Aiming to reduce needless regulatory costs on America’s farmers, grain elevators and other commercial end-users of the commodity markets, the U.S. Commodity Futures Trading Commission (CFTC) recently amended a record-keeping rule that had caused major headaches for unregistered members.
The December 2015 change to CFTC Regulation 1.35(a) was aimed at solving problems in the previous version of the measure, which was characterized by a CFTC Commissioner as “unworkable” and levied compliance costs described by market participants as “prohibitively expensive.”
The amended regulation is beneficial for hedgers and other commercial end-users of the commodity markets who are not registered in any capacity with the CFTC but who nonetheless hold membership or trading privileges on an exchange (for example, through a designated contract market or a swap execution facility).
It is not uncommon for commodity dealers and end-users who engage in hedging in the ordinary course of business to hold membership or trading privileges on an exchange in order to reduce transaction costs. However, many of those dealers and end-users are neither registered nor required to be registered with the CFTC in any capacity. (We’ll refer to them in this article as “unregistered members.”)
Prior to the amended regulation, CFTC regulations did not distinguish unregistered members from exchange members who are registered with the CFTC in some capacity (e.g., introducing brokers). All dealers and end-users, registered or not, who held membership or trading privileges on an exchange, were subject to onerous record-keeping requirements.
The amended regulation provides three areas of record-keeping relief to unregistered members:
The amended regulation was enacted following input from a number of end-user organizations and trade groups such as the American Gas Association, Commodity Markets Council, Commercial Energy Working Group, Coalition of Physical Energy Companies, Edison Electric Institute, Federal Home Loan Banks, Investment Adviser Association and others.