Order Excluding Farm Credit System Institutions From the Commodity Exchange Act's Definition of “Commodity Trading Advisor”, 89447-89449 [2016-29613]
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Federal Register / Vol. 81, No. 238 / Monday, December 12, 2016 / Notices
Number 0648–0690 (Vessel Monitoring
System Requirements in the Eastern
Pacific Highly Migratory Species
Fisheries) into this information
collection.
This collection applies to owners and
operators of U.S. commercial fishing
vessels that fish in the West Coast
exclusive economic zone and the
eastern Pacific Ocean waters of the
Inter-American Tropical Tuna
Commission (IATTC) Convention Area
for highly migratory species (HMS) as
defined by the Fishery Management
Plan (FMP) for United States (U.S.) West
Coast Fisheries for Highly Migratory
Species, as well as a broader group of
tuna and tuna-like species covered by
the IATTC. These vessel owners and
operators are required to submit
information about their intended and
actual fishing activities. These
submissions would allow the National
Marine Fisheries Service (NMFS) and
the Pacific Fisheries Management
Council to monitor the fisheries.
Submissions include pre-trip reporting
requirements and vessel monitoring
systems (VMS). Pre-trip reporting
requirements are essential for effectively
and efficiently assigning available
observer coverage to selected HMS
vessels. Data collected by observers are
critical to evaluate that the objectives of
the HMS FMP are being achieved and
for evaluating the impacts of potential
changes in fishery management. VMS
units facilitate enforcement of
management measures associated with
HMS fisheries, provide timely
information on associated fleet activities
and enable confirmation of reported
vessel fishing activity locations, which
help validate logbook record accuracy.
II. Method of Collection
VMS installation/activation and on/
off reports are submitted electronically,
VMS position reports are submitted via
automated electronic transmission and
pre-trip notifications are made by
telephone.
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III. Data
OMB Control Number: 0648–0498.
Form Number(s): None.
Type of Review: Regular submission
(revision and extension of a current
information collection).
Affected Public: Business or other forprofit organizations.
Estimated Number of Respondents:
34.
Estimated Time per Response: Vessel
monitoring system (VMS) activation
reports, 15 minutes; pre-trip reports, 5
minutes; maintenance and repair, 60
minutes.
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Estimated Total Annual Burden
Hours: 45.
Estimated Total Annual Cost to
Public: $22,187 (reporting costs for
vessels 24 meters or more is covered by
vessel owner/operators).
IV. Request for Comments
Comments are requested on: (a)
Whether the proposed collection of
information is necessary for the proper
performance of the functions of the
agency, including whether the
information shall have practical utility;
(b) the accuracy of the agency’s estimate
of the burden (including hours and cost)
of the proposed collection of
information; (c) ways to enhance the
quality, utility, and clarity of the
information to be collected; and (d)
ways to minimize the burden of the
collection of information on
respondents, including through the use
of automated collection techniques or
other forms of information technology.
Comments submitted in response to
this notice will be summarized and/or
included in the request for OMB
approval of this information collection;
they also will become a matter of public
record.
Dated: December 7, 2016.
Sarah Brabson,
NOAA PRA Clearance Officer.
[FR Doc. 2016–29688 Filed 12–9–16; 8:45 am]
BILLING CODE 3510–22–P
COMMODITY FUTURES TRADING
COMMISSION
Order Excluding Farm Credit System
Institutions From the Commodity
Exchange Act’s Definition of
‘‘Commodity Trading Advisor’’
Commodity Futures Trading
Commission.
ACTION: Notice and order.
AGENCY:
Pursuant to the authority
under section 1a(12)(B)(vii) of the
Commodity Exchange Act (‘‘CEA’’ or
‘‘Act’’), the Commodity Futures Trading
Commission (‘‘Commission’’) is issuing
an order (‘‘Order’’) excluding
institutions in the Farm Credit System
(‘‘FCS’’) from the definition of
‘‘commodity trading advisor’’ (‘‘CTA’’).
The Commission finds that FCS
institutions are primarily engaged in
lending to U.S. farmers, ranchers, and
agricultural cooperatives, and that any
commodity trading advice provided by
FCS institutions to their clientele is
solely incidental to that lending
conduct, as required by CEA section
1a(12)(C). Therefore, the Commission
concludes that FCS institutions are not
89447
entities within the intent of the statutory
CTA definition, and that the issuance of
this Order excluding them from the
definition is appropriate.
DATES: Effective date: December 12,
2016.
FOR FURTHER INFORMATION CONTACT:
Amanda Olear, Associate Director,
Division of Swap Dealer and
Intermediary Oversight, (202) 418–5283,
aolear@cftc.gov, or Elizabeth Groover,
Special Counsel, Division of Swap
Dealer and Intermediary Oversight,
(202) 418–5985, egroover@cftc.gov.
