracts and added references to indexes, confirming that category 
four applies to commodity-based indexes, rather than commodity-based 
contracts on an index.
    (b) In addition to the revisions described in (a), the text of 
category four has been revised to include commodity-based indexes 
``based wholly or principally on underlying agricultural 
commodities''--as opposed to ``based wholly or principally on a single 
underlying agricultural commodity.'' As a general matter, the Dodd-
Frank Act gives the Commission the authority to prohibit or otherwise 
limit swaps in an agricultural commodity. In the event that the 
Commission did take steps to generally prohibit or otherwise limit 
swaps in an agricultural commodity, there would be legitimate concern 
about the potential proliferation of ``agricultural commodity-based 
indexes'' (and contracts thereon) being designed to replicate the 
economic terms of otherwise prohibited swaps in an agricultural 
commodity.
    However, because the Commission has proposed to permit swaps in an 
agricultural commodity to transact subject to the same rules applicable 
to all other swaps, that concern is almost certainly moot.\28\ There 
will be no incentive for regulatory arbitrage as between an 
agricultural swap and a swap on an index that is economically 
equivalent to an agricultural swap because both transactions would be 
subject to the same regulatory scheme. Nonetheless, in response to 
certain concerns raised by Professor Greenberger, Better Markets, and 
Mr. Barnard, the Commission is expanding the commodity-based index 
category of the agricultural commodity definition to

[[Page 41052]]

include not only any index that is concentrated at greater than 50% in 
a single agricultural commodity, but also any index concentrated at 
greater than 50% in agricultural commodities generally. Thus, for 
example, an index composed of 25% each, wheat, corn, soybeans, and gold 
would fall within the definition because more than 50% of that index is 
composed of agricultural commodities, and any contract on that index 
would be a contract on an agricultural commodity.
---------------------------------------------------------------------------

    \28\ See footnote 9, above.
---------------------------------------------------------------------------

    (c) As described above, the Better Markets comment letter also 
raised a related concern about the potential for avoiding position 
limits by using swaps on an index as an alternative to swaps on an 
agricultural commodity. Professor Greenberger expanded the concern, 
arguing that any multiple commodity index that references any farm 
product should be included in the definition of agricultural commodity. 
The Commission has considered these comments and notes the following:
    (1) As proposed,\29\ position limits would be applied on a contract 
by contract basis. That is, the inquiry into whether an index is an 
``agricultural commodity'' is not relevant, because there are no 
position limits that would apply broadly to a contract on an 
``agricultural commodity.'' Rather, the proposed position limits apply 
to positions in specific contracts, known as reference contracts (for 
example, the CBOT corn contract, the CBOT wheat contract, etc.), 
options thereon, and swaps economically equivalent thereto. The 
relevant inquiry becomes whether a contract on an index (or pro rata 
portion thereof) is economically equivalent to a reference contract, as 
defined in the proposed position limit rules, and not whether an index 
is or is not an agricultural commodity.
---------------------------------------------------------------------------

    \29\ See Position Limits for Derivatives, 76 FR 4752, Jan. 26, 
2011.
---------------------------------------------------------------------------

    (2) The position limit rules directly address contracts on a 
commodity-based index that would be used in an attempt to circumvent 
the position limit rules. Specifically, the proposed position limit 
rules provide that ``a commodity index contract that incorporates the 
price of a commodity underlying a referenced contract's commodity, 
which is used to circumvent speculative position limits, shall be 
considered to be a referenced contract for the purpose of applying the 
[proposed position limit rules].'' \30\
---------------------------------------------------------------------------

    \30\ Ibid.
---------------------------------------------------------------------------

    (d) As indicated above, MGEX favored withdrawing category four 
altogether, arguing that cash-settled and electronically traded 
contracts on indexes (such as contracts on MGEX's various wheat, corn, 
and soybean cash-bid indexes) should remain outside of the definition 
of agricultural commodity. In response, the Commission initially notes 
that Dodd-Frank directs the Commission to adopt a definition of 
agricultural commodity. Pursuant to section 723(c)(3) of the Dodd-Frank 
Act, swaps in an agricultural commodity (as defined by the Commission) 
are prohibited unless permitted by a CEA section 4(c) exemption. 
However, because the agricultural swaps proposal \31\ will, if adopted 
as proposed, permit agricultural swaps to transact subject to the same 
rules applicable to any other swap, it appears that the practical 
effect of being labeled an agricultural commodity (or avoiding the 
label of agricultural commodity) will be immaterial.
---------------------------------------------------------------------------

