Retail Commodity Transactions Under Commodity Exchange Act
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Interpretation; Request for comments.
CFR Part: "17 CFR Part 1"
Citation: "76 FR 77670"
Document Number: " RIN 3038-AD64"
"Rules and Regulations"
SUMMARY: The
DATES: Effective
ADDRESSES: Comments, identified by RIN number, may be sent by any of the following methods:
* Agency Web site, via its Comments Online process: http://comments.cftc.gov. Follow the instructions for submitting comments through the Web site.
* Mail:
* Hand Delivery/Courier: Same as mail above.
* Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments.
FOR FURTHER INFORMATION CONTACT:
All comments must be submitted in English, or, if not, accompanied by an English translation. Comments will be posted as received to http://www.cftc.gov. You should submit only information that you wish to make available publicly. If you wish the Commission to consider information that may be exempt from disclosure under the Freedom of Information Act ("FOIA"), /1/ a petition for confidential treatment of the exempt information may be submitted according to the established procedures in
FOOTNOTE 1 5 U.S.C. 552. END FOOTNOTE
FOOTNOTE 2 17 CFR 145.9. END FOOTNOTE
SUPPLEMENTARY INFORMATION: On
FOOTNOTE 3 See Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, Public Law 111-203, 124
FOOTNOTE 4 Pursuant to section 701 of the Dodd-Frank Act, Title VII may be cited as the "Wall Street Transparency and Accountability Act of 2010." END FOOTNOTE
FOOTNOTE 5 7 U.S.C. 1 et seq. END FOOTNOTE
In addition, section 742(a) of the Dodd-Frank Act amends section 2(c)(2) of the CEA to add a new subparagraph, section 2(c)(2)(D) of the CEA, /6/ entitled "Retail Commodity Transactions." New CEA section 2(c)(2)(D) provides the Commission with a new source of jurisdiction over certain retail commodity transactions. /7/
Zelener held that the transactions were not subject to CFTC jurisdiction because they did not involve futures contracts but were "in form, spot sales for delivery within 48 hours." /10/ In so ruling, the court focused solely on the language of the customer agreements.
FOOTNOTE 6 7 U.S.C. 2(c)(2)(D). END FOOTNOTE
FOOTNOTE 7 The jurisdictional grant provided to the Commission by new CEA section 2(c)(2)(D) is in addition to, and independent from, the jurisdiction over contracts of sale of a commodity for future delivery and transactions subject to regulation pursuant to CEA section 19 that the CEA has historically granted to the Commission. The jurisdictional grant provided by new CEA section 2(c)(2)(D) is also in addition to, and independent from, the jurisdiction over swaps granted to the Commission by the Dodd-Frank Act. END FOOTNOTE
FOOTNOTE 8 373 F.3d 861 (7th Cir. 2004); see also CFTC v. Erskine, 512 F.3d 309 (6th Cir. 2008). END FOOTNOTE
FOOTNOTE 9 373 F.3d at 863-64. END FOOTNOTE
FOOTNOTE 10 Id. at 868-69. END FOOTNOTE
Following Zelener,
FOOTNOTE 11 Food, Conservation and Energy Act of 2008, Public Law 110-246, 122
[the] contracts [in Zelener ] function just like futures contracts, but the court of appeals, * * * based on the wording of the contract documents, held them to be spot contracts outside of CFTC jurisdiction. The CFTC Reauthorization Act of 2008, which was enacted as part of that year's Farm Bill, clarified that such transactions in foreign currency are subject to CFTC anti-fraud authority. It left open the possibility, however, that such Zelener-type contracts could still escape CFTC jurisdiction if used for other commodities such as energy and metals.