SUPPLEMENTARY INFORMATION:
I. Background
On October 28, 2016, the Farm Credit
Council (‘‘Farm Credit’’ or ‘‘Council’’)
petitioned the Commission for an order
excluding FCS institutions from the
CTA definition in the CEA. The Council
is the national trade association for the
FCS, a federally-chartered network of
borrower-owned lending institutions
comprised of cooperatives and related
service organizations.1 Farm Credit’s
petition states that the FCS institutions
should be excluded from the CTA
definition because (1) the FCS
institutions are not within the intent of
the CTA definition because they are in
the business of banking and lending,
and (2) certain services provided by
them, which could constitute
commodity trading advice, are solely
incidental to their primary lending
business.2
FCS institutions are important lenders
to U.S. farmers, ranchers and
agricultural cooperatives. The FCS
institutions include the FCS Banks
(CoBank, AgriBank, AgFirst Farm Credit
Bank, and Farm Credit Bank of Texas),
as well as Agricultural Credit
Associations, Federal Land Credit
Associations, and Production Credit
Associations (together, the
‘‘Associations’’).3 The FCS Banks make
SUMMARY:
PO 00000
Frm 00023
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1 Petition for Order to Exclude Farm Credit
System Institutions from the Commodity Trading
Advisor Definition in Accordance with Section
1a(12)(B)(vii) of the Commodity Exchange Act,
Farm Credit Council (Oct. 28, 2016) (‘‘Petition’’), at
1.
2 Id. at 3.
3 An Agricultural Credit Association (ACA) can
make short-, intermediate-, and long-term loans, as
each ACA contains two subsidiaries: A Federal
Land Credit Association (FLCA) that can only make
long-term real estate loans, and a Production Credit
Association (PCA) that makes short- and
intermediate-term loans. Although legally
separated, the ACA and its FLCA and PCA
subsidiaries operate an integrated lending business
with loans made through the subsidiary possessing
the appropriate authority. The ACA, PCA, and
FLCA are jointly and severally liable on the full
amount of the indebtedness to the relevant FCS
Bank under the FCS Bank’s General Financing
E:\FR\FM\12DEN1.SGM
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89448
Federal Register / Vol. 81, No. 238 / Monday, December 12, 2016 / Notices
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loans to affiliated Associations in their
geographic areas, which, in turn, make
loans to farmers, ranchers, and other
eligible borrowers.4 Although FCS
institutions do not take deposits, they
provide loans, leases, and related
services to farmers, ranchers, rural
homeowners, aquatic producers, timber
harvesters, agricultural cooperatives,
rural utilities, and other eligible
borrowers in all 50 states, the District of
Columbia, and Puerto Rico.5
The Farm Credit Administration
(‘‘FCA’’) is responsible for regulating
and supervising the FCS institutions.
The FCA is defined as an ‘‘appropriate
federal banking agency’’ under the CEA6
and is one of the ‘‘Prudential
Regulators’’ charged with implementing
certain key regulatory requirements
promulgated by the Dodd-Frank Act.7
The Petition states that the FCA
regulates FCS institutions like banks,
and that such regulation appropriately
mitigates the risks of FCS institutions.8
In particular, the FCA promulgates
policies and regulations intended to:
Protect the safety and soundness of the
FCS institutions; implement the FCA’s
statutory authority in the Farm Credit
Act of 1971; 9 establish minimum
requirements for lending, related
services, investments, capital, liquidity,
and mission; and ensure adequate
financial disclosure and appropriate
governance of the FCS institutions.10
Consequently, the FCS institutions are
subject to investment guidelines,11
capital requirements,12 liquidity
Agreement. Additionally, the ACA, PCA, and FLCA
agree to guarantee each other’s debts and
obligations, pledge their respective assets as
security for the guarantee, and share common
capital. Petition, at 2.
4 Id. Additionally, CoBank also lends directly to
agricultural cooperatives, rural utilities, and other
eligible borrowers. Id.
5 Petition, at 3.
6 7 U.S.C. 1a(2).
7 Public Law 111–203, 124 Stat. 1376 (2010).
8 Petition, at 3. In fact, Farm Credit believes that
FCS institutions are, in fact, banks that would
otherwise be excluded from the CTA definition by
CEA section 1a(12)(B)(i). However, Farm Credit
states that it petitioned for this Order to achieve
greater certainty for the FCS institutions because
the term ‘‘bank’’ is not defined in the CEA or the
Commission’s regulations. Id.
9 12 U.S.C. 2001–2279cc.
10 2015 Annual Report on the Farm Credit
System, Farm Credit Administration, Regulator of
the FCS, p. 5 (‘‘FCA Annual Report’’). See also id.
at 41–44.
