No-action position regarding the timing of filing certain reports under swap dealer financial reporting requirements in Regulation 23.105(d) and (l).

Summary: No-action position regarding the timing of filing certain reports under swap dealer financial reporting requirements in Regulation 23.105(d) and (l).

CFTC Letter No. 23-02 No-Action February 06, 2023

U.S. COMMODITY FUTURES TRADING COMMISSION

Three Lafayette Centre

1155 21 st Street, NW, Washington, DC 2058

1

Telephone: (202) 418-5000

Market Participants

Amanda L. Olear

Division

Director

Mr. Thane T. Twiggs

Chief Compliance Officer, CRM

Cargill, Incorporated

9320 Excelsior Boulevard

MS 150

Hopkins, Minnesota 55343

Re: No-Action Position Regarding the Timing of Financial Reporting under Swap Dealer

Financial Reporting Requirements

Dear Mr. Twiggs:

This is in response to your letter (the “Request”) dated January 13, 2023, to the Market

Participants Division (“Division”) of the Commodity Futures Trading Commission

(“Commission”). In your letter, you request on behalf of Cargill, Incorporated (“Cargill”), a

registered limited purpose swap dealer (“SD”), that the Division confirm that it will not

recommend an enforcement action to the Commission if Cargill does not file with the Commission

and the National Futures Association (“NFA”) periodic unaudited financial reports and additional

position and counterparty reporting information within the timeframes required under Commission

regulations 23.105(d) and (l).1 Specifically, you request an extension of thirteen (13) business

days beyond the regulatory due date of seventeen (17) business days after the date for which the

reports are made to file such reports with the Commission and the NFA.2 In other words, you

request th

al

position and counterparty reporting information within the timeframes required under Commission

regulations 23.105(d) and (l).1 Specifically, you request an extension of thirteen (13) business

days beyond the regulatory due date of seventeen (17) business days after the date for which the

reports are made to file such reports with the Commission and the NFA.2 In other words, you

request that Cargill be permitted to file with the Commission and the NFA its periodic unaudited

financial reports and additional position and counterparty reporting information no later than thirty

(30) business days after the date for which the reports are made.

1 Commission regulations are found at 17 C.F.R. Ch. I, and are available at the Commission’s website,

http://www.cftc.gov.

2 17 C.F.R. § 23.105(d)(1).

NO-ACTION POSITION FOR ALTERNATIVE TO DISCLOSURE OF FINANCIAL REPORTING PAGE 2

I.

Regulatory Background

Section 4s(f) of the Commodity Exchange Act (“CEA”) authorizes the Commission to

adopt rules imposing financial condition reporting requirements on SDs.3 Pursuant to section

4s(f), the Commission adopted Commission regulation 23.105, which imposes financial

reporting requirements on SDs

NO-ACTION POSITION FOR ALTERNATIVE TO DISCLOSURE OF FINANCIAL REPORTING PAGE 2

I.

Regulatory Background

Section 4s(f) of the Commodity Exchange Act (“CEA”) authorizes the Commission to

adopt rules imposing financial condition reporting requirements on SDs.3 Pursuant to section

4s(f), the Commission adopted Commission regulation 23.105, which imposes financial

reporting requirements on SDs. Commission regulation 23.105 became effective on November

16, 2020 with a compliance date of October 6, 2021.4

Commission regulation 23.105(d)(1) requires each SD to file a periodic unaudited financial

report with the Commission and a registered futures association.5 The unaudited financial report

is required to contain defined financial schedules, including a statement of financial condition and

a statement demonstrating the SD’s compliance with its applicable regulatory capital requirement

under Commission regulation 23.101.6 An SD is required to file its unaudited financial report with

the Commission within 17 business days of the close of each month, with the exception that an SD

that is “predominantly engaged in non-financial activities” and elects to be subject to the minimum

capital requirements of Commission regulation 23.101(a)(2) may file an unaudited financial report

with the Commission and with the NFA within 17 business days of the close of each quarter.7

Commission regulation 23.105(e)(1) requires each SD to file an annual audited financial

report with the Commission and a registered futures association.8 The annual audited financial

report is required to include defined schedules, including a statement of financial condition and a

statement demonstrating the SD’s compliance with its applicable regulatory capital requirement

under Commission regulation 23.101.9 An SD is required to file the annual audited financial

report with the Commission within 60 days of the close of the SD’s fiscal year-end, with the

exception that an SD that is “predominantly engaged in non-financial activities” an

ent of financial condition and a

statement demonstrating the SD’s compliance with its applicable regulatory capital requirement

under Commission regulation 23.101.9 An SD is required to file the annual audited financial

report with the Commission within 60 days of the close of the SD’s fiscal year-end, with the

exception that an SD that is “predominantly engaged in non-financial activities” and elects to be

subject to the minimum capital requirements of Commission regulation 23.101(a)(2) may file its

audited financial report with the Commission and with the NFA within 90 days of the close of

the SD’s fiscal year-end.10

3 7 U.S.C. 6s(f).