Section 742 corrects this by extending the Farm Bill's "Zelener fraud fix" to retail off-exchange transactions in all commodities. Further, a transaction with a retail customer that meets the leverage and other requirements set forth in Section 742 is subject not only to the anti-fraud provisions of CEA Section 4b (which is the case for foreign currency), but also to the on-exchange trading requirement of CEA Section 4(a), "as if" the transaction was a futures contract. /12/
FOOTNOTE 12 156 Cong. Rec. S5,924 (daily ed.
Accordingly, new CEA section 2(c)(2)(D) broadly applies to any agreement, contract, or transaction in any commodity that is entered into with, or offered to (even if not entered into with), a non-eligible contract participant or non-eligible commercial entity on a leveraged or margined basis, or financed by the offeror, the counterparty, or a person acting in concert with the offeror or counterparty on a similar basis. /13/ New CEA section 2(c)(2)(D) further provides that such an agreement, contract, or transaction shall be subject to CEA sections 4(a), /14/ 4(b), /15/ and 4b /16/ "as if the agreement, contract, or transaction was a contract of sale of a commodity for future delivery." /17/
FOOTNOTE 13 7 U.S.C. 2(c)(2)(D)(i). END FOOTNOTE
FOOTNOTE 14 7 U.S.C. 6(a). END FOOTNOTE
FOOTNOTE 15 7 U.S.C. 6(b). END FOOTNOTE
FOOTNOTE 16 7 U.S.C. 6b. END FOOTNOTE
FOOTNOTE 17 7 U.S.C. 2(c)(2)(D)(iii). END FOOTNOTE
New CEA section 2(c)(2)(D) excepts certain transactions from its application. In particular, new CEA section 2(c)(2)(D)(ii)(III)(aa) /18/ excepts a contract of sale that "results in actual delivery within 28 days or such other longer period as the Commission may determine by rule or regulation based upon the typical commercial practice in cash or spot markets for the commodity involved." /19/
FOOTNOTE 18 7 U.S.C. 2(c)(2)(D)(ii)(III)(aa). END FOOTNOTE
FOOTNOTE 19 The Commission has not adopted any regulations permitting a longer actual delivery period for any commodity pursuant to new CEA section 2(c)(2)(D)(ii)(III)(aa). Accordingly, the 28-day actual delivery period set forth in this provision remains applicable to all commodities. END FOOTNOTE
The Commission is issuing this interpretation to inform the public of the Commission's views as to the meaning of the term "actual delivery" as used in new CEA section 2(c)(2)(D)(ii)(III)(aa) and to provide the public with guidance on how the Commission intends to assess whether any given transaction results in actual delivery within the meaning of the statute. /20/ The Commission requests comment on whether its interpretation of "actual delivery" accurately construes the statutory language.
FOOTNOTE 20 In 1985, the
This interpretation does not address the meaning or scope of new CEA section 2(c)(2)(D)(ii)(III)(bb) /21/ or any exception to new CEA section 2(c)(2)(D) other than new CEA section 2(c)(2)(D)(ii)(III)(aa). Similarly, this interpretation does not address the meaning or scope of contracts of sale of a commodity for future delivery, the forward contract exclusion from the term "future delivery" set forth in CEA section 1a(27), /22/ or the forward contract exclusion from the term "swap" set forth in CEA section 1a(47)(B)(ii). /23/ Nor does this interpretation alter any statutory interpretation or statement of Commission policy relating to the forward contract exclusion. /24/
FOOTNOTE 21 7 U.S.C. 2(c)(2)(D)(ii)(III)(bb). END FOOTNOTE
FOOTNOTE 22 7 U.S.C. 1a(27). END FOOTNOTE
FOOTNOTE 23 7 U.S.C. 1a(47)(B)(ii). END FOOTNOTE
FOOTNOTE 24 See, e.g., Statutory Interpretation Concerning Forward Transactions, 55 FR 39188 (
II. Commission Interpretation of "Actual Delivery"
In the view of the Commission, the determination of whether "actual delivery" has occurred within the meaning of new CEA section 2(c)(2)(D)(ii)(III)(aa) requires consideration of evidence regarding delivery beyond the four corners of contract documents. This interpretation of the statutory language is based on
Relevant factors in this determination include the following: ownership, possession, title, and physical location of the commodity purchased or sold, both before and after execution of the agreement, contract, or transaction; the nature of the relationship between the buyer, seller, and possessor of the commodity purchased or sold; and the manner in which the purchase or sale is recorded and completed. The Commission provides the following examples to illustrate how it will determine whether actual delivery has occurred within the meaning of new CEA section 2(c)(2)(D)(ii)(III)(aa).
