July / August 2024 | Volume 44 | Issue 7 Futures and Derivatives Law Report
81 , 10 Fed . R . Evid . Serv . 1494 ( 9th Cir . 1982 ) ( rejected by , Nagel v . ADM Investor Services Inc ., 65 F . Supp . 2d 740 , Comm . Fut . L . Rep . ( CCH ) P 27754 , 45 Fed . R . Serv . 3d 940 ( N . D . Ill . 1999 )); see also Commodity Futures Trading Com ’ n v . Noble Metals Intern ., Inc ., 67 F . 3d 766 , Comm . Fut . L . Rep . ( CCH ) P 26,506 , 32 Fed . R . Serv . 3d 1126 ( 9th Cir . 1995 ) ( holding forward contract exclusion not available because the contracts at issue were for speculative purposes and not with the expectation that the commodities would be delivered ).
9
Co Petro , 680 F . 2d 573 at 578 ( concluding legislative intent “ that a cash forward contract is one in which the parties contemplate physical transfer of the actual commodity ”). District courts in other circuits and the CFTC also have embraced this subjective standard . See , e . g ., Transnor ( Bermuda ) Ltd . v . BP North America Petroleum , 738 F . Supp . 1472 , 1990-1 Trade Cas . ( CCH ) ¶ 68997 , 1990-1 Trade Cas . ( CCH ) ¶ 68998 ( S . D . N . Y . 1990 ) ( noting Co Petro , other cases from the Southern District of New York , and CFTC decisions focused on the parties ’ intent ).
10
Commodity Futures Trading Com ’ n v . Zelener , 373 F . 3d 861 , 865 , Comm . Fut . L . Rep . ( CCH ) P 29785 ( 7th Cir . 2004 ) ( emphasis in original ).
11
Id .
12
Id .
13
Id . at 865-66 .
14
Id . at 866 .
15
Commodity Futures Trading Com ’ n v . Erskine , 512 F . 3d 309 , 325 , Comm . Fut . L . Rep . ( CCH ) P 30734 , Comm . Fut . L . Rep . ( CCH ) P 30882 , 2008 Fed . App . 0008P ( 6th Cir . 2008 ). The court in Erskine considered prior circuit precedent from Andersons , Inc . v . Horton Farms , Inc ., 166 F . 3d 308 , Comm . Fut . L . Rep . ( CCH ) P 27511 , 1998 Fed . App . 0368P ( 6th Cir . 1998 ), which applied a totality of the circumstances test and considered seven factors ( mostly relating to intent to deliver ) to support application of the forward contract exclusion . Id . at 322 . The Court distinguished Anderson based on it involving tangible commodities whereas Erskine dealt with intangible commodities ; noting “ there is never ‘ delivery ’ of intangible or financial commodities ,” and concluding the new rationale would work in both cases , the Court adjusted its rationale without expressly overturning Anderson . Id .
16
Erskine , 512 F . 3d 309 at 325 .
17
Id . at 323-24 . For futures contracts : “( 1 ) the ‘ contract ’ is standardized so that it can be traded on an exchange , and is ( 2 ) a fungible agreement to buy or sell ( 3 ) a stated unit quantity of ( 4 ) a stated commodity ( 5 ) at a stated unit price ( 6 ) at or before a stated future time .” Id . at 323 . Contrast a forward contract : “( 1 ) neither standardized nor traded on an exchange , and is ( 2 ) an individual agreement to buy or sell ( 3 ) some agreedupon quantity of ( 4 ) some commodity ( 5 ) at some agreed-upon price ( 6 ) at some agreed-upon time in the future .” Id . at 324 .
18
See Co Petro , 680 F . 2d 573 at 580 (“ Standardized form contracts facilitate the formation of offsetting or liquidating transactions . The ability to form offsetting contracts is essential , since investors rarely take delivery against the contracts .”).
19
See In re Stovall , [ 1977-1980 Transfer Binder ] Comm . Fut . L . Rep . ( CCH ) 20,941 ( CFTC Dec . 6 , 1979 ) (“[ A ] major difference between an excluded cash commodity-deferred delivery contract and contracts of sale of a commodity for future delivery is that the former entails not only the legal obligation to perform , but also the generally fulfilled expectation that the contract will lead to the exchange of commodities for money . In contrast , parties to a futures contract do not usually expect delivery and it rarely occurs .”).
20
Swaps Definition Final Rule at 48228 .
21
Id . at 48228 (“[ T ] he CFTC reads the ‘ intended to be physically settled ’ language in the swap definition with respect to nonfinancial commodities to reflect a directive that intent to deliver a physical commodity be a part of the analysis of whether a given contract is a forward contract or a swap , just as it is part of the CFTC ’ s analysis of whether a given contract is a forward contract or a futures contract .”). The CFTC ’ s facts and cir-
10 K 2024 Thomson Reuters