11 12 CFR part 615, subpart E.
12 12 CFR part 615, subparts H and K. The FCA
published final rules in July 2016 that are intended
to ensure that FCS capital requirements are
appropriate for the FCS’ cooperative structure, and
comparable to the Basel III framework and the
standardized approach adopted by the federal
banking regulatory agencies. See Regulatory Capital
Rules: Regulatory Capital, Implementation of Tier
1/Tier 2 Framework, 81 FR 49720 (July 28, 2016).
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requirements,13 guidelines for the use of
derivatives,14 risk management
standards,15 periodic reporting
obligations,16 as well as the FCA’s
examination authority.17
FCS institutions use derivatives to
manage their own risks, and also to offer
their eligible borrowers or their
affiliated Associations’ eligible
borrowers the ability to hedge the risks,
including interest rate risk, associated
with their loans through the use of overthe-counter (‘‘OTC’’) swaps.18 The use
of derivatives is specifically permitted
and overseen by the FCA and is subject
to certain conditions, in order to protect
the FCS institution eligible borrowers
and to preserve the ‘‘safety and
soundness’’ of the FCS as a whole.19
The Petition states that swaps offered to
FCS institution eligible borrowers are
intended to assist them in hedging their
interest rate and other risks arising from
FCS institution loans, and that FCS
institutions do not enter into swaps
with persons unless they are eligible
borrowers of an FCS institution.20
In connection with the lendingrelated swap transactions, FCS
institutions sometimes provide eligible
13 12
CFR part 615, subpart E.
C. Baer, Director, Office of Examination,
FCA to All Farm Credit Banks, ‘‘Guidelines for
Utilizing Derivative Products,’’ Bookletter, BL–023
(Oct. 31, 1995) (‘‘FCA Guidelines for Utilizing
Derivatives’’), available at https://ww3.fca.gov/
readingrm/Handbook/_layouts/15/WopiFrame.aspx
?sourcedoc=/readingrm/Handbook/FCA%20
Bookletters/BL-023.docx&action=default. These
Guidelines are designed to complement existing
FCA regulations pertaining to risk management,
investment practices, and asset and liability
management practices. Id. at 3.
15 12 CFR part 615, subpart G.
16 12 CFR part 621, subpart D.
17 FCA Annual Report, p. 5.
18 Petition, at 2. The Petition states that FCS
institutions also use derivatives to manage interest
rate, liquidity, and balance sheet risks, but because
FCS institutions primarily enter into such
transactions with registered swap dealers, the
Council does not view such activity as raising CTA
concerns. Id.
19 Petition, at 5. The Petition specifically cites
detailed FCA policies mandating counterparty
credit risk management, as well as the
‘‘comprehensive safety and soundness regulation
and oversight by the FCA.’’ Petition, at 5–6. As a
result, all of the FCS institutions’ derivatives
activity, whether with swap dealers or eligible
borrowers, falls within the definition of ‘‘hedging or
mitigating commercial risk’’ in Commission
regulations. Id. at 6. This is consistent with the
FCA’s historic position related to the use of
derivatives by FCS institutions, as stated in the FCA
Guidelines for Utilizing Derivatives: ‘‘The FCA
considers any speculative use of derivatives an
unsafe and unsound banking practice.’’ FCA
Guidelines for Utilizing Derivatives, at 1.
20 Petition, at 2. Further, the Petition states that
FCS institutions are prohibited from engaging in
speculative derivatives activity, and that approved
swap transactions with eligible borrowers are
limited to those that enable eligible borrowers to
hedge risk or that are necessary for the financing of
individual transactions. Id. at 6.
14 David
PO 00000
Frm 00024
Fmt 4703
Sfmt 4703
borrowers with information about the
financial instrument to be used, i.e., an
interest rate swap, through
presentations or in writing.21 The
Petition further states that such
information generally is generic and not
intended as commodity trading
advice.22 Additionally, an eligible
borrower in this context acknowledges
that the FCS institution is not its
advisor, and that the borrower is not
relying on the information as FCS
institution advice.23 Nevertheless,
because the FCS institution is providing
information about a commodity interest
transaction to an eligible borrower,
Farm Credit and FCS institutions are
concerned that the provision of such
information could be construed as the
provision of commodity trading advice
requiring registration as a CTA with the
Commission.24 Therefore, Farm Credit
filed the Petition seeking an Order
excluding the FCS institutions from the
CEA’s CTA definition to clarify their
registration and compliance obligations
with respect to the CEA and the
regulations promulgated thereunder.25
Farm Credit’s Petition argues that
issuing such an Order is appropriate
because FCS institutions are not within
the intent of the CTA definition, and
because any provision of information
about commodity interests to eligible
borrowers is solely incidental to the FCS
institutions’ primary business of
lending.26
II. Legal Authority and Analysis
CEA section 1a(12)(A) defines
‘‘commodity trading advisor’’ as any
person who for compensation or profit,
engages in the business of advising
others, either directly or through
publications, writings, or electronic
media, as to the value of or the
advisability of trading in any
commodity interest transactions; 27 any
person who for compensation or profit,
and as part of a regular business, issues
or promulgates analyses or reports
concerning any of the activities referred
to in clause (i) of CEA section
1(a)(12)(A); 28 any person who is
21 Petition,
22 Id.
at 2–3.
at 3.