    \31\ 76 FR 6095, Feb. 3, 2011.
---------------------------------------------------------------------------

    Still, the Commission will retain the authority, pursuant to 
section 723(c)(3) of the Dodd-Frank Act, to revise or amend the 
agricultural swaps rules and to place further limitations or 
restrictions on swaps in an agricultural commodity in the future.\32\ 
For that reason, the Commission is taking the step now, via the 
agricultural commodity definition, to remove any incentive for 
regulatory gaming that could result from being able to avoid the label 
of agricultural commodity by, for example, creating indexes, and then 
executing contracts thereon, that act as the functional or economic 
equivalent of otherwise limited or prohibited swaps on an agricultural 
commodity. Accordingly, the Commission is retaining the commodity-based 
index component in its agricultural commodity definition, as revised 
herein.
---------------------------------------------------------------------------

    \32\ Note that the authority under section 723(c)(3) only 
applies to swaps in an agricultural commodity and does not extend to 
futures on an agricultural commodity.
---------------------------------------------------------------------------

    Customer hedging. BOK submitted a comment letter requesting an 
exemption from section 723(c)(3)(A) of the Dodd-Frank Act \33\ for 
transactions that hedge customer positions, irrespective of whether the 
underlying commodity is agricultural or non-agricultural. That is, 
BOK's letter requests that the Commission provide a confirmation that 
hedging transactions involving agricultural commodities will not be 
subject to the Dodd-Frank Act's general prohibition of swaps in an 
agricultural commodity. The Commission believes that the concerns 
raised by BOK's letter have generally been addressed in the 
Commission's proposed rules for agricultural swaps and commodity 
options. Those rules would treat agricultural swaps, whether they 
constitute hedging or speculation, the same as other swaps. Thus, 
hedging transactions involving agricultural swaps would be subject to 
the same standards as hedging transactions involving other 
commodities.\34\
---------------------------------------------------------------------------

    \33\ Swaps in an agricultural commodity, other than those 
currently permitted (for example, pursuant to part 35), are 
generally prohibited under section 723(c)(3)(A) of the Dodd-Frank 
Act, which is the provision cited by BOK. However, section 
723(c)(3)(B) provides that the Commission, using its CEA section 
4(c) authority, may expand the universe of agricultural swaps that 
are permitted to trade. The Commission's recent agricultural swaps 
and commodity options proposal would permit agricultural swaps 
transactions to continue subject to all rules otherwise applicable 
to any other swap. See 75 FR 6095, Feb. 3, 2011.
    \34\ See Commodity Options and Agricultural Swaps, 76 FR 6095, 
Feb. 3, 2011.
---------------------------------------------------------------------------

    Category two determinations. MGEX also commented briefly on the 
Commission's explanatory example in the NPRM regarding the phrase 
``used primarily'' in category two. Category two covers: ``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.'' The 
NPRM explained that the phrase ``used primarily'' means that if ``50% 
of the peaches harvested, plus one, are used for human food'' then 
peaches are an agricultural commodity. MGEX commented that this 
definition could lead to a slippery slope of managing the use for each 
crop and that the definition did not appear to provide for legal 
certainty.
    The Commission has considered MGEX's comment and determined to 
retain category two as proposed, including the above-quoted explanation 
of the phrase ``used primarily.'' Initially, and as noted above, the 
difference between being labeled an agricultural commodity and any 
other type of commodity is likely to have minimal or no impact because: 
(1) The Commission has proposed rules to treat agricultural swaps the 
same as any other swap; and (2) the position limit rules proposed by 
the Commission would apply on a contract-by-contract basis and do not 
key on whether or not a particular commodity is agricultural.
    Beyond that, the Commission is not aware of, and MGEX did not 
identify, any actual commodity where the ``amount used for human food, 
shelter, animal feed, or natural fiber'' is so close to 50% as to 
present a danger of being gamed for the purpose of avoiding the 
application of the agricultural commodity definition. The point of the

[[Page 41053]]

