CHS, Inc. and CHS Hedging, LLC, a wholly owned subsidiary of CHS, agreed to pay a fine of US $1 million for their failure to file accurate reports of CHS’s physical commodity positions from at least January 2000 until May 2013. CHS is an agricultural cooperative not registered with the CFTC in any capacity, while CHS Hedging is registered with the CFTC as a futures commission merchant. According to the CFTC, during the relevant time, CHS maintained reportable positions in corn and soybean futures to hedge fixed price physical corn and soybean positions. As a result, the firm was obligated to file a monthly report of its fixed price physical positions, known as a Form 204, with the CFTC. During the relevant tine, CHS Hedging filed this report on behalf of CHS. However, said the CFTC, CHS Hedging mistakenly included the same fixed position throughout the relevant time period for one of the three CHS business units that it was required to aggregate to report CHS’s overall positions. As a result, CHS’s reported positions were incorrect. CHS subsequently filed corrected Form 204s for January 2013 to May 2013.
Compliance Weeds: CFTC Form 204 (Statement of Cash Positions in Grains, Soybeans, Soybean Oil and Soybean Meal) and Parts I and II of Form 304 (Statement of Cash Position in Cotton – Fixed Price Cash Positions) must be filed by any person that holds or controls a position in excess of relevant federal speculative position limits that constitutes a bona fide hedging position under CFTC rules. These documents must be made as of the close of business on the last Friday of the relevant month. Form 204 must be received by the CFTC in Chicago by no later than the third business day following the date of the report, while Form 304 must be received by the Commission in New York by no later than the second business day following the date of the report. Part III of Form 304 (Unfixed Price Cotton “On-Call”) must be filed by any cotton merchant or dealer that holds a so-called reportable position in cotton (i.e., pursuant to large trader reportable levels; click here to access CFTC Rule 15.03) regardless of whether or not it constitutes a bona fidehedge. Form 304 (Part III) must be made as of the close of business on Friday every week and received by the CFTC in New York by no later than the second business day following the date of the report.
My View: There are many obligations under CFTC rules that apply to non-registrants. The obligation to file Forms 204 and 304 for certain traders of agricultural futures contracts who engage in hedging of corresponding physical positions is just one of many such requirements. The technical processes regarding Forms 204 and 304 are difficult to follow: sometimes a report is filed weekly not monthly. Sometimes the trigger for the filing is a reportable position; other times it is a position in excess of a speculative position limit. Sometimes a report is filed in New York; other times it is filed in Chicago. These are details that can often be lost in translation. As a result, it is not surprising that some recent enforcement actions regarding breaches in reporting requirements have involved non-US based firms (Click here for details regarding a CFTC fine against a Switzerland-based company in the article, “Non-US Cotton Merchant Fined US $480,000 for Not Filing Mandatory Weekly Reports of Physical Positions” in the May 17, 2015 edition ofBridging the Week. Click here for details regarding CFTC fines against two Brazilian-based companies in the article, “CFTC Fines Cotton Traders for Not Filing Weekly Reports Showing Their Physical Purchases and Sales” in the January 20, 2014 edition ofBridging the Week.) However, US-based non-registrants have also been subject to CFTC sanctions, as in the instant enforcement action Although the length of time of CHS’s and CHS Hedging’s violation was extensive, it is still questionable whether a fine of US $1 million is justified for an agricultural cooperative’s violation of a rule that is arcane at best and where there appears to have been no intentional wrongdoing.