CFTC Staff Letter 99-07: Registration Requirements for Proposed Hedging Vehicle

99-07
CFTC Letter No. 99-07
January 25, 1999
Interpretation
Division of Trading & Markets
Re: Section 4(d) of the Act -- Registration Requirements Applicable to Proposed Hedging Vehicle Dear:
This is in response to your letter dated January 15, 1997, as supplemented by letters dated March 6, 1997 and February 16, 1998, to the Division of Trading and Markets ("Division") of the Commodity Futures Trading Commission ("Commission"), as well as by telephone conversations with Division staff, by which you requested the Division's opinion concerning the applicability of the Commodity Exchange Act1 ("Act") to a business venture proposed by "X". Based upon your correspondence, we understand the pertinent facts to be as follows. "X" is an Iowa￾based corporation that provides consulting services to country grain elevators. "X" is not currently registered with the Commission in any capacity. It wishes to establish a new corporate division to provide grain producers with a means to market grain and to hedge price risks.2 While you referred to this new division as "the hedging vehicle," you also stated that the hedging vehicle "will be synonymous with "X". Thus, we will refer to the hedging vehicle as "X" throughout this response. Under the proposed program, "X" will market specific quantities of corn or soybeans on behalf of producers, as stipulated in the grain marketing agreement between the producer and "X". "X" will have authority to market the grain in any manner that it deems appropriate, including use of exchange-traded futures and option contracts, deferred delivery contracts, cash sales or other means. "X" will utilize marketing strategies that it believes are best suited for an individual client, and such strategies may vary from client to client. "X's" grain-producer client will hold title to any grain assigned to "X" for marketing under the marketing agreement until such time that the grain is sold to a grain dealer and the title is transferred. However, you represent that the producer will provide "X" with a lien on any grain subject to the marketing agreement. You further state that "X" will perfect this security interest in the grain under applicable law and maintain such security interest until such time as "X" receives full payment from the grain producer for any costs incurred by "X" on behalf of the producer and for fees due it under the marketing agreement. Such settlement will occur after the grain is sold and has been delivered by the producer. Payment for any transaction made under the marketing agreement will be received in the name of "X". After such payment is received, "X" will reconcile its strategy costs, service fees and other transaction file:///S|/Website%20Management/LegacyDataCopyasof2010-04-21/tm/letters/99letters/tm99-07.htm (1 of 6) [5/6/2010 7:12:35 PM]