The CFTC has adopted proposed rules which address the protection of consumer information, including rules which implement amendments to the Fair Credit Reporting Act and the Gramm-Leach-Bliley Act, rules regarding position reports for physical commodity swaps and a definition of agricultural commodity.
Fair Credit Reporting Act–Protection of Consumer Information
The Dodd-Frank Act amended the Fair Credit Reporting Act and the Fair and Accurate Credit Transactions Act of 2003 to:
- Create a regime for consumers to prohibit entities that are subject to CFTC jurisdiction from using certain consumer information obtained from an affiliate to make solicitations to consumers for marketing purposes.
- Require entities subject to CFTC jurisdiction that possess or maintain consumer information in connection with their business activities to develop and implement a written program and procedures for the proper disposal of such information.
The proposed regulations will apply to futures commission merchants, retail foreign exchange dealers, commodity trading advisors, commodity pool operators, introducing brokers, swap dealers and major swap participants, regardless of whether they are required to register with the CFTC.
The Fair Credit Reporting Act required various federal agencies to issue regulations providing protections to consumer information held by entities that are subject to Commission jurisdiction. In particular, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, the National Credit Union Administration, the Securities and Exchange Commission and the Federal Trade Commission issued final rules implementing these sections of the FCRA. The CFTC is now proposing to adopt similar rules to the final rules adopted by these federal agencies, to the extent possible, to ensure consistency and comparability.
An entity subject to CFTC jurisdiction can make solicitations to a consumer based on that consumer’s information if:
- The consumer is given clear, conspicuous and concise notice;
- The consumer is given a reasonable opportunity to opt out of such use of the information; and
- The consumer does not opt out.
Amendments to Gramm-Leach-Bliley Act
Title X of the Dodd-Frank Act amended Title V of the Gramm-Leach-Bliley Act to, among other things, affirm the CFTC’s authority to promulgate regulations to require entities that are subject to the CFTC’s jurisdiction to provide certain privacy protections for consumer financial information. Title VII of the Dodd-Frank Act created two new entities that are subject to the jurisdiction of the CFTC: swap dealers and major swap participants.
Part 160 of the CFTC’s regulations set forth certain protections for the privacy of nonpublic, consumer information. The new proposed regulations primarily would expand the scope of Part 160 to apply to swap dealers and major swap participants, regardless of whether they are required to register with the CFTC.
Position Reports for Physical Commodity Swaps
The Dodd-Frank Act further amended the Commodity Exchange Act, or CEA, to:
- Require the CFTC to limit the amount of positions, other than bona fide hedge positions, that may be held by any person with respect to commodity futures and option contracts in exempt and agricultural commodities traded on or subject to the rules of a designated contract market (DCM).
- Require the CFTC to establish position limits, including aggregate position limits, for swaps that are economically equivalent to DCM contracts in exempt and agricultural commodities (collectively, economically equivalent swaps). Such limits must be imposed simultaneously with limits on DCM contracts.
The proposed regulations adopted today call for:
- Establishment of a reporting system to collect necessary data on economically equivalent swaps in order for the CFTC to be able to enforce aggregate position limits with respect to such swaps as mandated by the Dodd-Frank Act. The proposed system would be analogous to the CFTC’s current reporting structure for receiving data on large positions in physical commodity futures contracts traded on DCMs.
- The proposed reporting system to serve as a transitional tool for swaps positional data until swap data repositories (SDRs) are in operation and potentially serving as the Commission’s primary source for swaps positional data, at which time the Commission may either continue or discontinue the proposed system.
- A position to be deemed reportable under the proposed system if it is, in any one futures equivalent month, comprised of fifty or more economically equivalent swaps (on a futures equivalent basis) based on the same commodity underlying any of the DCM contracts listed in the proposed regulations.
There is no existing definition of the term agricultural commodity – as used in connection with the CEA or the CFTC’s regulations. Accordingly the CFTC has proposed a definition of agricultural commodity. The CFTC is proposing to define the term agricultural commodity in order to, among other things, define the scope of the Dodd-Frank agricultural swaps rulemaking and the Dodd-Frank agricultural commodity position limit rulemaking.
The proposed definition of agricultural commodity is broken down into the following categories:
- The enumerated commodities listed in section 1a of the Commodity Exchange Act, including such things as wheat, cotton, corn, the soybean complex, livestock, etc.;
- 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;”
- A catch-all category for commodities that would generally be recognized as agricultural in nature, but which don’t fit within the general operational definition: “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
- Finally, a provision applicable to: “Commodity-based contracts based wholly or principally on a single underlying agricultural commodity.”