4 See Capital Requirements of Swap Dealers and Major Swap Participants, 85 FR 57462 (Sept. 15, 2020) (“Final SD

Capital Rule”).

5 As of the date of this letter, the National Futures Association (“NFA”) is the only registered futures association under

section 17 of CEA, 7 U.S.C. 21.

6 17 C.F.R. § 23.105(d)(2).

7 Pursuant to Commission regulation 23.101(a)(2), SDs that are “predominantly engaged in non-financial activities,” as

that term is defined in Commission regulation 23.100, may elect to compute their capital under a “tangible net worth”

capital approach.

8 17 C.F.R. § 23.105(e)(1).

9 17 C.F.R. § 23.105(e)(4).

10 17 C.F.R. § 23.105(e)(1).

NO-ACTION POSITION FOR ALTERNATIVE TO DISCLOSURE OF FINANCIAL REPORTING PAGE 3

The Commission’s regulations also require each SD to publicly disclose certain financial

information on the SD’s website. Commission regulation 23.105(i)(2) requires an SD to make

available to the public the statement of financial condition and applicable footnotes from the SD’s

audited financial report, along with a statement disclosing the amount of the SD’s regulatory

capital and its minimum regulatory capital requirement as of the SD’s fiscal year-end. 11

Commission regulation 23.105(i)(1) requires an SD to make available to the public the statement

of financial condition from the SD’s applicable monthly or quarterly unaudited financial report

that is filed as of a date that is six months after its fiscal year-end date, and a corresponding

statement disclosing the amount of the SD’s regulatory capital and minimum capital requirement

as of the date of the statement of financial condition

an SD to make available to the public the statement

of financial condition from the SD’s applicable monthly or quarterly unaudited financial report

that is filed as of a date that is six months after its fiscal year-end date, and a corresponding

statement disclosing the amount of the SD’s regulatory capital and minimum capital requirement

as of the date of the statement of financial condition. 12 An SD is required to disclose the

information from its audited financial report and its unaudited financial report on its public

website within 10 business days and 30 calendar days, respectively, of filing the applicable

financial reports with the Commission and NFA.13

Additionally, Commission regulation 23.105(l) requires each SD to provide on the

applicable monthly or quarterly basis to the Commission and to the registered futures association

the specific information required in Appendix B to Subpart E of Part 23.14 Appendix B requires

an SD to provide certain position information and credit exposure information.15 The Appendix

B financial information supplements the unaudited financial reports.16

II.

No-Action Request

You request that the Division take a no-action position with respect to the requirements of

Commission regulations 23.105(d) and (l) that require Cargill to file with the Commission and the

NFA periodic unaudited financial reports and additional position and counterparty reporting

information no later than seventeen (17) business days after the date for which the reports are

made. You specifically request that the Division not recommend an enforcement action to the

Commission if Cargill files its quarterly unaudited financial reports and additional position and

counterparty reporting information with the Commission and the NFA within thirty (30) business

days after the relevant reporting period

seventeen (17) business days after the date for which the reports are

made. You specifically request that the Division not recommend an enforcement action to the

Commission if Cargill files its quarterly unaudited financial reports and additional position and

counterparty reporting information with the Commission and the NFA within thirty (30) business

days after the relevant reporting period. In support of your request, you represent that Cargill’s

business practices and financial reporting processes make submission of the quarterly filings

within 17 business days after an applicable quarter impossible absent a complete restructuring of

its accounting processes.

11 17 C.F.R. § 23.105(i)(2).

12 17 C.F.R. § 23.105(i)(1).

13 17 C.F.R. § 23.105(i)(3) and (4).

14 17 C.F.R. § 23.105(l). See also CFTC Staff Letter No. 21-15, at 2, Jun. 29, 2021 noting that “[n]on-bank SDs utilizing

the tangible net worth method for calculation of net capital . . . may satisfy the additional positions and counterparty

financial reporting requirements of [Commission] regulation 23.105(l) on a quarterly basis instead of monthly basis.”