Commission's proposed definition and accompanying explanation was to 
draw a reasonable and common sense line between that which is 
agricultural and that which is not. To the extent the prospect of 
gaming this aspect of category two of the agricultural commodity 
definition arises in the future, the Commission also points out that it 
may use category three of the definition to declare any particular 
commodity to be agricultural by issuing a rule, regulation, or order so 
designating ``after notice and opportunity for hearing.''
    Effective date. The final question facing the Commission was: 
``What should be the effective date of the final definition?'' \35\ CME 
Group noted that ``[o]nce adopted, the definition will also clarify the 
scope of the exemptions under CEA sections 2(g) and 2(h)--at least 
until Dodd-Frank takes effect and eliminates these exemptions.'' 
However, any clarification needed as between the agricultural commodity 
definition and pre Dodd-Frank CEA provisions is being addressed in the 
Commission's Dodd-Frank transition period relief.\36\ Beyond concerns 
related to pre Dodd-Frank CEA provisions, NCFC noted that it was 
``unaware of any reason not to make the definition of agricultural 
commodity effective upon the publication of the final rule.''
---------------------------------------------------------------------------

    \35\ The NPRM specifically noted:
    [I]f the definition of an agricultural commodity is made 
effective upon the publication of a final rule, it would provide 
clarity as to what swaps are or are not eligible for the exemptions 
found in current CEA [sections] 2(g) and 2(h) until the point at 
which their repeal by the Dodd-Frank Act becomes effective. Is there 
any reason not to make the definition of agricultural commodity 
effective upon the publication of a final rule? Are there swaps 
currently being transacted under [section] 2(g) or [section] 2(h) 
that would be considered transactions in an agricultural commodity 
(and thus potentially, temporarily illegal) under the definition 
proposed herein? If so, should the effective date of the definition 
be postponed until the repeal of current CEA [sections] 2(g) and 
2(h), for all purposes other than for the setting of speculative 
position limits, which will become effective prior to the repeal?
    See NPRM at 65592.
    \36\ See Effective Date for Swap Regulation, 76 FR 35372, June 
17, 2011.
---------------------------------------------------------------------------

    Therefore, the Commission has determined that the effective date of 
the final agricultural commodity definition shall be sixty days after 
the publication of this final rule, as required by the Dodd-Frank Act. 
By providing that the definition becomes effective as early as is 
allowed by the Dodd-Frank Act, the Commission intends to provide legal 
certainty for market participants as they plan for the regulatory 
regime that will follow the Dodd-Frank transition relief.

Part III--Explanation of the Definition

A. Terms of the Final Definition

    Except for the revisions to category four (explained more fully 
below), the terms of the final definition are the same as the terms of 
the definition as proposed in the NPRM.

B. Explaining the Definition

Category One--Enumerated Agricultural Commodities
    Category one includes the ``enumerated agricultural commodities'' 
specified in current section 1a(4) of the Act (renumbered as section 
1a(9) under the Dodd-Frank Act). While there is considerable overlap 
between categories one and two, category one includes some commodities 
that would not qualify under category two. For example, ``fats and 
oils'' would include plant-based oils, such as tung oil and linseed 
oil, which are used solely for industrial purposes (and thus would not 
fall within category two). Section 1a(4)'s reference to ``oils'' would 
not, however, extend to petroleum products.\37\
---------------------------------------------------------------------------

    \37\ Petroleum products clearly would not fall within the 
enumerated commodities. ``These itemized commodities are 
agricultural in nature.'' Philip McBride Johnson, Commodities 
Regulation, Sec.  1.01, p. 3 (1982). The Commission has never even 
considered treating petroleum products as agricultural commodities. 
Nor would petroleum products fall within the second category. Even 
though they could be viewed as derived from living organisms--albeit 
organisms that lived millions of years ago--such products would not 
qualify under the ``used primarily for human food, shelter, animal 
feed or natural fiber'' standard of category two.
---------------------------------------------------------------------------