23 Id.
24 Petition,
25 Id.
at 2–3.
at 3.
26 Id.
27 7 U.S.C. 1a(12)(A)(i). Specifically, such
transactions include any contract for sale of a
commodity for future delivery, security futures
product, or swap; any agreement, contract, or
transaction described in 7 U.S.C. 2(c)(2)(i) or 7
U.S.C. 2(c)(2)(D)(i); any commodity option
authorized under section 6c of this title; or any
leverage transaction authorized under section 23 of
this title. 7 U.S.C. 1a(12)(A)(i)(I)–(IV).
28 7 U.S.C. 1a(12)(A)(ii).
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mstockstill on DSK3G9T082PROD with NOTICES
Federal Register / Vol. 81, No. 238 / Monday, December 12, 2016 / Notices
registered with the Commission as a
commodity trading advisor; 29 or any
person who the Commission, by rule or
regulation, may include if the
Commission determines that the rule or
regulation will effectuate the purposes
of the CEA.30
CEA section 1a(12)(B) excludes
certain types of persons and entities
from the CTA definition, and permits
the Commission to further exclude, such
other persons not within the intent of
the CTA definition as the Commission
may specify by rule, regulation, or
order.31 Additionally, CEA section
1a(12)(C) states that these exclusions,
including any additional exclusion
adopted through rule, regulation or
order by the Commission, shall apply
only if the furnishing of such services
by persons referred to in CEA section
1a(12)(B) is solely incidental to the
conduct of their business or
profession.32 Therefore, the Commission
must consider whether the potential
CTA activity is solely incidental to the
primary business purposes and conduct
of the FCS institutions, and whether
FCS institutions may be properly
excluded from the CTA definition.
The Commission agrees with the
Petition that the provision of general
information about interest rate swaps to
eligible borrowers of FCS institutions is
solely incidental to the FCS institutions’
main business and mission, i.e.,
agricultural lending. This conclusion is
supported by the fact that the
information is provided solely to
eligible borrowers of the FCS
institutions, and also by the strict
limitations on the swap activities of FCS
institutions—FCS institutions may only
enter into swaps with an eligible
borrower to hedge the risk(s) inherent in
the underlying financing transaction
between that borrower and an FCS
institution.33 Additionally, the Petition
states that FCS institutions do not incur
significant costs in providing the
information to eligible borrowers, do not
charge eligible borrowers for the
information, do not solicit eligible
borrowers, do not require eligible
borrowers to hedge their loan risks
through an FCS institution, and do not
hold themselves out to the public as an
entity providing CTA services.34 Under
these circumstances, the Commission
concludes that the provision of
information related to a swap
transaction to eligible borrowers of FCS
29 7
U.S.C. 1a(12)(A)(iii).
U.S.C. 1a(12)(A)(iv).
31 7 U.S.C. 1a(12)(B); 7 U.S.C. 1a(12)(B)(vii).
32 7 U.S.C. 1a(12)(C).
33 Petition, at 6.
34 Id. at 9.
30 7
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18:59 Dec 09, 2016
Jkt 241001
institutions is solely incidental to the
FCS institutions’ lending activity with
such eligible borrowers.
Further, the primary business activity
of FCS institutions is engaging in direct
lending to farmers, ranchers, and other
eligible borrowers under the regulation
and supervision of the FCA. This
lending activity is generally comparable
to the lending activities of banking
institutions, which are excluded from
the CTA definition under section
1a(12)(B) of the CEA.35 The Commission
believes that it is reasonable under the
facts and circumstances discussed above
to conclude that granting FCS
institutions an exclusion from CTA
registration is consistent with the intent
of section 1a(12) of the CEA.
III. Conclusion and Order
The Commission finds that under the
circumstances set forth above it is
appropriate to exercise the statutory
authority afforded to it under CEA
section 1a(12)(B)(vii) to exclude FCS
institutions from the CTA definition.
Accordingly, the Commission is issuing
this Order excluding FCS institutions
from the CTA definition in CEA section
1a(12)(A). This Order is based upon the
representations made by the petitioner.
The Commission reserves authority, in
its discretion, to revisit the Order.
Issued in Washington, DC, on December 6,
2016, by the Commission.