15 See 17 C.F.R. Part 23, Subpart E, Appendix B.

16 See CFTC Staff Letter No. 21-15, at 5.

NO-ACTION POSITION FOR ALTERNATIVE TO DISCLOSURE OF FINANCIAL REPORTING PAGE 4

Your request would extend the financial reporting no-action position previously provided

by the Division to Cargill in CFTC Staff Letter 22-04.17 In CFTC Staff Letter 22-04, the Division

stated that it will not recommend an enforcement action to the Commission if Cargill does not

publicly disclose on its website a statement of financial condition and a statement disclosing the

amount of its regulatory capital and its minimum regulatory capital requirement in accordance

with Commission regulations 23.105(i)(1) and (2). CFTC Staff Letter 22-04 was conditioned upon

Cargill: (1) remaining designated as a limited purpose swap dealer; (2) filing with the Commission

and NFA annual financial reports and unaudited financial reports in accordance with the

requirements of Commission regulation 23.105; (3) disclosing publicly on its website a statement

that Cargill maintains at all times a level of regulatory capital that is in excess of two times the

firm’s minimum regulatory capital requirement; and (4) providing defined financial information

to existing and potential swap counterparties. In CFTC Staff Letter 22-04, the Division took a no-

action position for Cargill regarding certain public financial disclosure requirements on the basis

of the representations made therein related to Cargill’s unique nature, and subject to conditions

designed to effectuate similar protections for Cargill’s counterparties

efined financial information

to existing and potential swap counterparties. In CFTC Staff Letter 22-04, the Division took a no-

action position for Cargill regarding certain public financial disclosure requirements on the basis

of the representations made therein related to Cargill’s unique nature, and subject to conditions

designed to effectuate similar protections for Cargill’s counterparties.

The unique aspects of Cargill’s highly complex entity-wide operations as a privately-held

corporation, which is operating a limited purpose designated swap dealer out of a business unit,

has precipitated this second request, to obtain additional time for Cargill to submit its regular

unaudited financial reports and additional position and counterparty reporting information to the

Commission and the NFA. In connection with this second request, you represent that Cargill is a

family and employee-owned, privately held, agribusiness founded over 155 years ago and

headquartered in Minnesota. You further represent that Cargill’s swap dealer business, conducted

out of the Cargill Risk Management Business Unit (“CRM Business Unit”), exists uniquely within

the broader company instead of existing as a separate legal entity from the parent company as is

commonly the case with other Commission-registered swap dealers. You note that Cargill adopted

this structure to streamline transactions for its customers by offering physical commodity and

derivatives transactions out of the same legal entity.

Additionally, you represent that Cargill’s operations encompass 70 different countries and

that it is comprised of approximately 800 subsidiaries, containing nearly 1,200 reporting groups.

You note that Cargill must collect, analyze, and compile financial information from the company’s

various disparate reporting groups when preparing its quarterly filings and that Cargill’s company-

wide financial reporting process involves complex data collection and accounting coordination

ies and

that it is comprised of approximately 800 subsidiaries, containing nearly 1,200 reporting groups.

You note that Cargill must collect, analyze, and compile financial information from the company’s

various disparate reporting groups when preparing its quarterly filings and that Cargill’s company-

wide financial reporting process involves complex data collection and accounting coordination.

You further represent that Cargill is presently able to generate quarterly filings within 26 business

days of the close of a quarter, which is a timeline that is consistent with the expectations of

Cargill’s material lenders and stakeholders. You add that the additional four (4) business days

would provide sufficient time for Cargill to convert its financial reports into the required position

data report pursuant to Appendix B, Schedule 1 of the Commission’s Final Rule on the Capital

Requirements of Swap Dealers and Major Swap Participants. 18

17 CFTC Staff Letter No. 22-04, Feb. 14, 2022.

18 See Capital Requirements of Swap Dealers and Major Swap Participants, 85 FR 57462 (Sept. 15, 2020).

NO-ACTION POSITION FOR ALTERNATIVE TO DISCLOSURE OF FINANCIAL REPORTING PAGE 5

You further represent that mandating the submission of C

NO-ACTION POSITION FOR ALTERNATIVE TO DISCLOSURE OF FINANCIAL REPORTING PAGE 5

You further represent that mandating the submission of Cargill’s quarterly unaudited

financial reports and additional position and counterparty reporting information with the

Commission and the NFA along a truncated timeline would require Cargill to commence a

complex multi-year systems overhaul, involving thousands of employees, contractors, and

consultants across the world and would likely cost at least hundreds of millions of dollars as well

as require the company to divert technology resources from other important projects.

Moreover, you emphasize Cargill’s commitment to maintain two times its minimum

regulatory capital requirement and that Cargill’s previous financial filings demonstrate that it holds

capital in excess of its minimum regulatory capital requirement. You further represent that because

Cargill is already subject to numerous notification requirements aimed at informing the

Commission and the NFA of material changes to its financial condition, the requested extension

should not deprive the Commission or the NFA of timely information regarding capital issues.