Category Two: Operative Definition of Agricultural Commodities
    As a general matter, Category 2 seeks to draw a line between 
products derived from living organisms that are used for human food, 
shelter, animal feed or natural fiber (covered by the definition) and 
products that are produced through processing plant or animal-based 
inputs to create products largely used as industrial inputs (outside 
the definition). This general operational definition is self-executing 
and will encompass commodities that are now or in the future may become 
subject to swaps, futures, and options trading, without the need for 
additional CFTC action. In this regard, the rule defines those 
commodities that are agricultural commodities. It does not matter 
whether futures, swaps, or options are being traded in the commodity--
either now or in the future. Thus, a commodity evaluated under category 
two either is or is not an agricultural commodity regardless of its 
trading status.
    Some of the terms used in describing the second category require 
further clarification, particularly the terms, ``generally fungible,'' 
``used primarily,'' ``human food'' and ``natural fiber.''
    ``Generally fungible''--means substitutable or interchangeable 
within general classes. For example, apples, coffee beans, and cheese 
are generally fungible within general classes, even though there are 
various grades and types, and so they would be agricultural 
commodities. On the other hand, commodities that have been processed 
and have taken on a unique identity would not be generally fungible. 
Thus, while flax or mohair are generally fungible natural fibers, lace 
and linen garments made from flax, or sweaters made from mohair, are 
not generally fungible and would not be agricultural commodities under 
category two.
    ``Used primarily''--means any amount of usage over 50%. For 
example, if 50% of the peaches harvested, plus one, are used for human 
food, then peaches fall within category two.
    ``Human food''--includes drink. Thus fruit juice, wine, and beer 
are ``food'' for purposes of the definition of ``agricultural 
commodity.''
    ``Natural fiber''--means any naturally occurring fiber that is 
capable of being spun into a yarn or made into a fabric by bonding or 
by interlacing in a variety of methods including weaving, knitting, 
braiding, felting, twisting, or webbing, and which is the basic 
structural element of textile products.
    Based on the foregoing, therefore, category two would include such 
products as: Fruits and fruit juices; vegetables and edible vegetable 
products; edible products of enumerated commodities, such as wheat 
flour and corn meal; poultry; milk and milk products, including cheese, 
nonfat dry milk and dry whey; distiller's dried grain; eggs; cocoa 
beans, cocoa butter and cocoa; coffee beans and ground coffee; 
sugarcane, sugar beets, beet pulp (used as animal feed), raw sugar, 
molasses and refined sugar; honey; beer and wine; shrimp; and silk, 
flax and mohair.
    Category two would also include stud lumber, plywood, strand board 
and structural panels because they are derived from living organisms 
(trees), are generally fungible (e.g., random length 2 x 4s and 4 x 8 
standard sheets of plywood) and are used primarily for human shelter--
i.e., in the construction of dwellings. Category two would not, 
however, include industrial inputs such as wood pulp, paper or 
cardboard, nor would it include raw rubber, turpentine or rosin. 
Although derived from living organisms--trees--and generally fungible, 
none of these products are

[[Page 41054]]

used primarily for human food, shelter, animal feed or natural fibers. 
On the other hand, maple syrup and maple sugar, also derived from 
trees, would be ``agricultural commodities.'' Rayon, which is a fiber 
derived from trees or other plants, falls out of category two because 
it is not a natural fiber--i.e., it must be chemically processed from 
cellulose before it becomes fiber.
    Category two would include high fructose corn syrup, but not corn-
based products such as polylactic acid (a corn derivative used in 
biodegradable packaging), butanol (a chemical derived from cornstarch 
and used in plasticizers, resins, and brake fluid) or other plant-based 
industrial products. Category two would include pure ethanol, which is 
derived from living organisms (corn and other plants), is generally 
fungible, and may be used for human food (as an ingredient of alcoholic 
beverages). However, it would not include denatured ethanol, which is 
used for fuel and for other industrial uses, because denatured ethanol 
cannot be used for human food. Likewise, neither would Category 2 
include other plant or animal based renewable fuels, such as methane or 
biodiesel. Fertilizer and other agricultural chemicals, even though 
they are used almost exclusively in agriculture, would not fall within 
the definition because they would not fit into the food, shelter, 
animal feed, or natural fiber category.
Category Three--Other Agricultural Commodities
    Category three would include commodities that do not readily fit 
into the first two categories, but would nevertheless be widely 
recognized as commodities of an agricultural nature. Such commodities 
would include, for example, tobacco, products of horticulture (e.g., 
ornamental plants), and such other commodities used or consumed by 
animals or humans as the Commission may by rule, regulation or order 
designate after notice and opportunity for hearing. The Commission 
would determine the status of any such other commodities for purposes 
of the Act and CFTC regulations on a case-by-case basis as questions 
arise in the context of specific markets or transactions.
Category Four--Commodity-Based Indexes
    The term, ``agricultural commodity,'' also includes a commodity-
based index based wholly or principally on underlying agricultural 
commodities. Thus, for example, the Minneapolis Grain Exchange 
(``MGEX'') wheat, corn and soybean price index contracts \38\ would be 
considered contracts on agricultural commodities--that is the 
underlying single commodity index is an agricultural commodity. Also, 
any index made up of more than 50% of agricultural commodities, since 
it is based principally on underlying agricultural commodities, would 
be considered an agricultural commodity for purposes of including it 
within the agricultural commodity definition. Thus, for example, a 
commodity-based index composed of 20% each, wheat, corn, soybeans, 
crude oil and gold, since it is composed of more than 50% agricultural 
commodities, would be an agricultural commodity. Therefore, swaps on 
such an index would be subject to special rules (if any) that might be 
adopted for agricultural commodity swaps.\39\
---------------------------------------------------------------------------

