NGFA Asks CFTC to Reconsider Proposed Dodd-Frank Law Recordkeeping Rules

The National Grain and Feed Association (NGFA) has called on the Commodity Futures Trading Commission (CFTC) to clarify and narrow an onerous proposed recordkeeping rule that could require many grain elevators, feed mills, grain processors and others to record all communications – including telephone conversations – with farmers and other commercial firms that ultimately result in cash or cash-forward contract transactions.

In urging the CFTC to exempt from the requirements all communications associated with cash sales and cash contracts, the NGFA cited concerns with a section of the agency’s June 7 proposal that purports to make “…a number of conforming changes” to its regulations to “integrate them more fully with” the new Dodd-Frank financial regulatory reform law.  The CFTC’s proposal, among other things, would obligate futures commission merchants, introducing brokers, and members of commodity futures exchanges and swap execution facilities to maintain records for five years of all written and oral communications that lead to the execution of transactions in a commodity interest (including swaps) or cash commodity. 

Specifically, the CFTC’s proposal would require records of “all oral and written communication provided or received concerning quotes, solicitations, bids, offers, instructions, trading and prices that lead to the execution of transactions in a commodity interest or cash commodity, whether communicated by telephone, voicemail, facsimile, instant messaging, chat rooms, electronic mail, mobile device or other digital or electronic media.”  The records also would need to be sufficient to identify each transaction and the specific counterparty involved.  Further, recorded conversations would need to be maintained in their “native file format.”

Of particular concern to the NGFA is a provision that would impose such recordkeeping on all members of a “designated contract market,” such as the CME Group’s Chicago Board of Trade, the Kansas City Board of Trade and Minneapolis Grain Exchange.  Many grain companies, feed manufacturers, grain processors and other commercial firms are members of such exchanges, and hence would be subject to the requirements – even for cash and cash-forward contracts that currently are exempt from regulation under the Commodity Exchange Act.  The recordkeeping and recording requirements would extend to written and oral communications such firms engage in with producers.

“Taken as written, this proposal…would require that employees at hundreds of such facilities record telephone conversations with producers from whom they are purchasing cash grain, either through spot (cash prices for a physical commodity offered for immediate delivery) or cash-forward contracts,” wrote NGFA Risk Management Committee Chairman Matt Bruns, vice president, corn processing for Archer Daniels Midland, Decatur, Ill.  “The NGFA believes strongly that such regulation of the cash marketplace was not intended by Congress, nor perhaps by the CFTC.”

The NGFA also said the proposal would create a “highly undesirable”  bifurcated regulatory system in which companies that are members of a futures exchange are subject to onerous recording and recordkeeping requirements of their communications with customers, while other firms that are not are exempt.

The NGFA’s statement to the CFTC also raised concerns from futures commission merchants and introducing brokers about the costs of complying with the agency’s expansive proposal.  The NGFA noted that many systems currently in place may not be able to identify each transaction as a separate electronic file identifiable by counterparty and transaction, nor be able to retain recorded conversations and other records for as long as five years.  Keeping records or recording cell phone and voice mail messages also may present challenges to existing systems, the association said.