III

e that it holds

capital in excess of its minimum regulatory capital requirement. You further represent that because

Cargill is already subject to numerous notification requirements aimed at informing the

Commission and the NFA of material changes to its financial condition, the requested extension

should not deprive the Commission or the NFA of timely information regarding capital issues.

III.

Market Participants Division No-Action Position

Based on the facts and representations set forth in your letter and recited above, the

Division will not recommend enforcement action to the Commission under CEA Section 4s(f) or

Commission regulations 23.105(d) and (l) imposing financial reporting requirements on Cargill,

and accordingly amends condition 2 of CFTC Staff Letter 22-04 consistent with the no-action

position taken herein, provided Cargill complies with the conditions listed below.19 In taking this

position, the Division recognizes the limited purpose swap dealer designation granted by the

Commission to Cargill for the swap activities of the CRM Business Unit and the unique nature of

Cargill as a privately held company that has operated its swap dealing functions out of a business

unit and not a separate legal entity. Additionally, the Division recognizes the idiosyncratic

challenges Cargill faces associated with the requirement that it comply with the time requirements

of Commission regulations 23.105(d) and (l).

The Division believes compliance with the conditions enumerated below, which will

continue to provide the Commission and the NFA with the applicable financial reporting required

of Cargill, sufficiently balances the purpose of obtaining the financial reporting under Commission

regulations 23.105(d) and (l) with the consideration of Cargill’s interest, as a family and employee-

owned, privately held company, in providing complete and accurate quarterly financial

information without the need to overhaul longstanding internal practices and financial controls

ting required

of Cargill, sufficiently balances the purpose of obtaining the financial reporting under Commission

regulations 23.105(d) and (l) with the consideration of Cargill’s interest, as a family and employee-

owned, privately held company, in providing complete and accurate quarterly financial

information without the need to overhaul longstanding internal practices and financial controls.

As a result, the Division believes that this no-action position is warranted under the specific facts

herein presented and subject to the following conditions:

1. The Commission’s limited purpose swap dealer designation issued to Cargill remains

in effect.

19 For the avoidance of doubt, all other conditions listed in CFTC Staff Letter No. 22-04 not pertaining to routine financial

reporting obligations within Commission regulations 23.105 (d) and (l) remain in effect.

NO-ACTION POSITION FOR ALTERNATIVE TO DISCLOSURE OF FINANCIAL REPORTING PAGE 6

2. Cargill files with the Commission and with the NFA audited annual financial reports

for Cargill, Incorporated in accordance with the requirements of Commission

regulation 23.105.

3

NO-ACTION POSITION FOR ALTERNATIVE TO DISCLOSURE OF FINANCIAL REPORTING PAGE 6

2. Cargill files with the Commission and with the NFA audited annual financial reports

for Cargill, Incorporated in accordance with the requirements of Commission

regulation 23.105.

3. Cargill files with the Commission and with the NFA unaudited financial reports for

Cargill, Incorporated in accordance with the requirements of Commission regulation

23.105(d), except that such reports are filed no later than thirty (30) business days after

the date for which the reports are made.

4. Cargill files with the Commission and with the NFA additional position and

counterparty reporting information for Cargill, Incorporated in accordance with the

requirements of Commission regulation 23.105(l), except that such reports are filed no

later than thirty (30) business days after the date for which the reports are made.

This letter and the positions taken herein represent the views of this Division only, and do

not necessarily represent the views of the Commission or any other office or division of the

Commission. The no-action position in this letter does not excuse persons relying on it from

compliance with any other applicable requirements contained in the CEA or in the Commission’s

regulations. Further, this letter, and the positions contained herein, are based upon the facts and

circumstances presented to the Division. Any different, changed, or omitted material facts or

circumstances may render this letter void.

Finally, as with all staff letters, the Division retains the authority to condition further,

modify, suspend, terminate, or otherwise restrict the terms of this letter provided herein in its

discretion

positions contained herein, are based upon the facts and

circumstances presented to the Division. Any different, changed, or omitted material facts or

circumstances may render this letter void.

Finally, as with all staff letters, the Division retains the authority to condition further,

modify, suspend, terminate, or otherwise restrict the terms of this letter provided herein in its

discretion. If you have any questions regarding this letter, please contact Jennifer Bauer, Special

Counsel, at 202-418-5472 or jbauer@cftc.gov; or, Maria Aguilar-Rocha, Attorney Advisor, at

202-418-5840 or maguilar-rocha@cftc.gov.

Sincerely,

Amanda L. Olear

Director

cc:

Michael Otten, National Futures Association