    \38\ The MGEX agricultural index products are currently 
available for corn, soybeans, and various types of wheat. These 
index products are financially settled to a spot index of country 
origin pricing as calculated by a firm called Data Transmission 
Network (``DTN''). Cash settlement is based upon the simple average 
of the spot prices published on the last three trading days of the 
settlement month.
    \39\ See Commodity Options and Agricultural Swaps, 75 FR 6095, 
Feb. 3, 2011.
---------------------------------------------------------------------------

    The definition of an ``excluded commodity'' in current CEA section 
1a(13)(iii) \40\ could be read to include any index of agricultural 
commodities. That definition provides that ``excluded commodity'' 
means, among other things, ``any economic or commercial index based on 
prices, rates, values, or levels that are not within the control of any 
party to the relevant contract, agreement, or transaction.'' However, 
such a reading is inconsistent with the requirement in Dodd-Frank that 
swaps in agricultural commodities be permitted only pursuant to a 
section 4(c) order of the Commission. For example, a swap contract 
based on a price index of solely wheat should reasonably be considered 
as a swap in an agricultural commodity. Applying a mechanical 
interpretation of the definition of excluded commodity could permit 
``gaming'' by allowing an index based principally, or even 
overwhelmingly, on agricultural commodities to evade any potential 
limitations on trading agricultural swaps that are found in the Dodd-
Frank Act. For this reason, the definition issued herein would include 
an index based wholly or principally on underlying agricultural 
commodities.
---------------------------------------------------------------------------

    \40\ New section 1a (19)(iii) as renumbered under the Dodd-Frank 
Act.
---------------------------------------------------------------------------

Onions
    Onions present a unique case in that onions are the only 
agricultural product specifically excluded from the enumerated 
commodities list in current CEA section 1a(4). Also, Public Law 85-839 
prohibits the trading of onion futures on any board of trade in the 
United States.\41\ Nothing in the definition issued herein affects the 
prohibition on onion futures trading.
---------------------------------------------------------------------------

    \41\ 7 U.S.C. 13-1.
---------------------------------------------------------------------------

    In defining an agricultural commodity, given that term's statutory 
history, as well as the Act's grammatical construction, it would appear 
that ``agricultural commodity'' is a subset of ``commodity'' and, since 
onions are excluded from the definition of ``commodity,'' onions cannot 
be considered an ``agricultural commodity.'' However, under the Dodd-
Frank Act, the definition of ``swap'' in new section 1a(47) of the CEA 
is not limited to transactions based upon ``commodities'' as defined in 
current section 1a(4) of the Act. Therefore, under the CEA as amended 
by Dodd-Frank, a swap may be based upon an item that is not defined as 
a ``commodity.'' Thus, onion swaps would seem to be permissible, but 
would not be considered to be swaps in an ``agricultural commodity'' 
under the definition contained herein.

C. Effects of Applying the Definition

    It is also important to consider the uses to which the definition 
will be put--i.e., what would be the practical effect of a commodity 
being classified as an ``agricultural commodity'' under the definition 
contained herein? One effect is that the commodity would be covered by 
any rules the Commission ultimately adopts for agricultural swaps. If, 
based on the current commodity options and agricultural swaps 
proposal,\42\ it is determined that agricultural swaps should be 
treated the same as other physical commodity swaps, the definition 
should have no effect in the agricultural swaps context.
---------------------------------------------------------------------------

    \42\ See Commodity Options and Agricultural Swaps, 76 FR 6095, 
Feb. 3, 2011.
---------------------------------------------------------------------------