Robert N. Sidman,
Deputy Secretary of the Commission.
[FR Doc. 2016–29613 Filed 12–9–16; 8:45 am]
BILLING CODE 6351–01–P
DEPARTMENT OF ENERGY
President’s Council of Advisors on
Science and Technology
Office of Science, Department
of Energy.
ACTION: Notice of partially-closed
meeting.
AGENCY:
This notice sets forth the
schedule and summary agenda for a
partially-closed meeting of the
President’s Council of Advisors on
Science and Technology (PCAST), and
describes the functions of the Council.
The Federal Advisory Committee Act
requires that public notice of these
meetings be announced in the Federal
Register.
DATES: January 6, 2017, 9:00 a.m. to
12:00 p.m.
ADDRESSES: The meeting will be held at
the National Academy of Sciences, 2101
SUMMARY:
35 See
PO 00000
7 U.S.C. 1a(12)(B)(i).
Frm 00025
Fmt 4703
Sfmt 4703
89449
Constitution Avenue NW., Washington,
DC in the Lecture Room.
FOR FURTHER INFORMATION CONTACT:
Information regarding the meeting
agenda, time, location, and how to
register for the meeting is available on
the PCAST Web site at: https://
whitehouse.gov/ostp/pcast. A live video
webcast and an archive of the webcast
after the event are expected to be
available at https://whitehouse.gov/ostp/
pcast. The archived video will be
available within one week of the
meeting. Questions about the meeting
should be directed to Ms. Jennifer
Michael at jmichael@ostp.eop.gov, (202)
456–4444. Please note that public
seating for this meeting is limited and
is available on a first-come, first-served
basis.
SUPPLEMENTARY INFORMATION: The
President’s Council of Advisors on
Science and Technology (PCAST) is an
advisory group of the nation’s leading
scientists and engineers, appointed by
the President to augment the science
and technology advice available to him
from inside the White House, cabinet
departments, and other Federal
agencies. See the Executive Order at
https://www.whitehouse.gov/ostp/pcast.
PCAST is consulted about and provides
analyses and recommendations
concerning a wide range of issues where
understandings from the domains of
science, technology, and innovation
may bear on the policy choices before
the President. PCAST is co-chaired by
Dr. John P. Holdren, Assistant to the
President for Science and Technology,
and Director, Office of Science and
Technology Policy, Executive Office of
the President, The White House; and Dr.
Eric S. Lander, President, Broad
Institute of the Massachusetts Institute
of Technology and Harvard.
Type of Meeting: Open and Closed.
Proposed Schedule and Agenda: The
President’s Council of Advisors on
Science and Technology (PCAST) is
scheduled to meet in open session on
January 6, 2017 from 9:00 a.m. to 12:00
p.m.
Open Portion of Meeting: During this
open meeting, PCAST is scheduled to
discuss its study semiconductors as well
as its review on the National
Nanotechnology Initiative, and other
science and technology topics.
Additional information and the agenda,
including any changes that arise, will be
posted at the PCAST Web site at: https://
whitehouse.gov/ostp/pcast.
Closed Portion of the Meeting: PCAST
may hold a closed meeting of
approximately one hour with the
President on January 6, 2017, which
must take place in the White House for
E:\FR\FM\12DEN1.SGM
12DEN1
Agencies
[Federal Register Volume 81, Number 238 (Monday, December 12, 2016)]
[Notices]
[Pages 89447-89449]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-29613]
=======================================================================
-----------------------------------------------------------------------
COMMODITY FUTURES TRADING COMMISSION
Order Excluding Farm Credit System Institutions From the
Commodity Exchange Act's Definition of ``Commodity Trading Advisor''
AGENCY: Commodity Futures Trading Commission.
ACTION: Notice and order.
-----------------------------------------------------------------------
SUMMARY: Pursuant to the authority under section 1a(12)(B)(vii) of the
Commodity Exchange Act (``CEA'' or ``Act''), the Commodity Futures
Trading Commission (``Commission'') is issuing an order (``Order'')
excluding institutions in the Farm Credit System (``FCS'') from the
definition of ``commodity trading advisor'' (``CTA''). The Commission
finds that FCS institutions are primarily engaged in lending to U.S.
farmers, ranchers, and agricultural cooperatives, and that any
commodity trading advice provided by FCS institutions to their
clientele is solely incidental to that lending conduct, as required by
CEA section 1a(12)(C). Therefore, the Commission concludes that FCS
institutions are not entities within the intent of the statutory CTA
definition, and that the issuance of this Order excluding them from the
definition is appropriate.
DATES: Effective date: December 12, 2016.
