Too rigid financial reform regulations could make it impossible for individual farmers and small agricultural companies to access much-needed financial risk management services, NAWG and a dozen other ag groups told Commodity Futures Trading Commission (CFTC) Chairman Gary Gensler in a letter sent last week.
Expressing support for the "broad objectives of the Dodd-Frank" regulatory reform law - which aims to make regulations more consistent, increase market transparency and reduce overall systemic risk - the groups also expressed concern with the rules being written under its auspices, saying a one-size-fits-all approach will not work for farmers.
The groups told Gensler that the proposed definition of swap dealer is so broad it would heavily regulate many risk management providers, like local grain elevators, making them less likely to offer a full range of risk management services. This would mean producers would have less access to risk management options, and that the risk management sector would likely consolidate.
The ag representatives also asked for clarification of how the various rules under consideration will interact. They specifically urged the CFTC to explicitly exclude commercial hedging transactions from the definition of swap dealing activity; to recognize the differences between significant swap dealers and those looking to facilitate legitimate hedging practices; and to establish a higher de minimis exception to allow for rising commodity prices and increased market volatility.
Finally, the groups provided feedback about a draft rule proposing extensive recording of communications that lead to commodity transactions, noting it would require employees at even small operations to record every face-to-face and telephone conversation and keep all communications, written and oral, for five years. This would be a dramatic expansion of recordkeeping requirements, which is unnecessary and onerous for many small operations.
The groups writing represented farmers, cooperative associations, grain dealers and millers, food processors, and others. To read the full letter, go here.
On a related note, the CFTC met Wednesday in Washington, focusing much of their activity on continued Dodd-Frank rulemaking while also touching on regulatory issues following MF Global's bankruptcy. The Commissioners adopted new rules with regards to customer money involved in swaps.