    The other significant effect of a commodity being classified as an 
``agricultural commodity'' is that the commodity would be subject to 
the timeframes for speculative position limits for agricultural 
commodities,\43\ rather than the timeframes for speculative limits for 
exempt commodities. As discussed above, the classification of a given 
commodity as

[[Page 41055]]

``agricultural'' vs. ``exempt'' should have no long-term practical 
effect on the commodity or how it is traded in the speculative limits 
context because: (1) The definition will only apply to commodities that 
are the subject of actual swaps or futures trading; and (2) the 
speculative limits for any such commodities, as proposed, will be based 
not on any general across-the-board definition or principle, but on the 
individual characteristics of each commodity, its swaps/futures market, 
and its underlying cash market.\44\
---------------------------------------------------------------------------

    \43\ Pursuant to section 737 of the Dodd-Frank Act, the 
Commission is required to adopt speculative position limits for 
agricultural commodities.
    \44\ See Position Limits for Derivatives, 76 FR 4752, Jan. 26, 
2011.
---------------------------------------------------------------------------

Part IV--Related Matters

A. Paperwork Reduction Act

    The final rule will not impose any new recordkeeping or information 
collection requirements, or other collections of information that 
require approval of the Office of Management and Budget under the 
Paperwork Reduction Act.\45\ In the proposed rule, the Commission 
invited public comment on the accuracy of its estimate that no 
additional recordkeeping or information collection requirements or 
changes to existing collection requirements would result from the 
proposed rule. The Commission received no comments on the accuracy of 
its estimate.
---------------------------------------------------------------------------

    \45\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

B. Cost Benefit Considerations

    Section 15(a) of the CEA requires the Commission to consider the 
costs and benefits of its actions before issuing new regulations under 
the Act. Section 15(a) does not require the Commission to quantify the 
costs and benefits of new regulations or to determine whether the 
benefits of adopted regulations outweigh their costs. Rather, section 
15(a) requires the Commission to consider the costs and benefits of the 
subject regulations in light of five broad areas of market and public 
concern: (1) Protection of market participants and the public; (2) 
market efficiency, competitiveness, and financial integrity; (3) price 
discovery; (4) sound risk management practices; and (5) other public 
interest considerations. The Commission may, in its discretion, give 
greater weight to any one of the five enumerated areas of concern and 
may, in its discretion, determine that, not withstanding its costs, a 
particular regulation is necessary or appropriate to protect the public 
interest or to effectuate any of the provisions or accomplish any of 
the purposes of the CEA.
    The agricultural commodity definition is not expected to impose any 
significant costs on industry participants. In addition, we believe 
that public interest considerations required by CEA section 15(a) weigh 
strongly in favor of adopting and issuing the agricultural commodity 
definition. The public interest benefit is that the definition provides 
legal certainty for indentifying those commodities that are 
agricultural commodities--and which may be the subject of a ``swap in 
an agricultural commodity (as defined by the [CFTC]).'' See Dodd-Frank 
section 723(c)(3).\46\ And as stated in the NPRM, defining an 
agricultural commodity for purposes of the CEA would seem to have 
limited immediate practical effects. The NPRM noted that the definition 
will be necessary for other substantive rulemakings, such as the 
timeframes for setting speculative position limits for exempt and 
agricultural commodities under section 737 of the Dodd-Frank Act and 
determining the permissibility of trading agricultural swaps under 
section 723(c)(3) and section 733 of the Dodd-Frank Act. Those other 
rulemakings were discussed in the original cost benefit analysis in the 
NPRM. As those rules have now been proposed, the respective costs and 
benefits of those rules are discussed in those proposed rules.\47\
---------------------------------------------------------------------------

    \46\ The Commission views this language as a Congressional 
directive to provide a formal definition of the term ``agricultural 
commodity,'' and by issuing this definition, the Commission is 
following that directive.
    \47\ See Position Limits for Derivatives, 76 FR 4752, Jan. 26, 
2011, and Commodity Options and Agricultural Swaps, 76 FR 6095, Feb. 
3, 2011.
---------------------------------------------------------------------------