FOR FURTHER INFORMATION CONTACT: Amanda Olear, Associate Director,
Division of Swap Dealer and Intermediary Oversight, (202) 418-5283,
aolear@cftc.gov, or Elizabeth Groover, Special Counsel, Division of
Swap Dealer and Intermediary Oversight, (202) 418-5985,
egroover@cftc.gov.
SUPPLEMENTARY INFORMATION:
I. Background
On October 28, 2016, the Farm Credit Council (``Farm Credit'' or
``Council'') petitioned the Commission for an order excluding FCS
institutions from the CTA definition in the CEA. The Council is the
national trade association for the FCS, a federally-chartered network
of borrower-owned lending institutions comprised of cooperatives and
related service organizations.\1\ Farm Credit's petition states that
the FCS institutions should be excluded from the CTA definition because
(1) the FCS institutions are not within the intent of the CTA
definition because they are in the business of banking and lending, and
(2) certain services provided by them, which could constitute commodity
trading advice, are solely incidental to their primary lending
business.\2\
---------------------------------------------------------------------------
\1\ Petition for Order to Exclude Farm Credit System
Institutions from the Commodity Trading Advisor Definition in
Accordance with Section 1a(12)(B)(vii) of the Commodity Exchange
Act, Farm Credit Council (Oct. 28, 2016) (``Petition''), at 1.
\2\ Id. at 3.
---------------------------------------------------------------------------
FCS institutions are important lenders to U.S. farmers, ranchers
and agricultural cooperatives. The FCS institutions include the FCS
Banks (CoBank, AgriBank, AgFirst Farm Credit Bank, and Farm Credit Bank
of Texas), as well as Agricultural Credit Associations, Federal Land
Credit Associations, and Production Credit Associations (together, the
``Associations'').\3\ The FCS Banks make
[[Page 89448]]
loans to affiliated Associations in their geographic areas, which, in
turn, make loans to farmers, ranchers, and other eligible borrowers.\4\
Although FCS institutions do not take deposits, they provide loans,
leases, and related services to farmers, ranchers, rural homeowners,
aquatic producers, timber harvesters, agricultural cooperatives, rural
utilities, and other eligible borrowers in all 50 states, the District
of Columbia, and Puerto Rico.\5\
---------------------------------------------------------------------------
\3\ An Agricultural Credit Association (ACA) can make short-,
intermediate-, and long-term loans, as each ACA contains two
subsidiaries: A Federal Land Credit Association (FLCA) that can only
make long-term real estate loans, and a Production Credit
Association (PCA) that makes short- and intermediate-term loans.
Although legally separated, the ACA and its FLCA and PCA
subsidiaries operate an integrated lending business with loans made
through the subsidiary possessing the appropriate authority. The
ACA, PCA, and FLCA are jointly and severally liable on the full
amount of the indebtedness to the relevant FCS Bank under the FCS
Bank's General Financing Agreement. Additionally, the ACA, PCA, and
FLCA agree to guarantee each other's debts and obligations, pledge
their respective assets as security for the guarantee, and share
common capital. Petition, at 2.
\4\ Id. Additionally, CoBank also lends directly to agricultural
cooperatives, rural utilities, and other eligible borrowers. Id.
\5\ Petition, at 3.
---------------------------------------------------------------------------
The Farm Credit Administration (``FCA'') is responsible for
regulating and supervising the FCS institutions. The FCA is defined as
an ``appropriate federal banking agency'' under the CEA\6\ and is one
of the ``Prudential Regulators'' charged with implementing certain key
regulatory requirements promulgated by the Dodd-Frank Act.\7\ The
Petition states that the FCA regulates FCS institutions like banks, and
that such regulation appropriately mitigates the risks of FCS
institutions.\8\ In particular, the FCA promulgates policies and
regulations intended to: Protect the safety and soundness of the FCS
institutions; implement the FCA's statutory authority in the Farm
Credit Act of 1971; \9\ establish minimum requirements for lending,
related services, investments, capital, liquidity, and mission; and
ensure adequate financial disclosure and appropriate governance of the
FCS institutions.\10\ Consequently, the FCS institutions are subject to
investment guidelines,\11\ capital requirements,\12\ liquidity
requirements,\13\ guidelines for the use of derivatives,\14\ risk
management standards,\15\ periodic reporting obligations,\16\ as well
as the FCA's examination authority.\17\
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\6\ 7 U.S.C. 1a(2).
\7\ Public Law 111-203, 124 Stat. 1376 (2010).
\8\ Petition, at 3. In fact, Farm Credit believes that FCS
institutions are, in fact, banks that would otherwise be excluded
from the CTA definition by CEA section 1a(12)(B)(i). However, Farm
Credit states that it petitioned for this Order to achieve greater
certainty for the FCS institutions because the term ``bank'' is not
defined in the CEA or the Commission's regulations. Id.
