Agricultural Swaps Rule Takes Effect Dec. 31
Last September, the Commodity Futures Trading Commission published an advance notice of proposed rulemaking on agricultural swaps. The agricultural swaps rule is part of the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act approved by Congress last year.
Farm Bureau and a coalition of other agriculture-related end-users submitted comments urging that agricultural swaps be authorized, with regulation consistent with other swaps and in a manner that is not overly burdensome.
At a public meeting Aug. 4, CFTC unanimously approved a final rule authorizing agricultural swaps and subjecting them to the same rules applicable to all other swap transactions. The Dodd-Frank Act prohibits agricultural swaps if CFTC does not specifically authorize them.
CFTC’s action allows agricultural producers, processors, merchants and handlers to use agricultural swaps to hedge their risk under the protection and transparency of the Dodd-Frank Act. The rule takes effect Dec. 31.
In finance, a swap is a derivative in which counterparties exchange certain benefits of one party’s financial instrument for those of the other party’s financial instrument.