    Regarding comments received concerning costs and benefits, 
Professor Greenberger stressed that the cost benefit analysis should 
concentrate on protecting the public interest. The professor noted that 
reasonable food prices are in the public interest and expressed his 
view that speculative position limits are an effective tool to curb 
excessive speculation that can artificially raise food prices. 
Professor Greenberger argued that any multiple commodity index that 
references any farm product should be included in the definition of 
agricultural commodity. Much like Professor Greenberger, IATP believed 
that public interest considerations, including food security, should be 
paramount in the cost benefit analysis. As noted in the summary of 
comments above, the proposed position limits rulemaking contains a 
provision designed to prevent ``gaming'' of speculative position limits 
in relation to indexes, including indexes with agricultural components. 
In addition, this final rule includes a revised commodity-based index 
provision that would include any index made up of more than 50% of 
agricultural commodities in the agricultural commodity definition. In 
contrast, the proposed rule would only have included an index made up 
of more than 50% of a single agricultural commodity.
    The Commission also notes that category three of the definition, 
which permits the Commission to designate new agricultural commodities 
after a notice and comment period, is designed to provide an 
appropriate level of flexibility for the Commission as unforeseen 
developments and challenges emerge in relation to agricultural 
commodities.
    The Ag Swaps Working Group, Gavilon, DFA and the CME Group 
commented that clarifying that the general operational definition in 
the second category of the agricultural commodity definition is self-
executing would increase legal certainty. The Ag Swaps Working Group 
and DFA added that such a clarification would be in the public 
interest. As noted in the summary of comments above, the Commission has 
made such a clarification.

C. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA'') \48\ requires that 
agencies consider whether the rules they propose will have a 
significant economic impact on a substantial number of small entities 
and, if so, provide a regulatory flexibility analysis respecting the 
impact. The rules contained herein provide a definition that will 
largely be used in other rulemakings and which, by itself, imposes no 
significant new regulatory requirements. Accordingly, the Chairman, on 
behalf of the Commission, hereby certifies pursuant to 5 U.S.C. 605(b) 
that the rules will not have a significant impact on a substantial 
number of small entities.
---------------------------------------------------------------------------

    \48\ 5 U.S.C. 601 et seq.
---------------------------------------------------------------------------

List of Subjects in 17 CFR Part 1

    Definitions, Agriculture, Agricultural commodity.

    In consideration of the foregoing, and pursuant to the authority 
contained in the Commodity Exchange Act and, in particular, sections 
2(a)(1), 5h, and 8a thereof, 7 U.S.C. 2, 7b-3, and 12a, and pursuant to 
the authority contained in section 723(c)(3) of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act, Public Law 111-203, 124 
Stat. 1376 (2010), the Commission

[[Page 41056]]

hereby amends Chapter 1 of Title 17 of the Code of Federal Regulations 
as follows:

PART 1--GENERAL REGULATIONS UNDER THE COMMODITY EXCHANGE ACT

0
1. The authority citation for Part 1 is revised to read as follows:

    Authority: 7 U.S.C. 1a, 2, 5, 6, 6a-6p, 7, 7a, 7b, 7b-3, 8, 9, 
12, 12a, 12c, 13a, 13a-1, 16, 16a, 19, 21, 23 and 24, unless 
otherwise noted.

0
2. Section 1.3 is amended by adding paragraph (zz) to read as follows:


Sec.  1.3  Definitions.

* * * * *
    (zz) Agricultural commodity. This term means:
    (1) The following commodities specifically enumerated in the 
definition of a ``commodity'' found in section 1a of the Act: 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;
    (2) 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;
    (3) Tobacco, products of horticulture, and such other commodities 
used or consumed by animals or humans as the Commission may by rule, 
regulation or order designate after notice and opportunity for hearing; 
and
    (4) Commodity-based indexes based wholly or principally on 
underlying agricultural commodities.
* * * * *

    Issued in Washington, DC, on July 7, 2011, by the Commission.
David A. Stawick,
Secretary of the Commission.

Appendices to Agricultural Commodity Definition--Commission Voting 
Summary and Statements of Commissioners

    Note: The following appendices will not appear in the Code of 
Federal Regulations

Appendix 1--Commission Voting Summary

    On this matter, Chairman Gensler and Commissioners Dunn, 
Sommers, O'Malia and Chilton voted in the affirmative; no 
Commissioner voted in the negative

Appendix 2--Statement of Chairman Gary Gensler

    I support the final rulemaking that defines the term, 
``agricultural commodity.'' The Dodd-Frank Act requires that 
agricultural commodities be defined. In a separate rulemaking, the 
Commission will determine the requirements that apply to swaps on 
agricultural commodities.

[FR Doc. 2011-17626 Filed 7-12-11; 8:45 am]
BILLING CODE P