\9\ 12 U.S.C. 2001-2279cc.
\10\ 2015 Annual Report on the Farm Credit System, Farm Credit
Administration, Regulator of the FCS, p. 5 (``FCA Annual Report'').
See also id. at 41-44.
\11\ 12 CFR part 615, subpart E.
\12\ 12 CFR part 615, subparts H and K. The FCA published final
rules in July 2016 that are intended to ensure that FCS capital
requirements are appropriate for the FCS' cooperative structure, and
comparable to the Basel III framework and the standardized approach
adopted by the federal banking regulatory agencies. See Regulatory
Capital Rules: Regulatory Capital, Implementation of Tier 1/Tier 2
Framework, 81 FR 49720 (July 28, 2016).
\13\ 12 CFR part 615, subpart E.
\14\ David C. Baer, Director, Office of Examination, FCA to All
Farm Credit Banks, ``Guidelines for Utilizing Derivative Products,''
Bookletter, BL-023 (Oct. 31, 1995) (``FCA Guidelines for Utilizing
Derivatives''), available at https://ww3.fca.gov/readingrm/Handbook/_layouts/15/WopiFrame.aspx?sourcedoc=/readingrm/Handbook/FCA%20Bookletters/BL-023.docx&action=default. These Guidelines are
designed to complement existing FCA regulations pertaining to risk
management, investment practices, and asset and liability management
practices. Id. at 3.
\15\ 12 CFR part 615, subpart G.
\16\ 12 CFR part 621, subpart D.
\17\ FCA Annual Report, p. 5.
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FCS institutions use derivatives to manage their own risks, and
also to offer their eligible borrowers or their affiliated
Associations' eligible borrowers the ability to hedge the risks,
including interest rate risk, associated with their loans through the
use of over-the-counter (``OTC'') swaps.\18\ The use of derivatives is
specifically permitted and overseen by the FCA and is subject to
certain conditions, in order to protect the FCS institution eligible
borrowers and to preserve the ``safety and soundness'' of the FCS as a
whole.\19\ The Petition states that swaps offered to FCS institution
eligible borrowers are intended to assist them in hedging their
interest rate and other risks arising from FCS institution loans, and
that FCS institutions do not enter into swaps with persons unless they
are eligible borrowers of an FCS institution.\20\
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\18\ Petition, at 2. The Petition states that FCS institutions
also use derivatives to manage interest rate, liquidity, and balance
sheet risks, but because FCS institutions primarily enter into such
transactions with registered swap dealers, the Council does not view
such activity as raising CTA concerns. Id.
\19\ Petition, at 5. The Petition specifically cites detailed
FCA policies mandating counterparty credit risk management, as well
as the ``comprehensive safety and soundness regulation and oversight
by the FCA.'' Petition, at 5-6. As a result, all of the FCS
institutions' derivatives activity, whether with swap dealers or
eligible borrowers, falls within the definition of ``hedging or
mitigating commercial risk'' in Commission regulations. Id. at 6.
This is consistent with the FCA's historic position related to the
use of derivatives by FCS institutions, as stated in the FCA
Guidelines for Utilizing Derivatives: ``The FCA considers any
speculative use of derivatives an unsafe and unsound banking
practice.'' FCA Guidelines for Utilizing Derivatives, at 1.
\20\ Petition, at 2. Further, the Petition states that FCS
institutions are prohibited from engaging in speculative derivatives
activity, and that approved swap transactions with eligible
borrowers are limited to those that enable eligible borrowers to
hedge risk or that are necessary for the financing of individual
transactions. Id. at 6.
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In connection with the lending-related swap transactions, FCS
institutions sometimes provide eligible borrowers with information
about the financial instrument to be used, i.e., an interest rate swap,
through presentations or in writing.\21\ The Petition further states
that such information generally is generic and not intended as
commodity trading advice.\22\ Additionally, an eligible borrower in
this context acknowledges that the FCS institution is not its advisor,
and that the borrower is not relying on the information as FCS
institution advice.\23\ Nevertheless, because the FCS institution is
providing information about a commodity interest transaction to an
eligible borrower, Farm Credit and FCS institutions are concerned that
the provision of such information could be construed as the provision
of commodity trading advice requiring registration as a CTA with the
Commission.\24\ Therefore, Farm Credit filed the Petition seeking an
Order excluding the FCS institutions from the CEA's CTA definition to
clarify their registration and compliance obligations with respect to
the CEA and the regulations promulgated thereunder.\25\ Farm Credit's
Petition argues that issuing such an Order is appropriate because FCS
institutions are not within the intent of the CTA definition, and
because any provision of information about commodity interests to
eligible borrowers is solely incidental to the FCS institutions'
primary business of lending.\26\
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\21\ Petition, at 2-3.
\22\ Id. at 3.
