futures users to meet margin calls in their hedging accounts is much tighter than it was before Dodd-Frank, says Cordes, it appears to be in a place that’s workable for the industry. The CFTC continued to accept public comments on its proposals through January. Record Keeping One of the new oversight regulations is known simply as Rule 1.35 and applies to transaction record keeping. To comply, each party must keep “full and complete records.” However, the rule calls for documentation beyond the transaction itself, requiring records of communication between parties “concerning quotes, solicitations, bids, off ers, instructions and any communications that lead to the execution of a transaction.” Many of these communications must also be preserved “in a manner identiﬁ able and searchable by transaction, whether communicated by telephone, voicemail, facsimile, instant messaging, chat rooms, electronic mail, mobile device or other digital or electronic media.” The cost of implementing tools to comply with these requirements can be high and likely would need to be passed along to farmers. “Ag in general is a high-volume, low-margin industry. The slightest increases in the cost of doing business anywhere, including hedging, is enough of a tipping point for some small businesses,” says Cobb. “So we had to make sure [record keeping requirements] wouldn’t drive up the cost of hedging.” And what is a conversation that “leads to a transaction” anyway? Simply picking up the phone and talking about selling grain? “The conversations are a lot more ﬂ uid than that,” says Kristin Rebertus, CHS director of enterprise risk management. “When does a deal become a deal? If I’m having a general conversation and later an ‘aha’ moment comes and someone decides they want to execute something, did that earlier conversation directly lead to a transaction? I am going to have to remember the conversation, go back, put a number on it and ﬂ ag it. It’s not as easy as it might appear.” The CFTC has eased some of the requirements for preserving all voice transactions leading to a trade. Yet questions remain, in particular for electronic messaging. “Is an instant message the same as a text message?” asks Cordes. “The CFTC hasn’t said yet. So there are still things that need to be clariﬁ ed about record retention under Rule 1.35.” Bona Fide Hedge In the wake of the ﬁ nancial crisis, many blamed speculators for artificially driving up commodity prices, mainly oil. The Dodd-Frank Act responded by creating position limits that no single person or entity could exceed, unless those transactions were considered a “bona ﬁ de hedge.” What’s considered a bona ﬁ de hedge is still under dispute, says Cobb. CHS has lobbied the CFTC to consider the hedging practices it uses, such as unﬁ xed price contracts, as bona ﬁ de hedges that would not be subject to speculative limits under the commission’s proposed rules. “We have made some progress, both on the legislative and regulatory ends,” says Cobb. “The CFTC has issued some relief to us in the past, and the House passed a bill last summer that would have addressed many of our concerns. We hope Congress will pass a similar bill this year, but making any change to Dodd-Frank is an uphill climb.” Not all current compliance regulations have come from Dodd-Frank, as is commonly believed, says Jessica Cossalter, CHS director of trade compliance. “It’s unfortunate that people hang it on Dodd-Frank when there has always been regulation. It’s gotten bigger, but there have always been rules. And I think a lot of people forget that.” CHS will continue to follow the ongoing debate to represent agricultural futures market participants. “We have taken a proactive approach to have a voice at the table as these rules are put together,” says Cordes. “We want some practicality. We don’t want to impede commerce. But at the same time, we want to make sure there are protections for people’s positions and their money. There’s a balance here.” Q What’s Dodd-Frank? While it’s hard to argue against Dodd-Frank Act’s intent to protect the U.S. economy, nearly ﬁ ve years of hindsight have shown that its eff ectiveness is far from settled. Many Dodd-Frank regulations were directed toward ﬁ nancial activity on Wall Street, while others resulted in a much wider reach, in particular the portions that gave greater responsibilities to regulators. Understanding that the impacts of Dodd-Frank regulation are still uncertain, White House Executive Order 13579, signed in July 2011, allows independent agencies, including federal ﬁ nancial regulators, to develop plans to conduct retrospective reviews of existing rules that may be excessively burdensome or costly. Essentially, these rulemaking provisions allow regulators to make changes to the laws — and are why many key provisions of Dodd-Frank are still under review. One key watchdog related to agriculture is the U.S. Commodity Futures Trading Commission (CFTC), an independent agency of the federal government charged with prohibiting fraudulent conduct related to the sale of commodity and ﬁ nancial futures and options. The agency’s trading rules greatly aff ect agricultural futures market participants, including farmers who use the futures market to hedge against price ﬂ uctuations when taking their grain to market. Helping Farmers Grow CHS continues to work closely with the CFTC as the agency continues to amend its regulations. In December, Cordes spoke on behalf of agriculture futures market participants at a CFTC meeting in Washington, D.C. And last summer, CHS executives hosted CFTC Chairman Timothy Massad in Inver Grove Heights, Minn., to share their concerns. CHS President and Chief Executive Offi cer Carl Casale, left, speaks with CFTC Chairman Timothy Massad about federal ﬁ nancial regulations. Also pictured behind Casale is CHS Executive Vice President and Chief Financial Offi cer Timothy Skidmore. LEARN MORE For more on Dodd-Frank regulations, visit cftc.gov/lawregulation/ doddfrankact/index.htm. Your CHS Connection 23