Taping Every Farmer/Elevator Conversation?


CHICAGO (Reuters) — U.S. grain traders are alarmed over a new proposal from the Commodity Futures Trading Commission that could require every conversation between a farmer and a country elevator to be tape recorded.

The proposal, outlined in a 48-page document in the Federal Register on June 7 but flagged only this week by the industry, makes a number of “conforming changes” for the commodities industry in line with the landmark Dodd-Frank market reform legislation signed in July, 2010, the CFTC document stated.

The legislation, passed in the wake of the financial crisis in Fall, 2008, aims to “reduce risk, increase transparency and promote market integrity,” the agency notes.

Grain traders have zeroed in on a section that would require firms that are members of futures exchanges “to record all oral communications that lead to the execution of transactions in a commodity interest or cash commodity.”

The recordings, which must be stored for years in addition to full electronic records of transactions, will need to “be identifiable by counterparty and transaction.”

Grain traders, who were already arguing with the CFTC about reporting more details of over-the-counter transactions like grain swaps, say such a rule would disrupt commercial grain markets, which handle millions of bushels each day from thousands of grain elevators across the United States.

The National Grain and Feed Association, the largest U.S. trade group of grain handlers which includes more than a thousand companies with grain facilities, food processors and exporters, is seeking member feedback about the proposal.

“If you read CFTC’s proposed rule literally, grain companies that are members of a regulated exchange like the Chicago Board of Trade, Kansas City Board of Trade or Minneapolis Grain Exchange could be required by CFTC to record all phone conversations between their elevator employees and producers and to keep those recordings for five years,” said Todd Kemp, NGFA director of marketing, treasurer. “If that is really the Commission’s intention, we would strongly object.”

The Commodity Markets Council, which groups big users of futures markets for risk management and investment, also plans to submit comments on the proposal to CFTC on Monday.

“CMC has strong concerns on this,” Sanjeev Joshipura, Commodity Markets Council vice president, told Reuters.

A spokesman for CFTC, asked about the grain trade’s concerns on Friday, declined to comment while the official industry comment period was still open.

“We cannot prejudge the outcome,” the spokesman said.

The CFTC’s implementation of Dodd-Frank has been stalled of rule-making complexities in many areas of a financial industry which has seen vast changes in the last decade, from high-speed “black box” trading to derivatives-of-derivatives, and so on.

The CFTC is far behind schedule to complete nearly 50 rules to execute Dodd-Frank, which gave it oversight of U.S. firms involved in the $600 trillion global swaps market.

Cash grain traders on Friday expressed puzzlement over the tape-recording rule, which they said would be unwieldy as well as expensive. But they said they would need more details.

“Brokerage firms in general do tape everything. They do it for their own protection, from errors more than a regulatory issue,” said Diana Klemme, vice president with Atlanta-based Grain Services Corp.

Source:  Reuters

Posted by Haylie Shipp


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