Example 1:
Actual delivery will have occurred if, within 28 days, the seller has physically delivered the entire quantity of the commodity purchased by the buyer, including any portion of the purchase made using leverage, margin, or financing, into the possession of the buyer and has transferred title to that quantity of the commodity to the buyer.
Example 2:
Actual delivery will have occurred if, within 28 days, the seller has physically delivered the entire quantity of the commodity purchased by the buyer, including any portion of the purchase made using leverage, margin, or financing, whether in specifically segregated or fungible bulk form, into the possession of a depository other than the seller and its parent company, partners, agents, and other affiliates, that is: (a) A financial institution as defined by the CEA; (b) a depository, the warrants or warehouse receipts of which are recognized for delivery purposes for any commodity on a contract market designated by the Commission; or (c) a storage facility licensed or regulated by
FOOTNOTE 25 Based on Examples 1 and 2, an agreement, contract, or transaction that results in "physical delivery" within the meaning of section 1.04(a)(2)(i)-(iii) of the Model State Commodity Code would ordinarily result in "actual delivery" under new CEA section 2(c)(2)(D)(ii)(III)(aa), absent other evidence indicating that the purported delivery is a sham. See Model State Commodity Code SEC 1.04(a)(2)(i)-(iii), Comm. Fut. L. Rep. Archive (CCH) [paragraph] 22,568 (
Example 3:
Actual delivery will not have occurred if, within 28 days, a book entry is made by the seller purporting to show that delivery of the commodity has been made to the buyer and/or that a sale of a commodity has subsequently been covered or hedged by the seller through a third party contract or account, but the seller has not, in accordance with the methods described in Example 1 or 2, physically delivered the entire quantity of the commodity purchased by the buyer, including any portion of the purchase made using leverage, margin, or financing, and transferred title to that quantity of the commodity to the buyer, regardless of whether the agreement, contract, or transaction between the buyer and seller purports to create an enforceable obligation on the part of the seller, or a parent company, partner, agent, or other affiliate of the seller, to deliver the commodity to the buyer.
Example 4:
Actual delivery will not have occurred if, within 28 days, the seller has purported to physically deliver the entire quantity of the commodity purchased by the buyer, including any portion of the purchase made using leverage, margin, or financing, in accordance with the method described in Example 2, and transfer title to that quantity of the commodity to the buyer, but the title document fails to identify the specific financial institution, depository, or storage facility with possession of the commodity, the quality specifications of the commodity, the identity of the party transferring title to the commodity to the buyer, and the segregation or allocation status of the commodity.
Example 5:
Actual delivery will not have occurred if, within 28 days, an agreement, contract, or transaction for the purchase or sale of a commodity is rolled, offset, or otherwise netted with another transaction or settled in cash between the buyer and the seller, but the seller has not, in accordance with the methods described in Example 1 or 2, physically delivered the entire quantity of the commodity purchased by the buyer, including any portion of the purchase made using leverage, margin, or financing, and transferred title to that quantity of the commodity to the buyer, regardless of whether the agreement, contract, or transaction between the buyer and seller purports to create an enforceable obligation on the part of the seller, or a parent company, partner, agent, or other affiliate of the seller, to deliver the commodity to the buyer.
Issued in
Secretary of the Commission.
[FR Doc. 2011-31355 Filed 12-13-11;
BILLING CODE P
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