\23\ Id.
\24\ Petition, at 2-3.
\25\ Id. at 3.
\26\ Id.
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II. Legal Authority and Analysis
CEA section 1a(12)(A) defines ``commodity trading advisor'' as any
person who for compensation or profit, engages in the business of
advising others, either directly or through publications, writings, or
electronic media, as to the value of or the advisability of trading in
any commodity interest transactions; \27\ any person who for
compensation or profit, and as part of a regular business, issues or
promulgates analyses or reports concerning any of the activities
referred to in clause (i) of CEA section 1(a)(12)(A); \28\ any person
who is
[[Page 89449]]
registered with the Commission as a commodity trading advisor; \29\ or
any person who the Commission, by rule or regulation, may include if
the Commission determines that the rule or regulation will effectuate
the purposes of the CEA.\30\
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\27\ 7 U.S.C. 1a(12)(A)(i). Specifically, such transactions
include any contract for sale of a commodity for future delivery,
security futures product, or swap; any agreement, contract, or
transaction described in 7 U.S.C. 2(c)(2)(i) or 7 U.S.C.
2(c)(2)(D)(i); any commodity option authorized under section 6c of
this title; or any leverage transaction authorized under section 23
of this title. 7 U.S.C. 1a(12)(A)(i)(I)-(IV).
\28\ 7 U.S.C. 1a(12)(A)(ii).
\29\ 7 U.S.C. 1a(12)(A)(iii).
\30\ 7 U.S.C. 1a(12)(A)(iv).
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CEA section 1a(12)(B) excludes certain types of persons and
entities from the CTA definition, and permits the Commission to further
exclude, such other persons not within the intent of the CTA definition
as the Commission may specify by rule, regulation, or order.\31\
Additionally, CEA section 1a(12)(C) states that these exclusions,
including any additional exclusion adopted through rule, regulation or
order by the Commission, shall apply only if the furnishing of such
services by persons referred to in CEA section 1a(12)(B) is solely
incidental to the conduct of their business or profession.\32\
Therefore, the Commission must consider whether the potential CTA
activity is solely incidental to the primary business purposes and
conduct of the FCS institutions, and whether FCS institutions may be
properly excluded from the CTA definition.
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\31\ 7 U.S.C. 1a(12)(B); 7 U.S.C. 1a(12)(B)(vii).
\32\ 7 U.S.C. 1a(12)(C).
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The Commission agrees with the Petition that the provision of
general information about interest rate swaps to eligible borrowers of
FCS institutions is solely incidental to the FCS institutions' main
business and mission, i.e., agricultural lending. This conclusion is
supported by the fact that the information is provided solely to
eligible borrowers of the FCS institutions, and also by the strict
limitations on the swap activities of FCS institutions--FCS
institutions may only enter into swaps with an eligible borrower to
hedge the risk(s) inherent in the underlying financing transaction
between that borrower and an FCS institution.\33\ Additionally, the
Petition states that FCS institutions do not incur significant costs in
providing the information to eligible borrowers, do not charge eligible
borrowers for the information, do not solicit eligible borrowers, do
not require eligible borrowers to hedge their loan risks through an FCS
institution, and do not hold themselves out to the public as an entity
providing CTA services.\34\ Under these circumstances, the Commission
concludes that the provision of information related to a swap
transaction to eligible borrowers of FCS institutions is solely
incidental to the FCS institutions' lending activity with such eligible
borrowers.
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\33\ Petition, at 6.
\34\ Id. at 9.
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Further, the primary business activity of FCS institutions is
engaging in direct lending to farmers, ranchers, and other eligible
borrowers under the regulation and supervision of the FCA. This lending
activity is generally comparable to the lending activities of banking
institutions, which are excluded from the CTA definition under section
1a(12)(B) of the CEA.\35\ The Commission believes that it is reasonable
under the facts and circumstances discussed above to conclude that
granting FCS institutions an exclusion from CTA registration is
consistent with the intent of section 1a(12) of the CEA.
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\35\ See 7 U.S.C. 1a(12)(B)(i).
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III. Conclusion and Order
The Commission finds that under the circumstances set forth above
it is appropriate to exercise the statutory authority afforded to it
under CEA section 1a(12)(B)(vii) to exclude FCS institutions from the
CTA definition. Accordingly, the Commission is issuing this Order
excluding FCS institutions from the CTA definition in CEA section
1a(12)(A). This Order is based upon the representations made by the
petitioner. The Commission reserves authority, in its discretion, to
revisit the Order.
Issued in Washington, DC, on December 6, 2016, by the
Commission.
Robert N. Sidman,
Deputy Secretary of the Commission.
[FR Doc. 2016-29613 Filed 12-9-16; 8:45 am]
BILLING CODE 6351-01-P