Audio Records of Swaps and Futures Trades Required by CFTC

Derivatives traders will be required to keep audio records of commodities transactions under U.S. Commodity Futures Trading Commission rules completed in a private vote today.

The regulation, revised by commissioners to limit the impact on smaller brokers, could help the CFTC’s enforcement unit determine traders’ intent when investigating alleged wrongdoing, the agency said in a statement. It is already common practice for equities traders to make such recordings.

“The rule will make enforcement investigations more efficient by preserving critical evidence that otherwise may be lost to memory lapses and inconsistent recollections,” CFTC Chairman Gary Gensler said in a statement. “The commission will have access to evidence of fraud and market manipulation, which is expected to increase the success of enforcement actions for the benefit customers, market participants and the markets.”

Under the rule approved in a 5-0 vote, derivatives brokers and certain members of exchanges and swap-execution facilities will be required to record quotes, bids, offers, trading and prices that lead to transactions whether communicated by telephone, voice mail, mobile or other electronic media.

The CFTC backed away from requiring records of oral communications that lead to trades in grains, according to a statement. Companies will have a year to comply with the rules.

Rule Delayed

The agency delayed consideration of the rule in September amid resistance from industry groups representing trading firms and exchanges including Archer-Daniels-Midland Co. (ADM), Cargill Inc., Macquarie Bank Ltd. and the Kansas City Board of Trade. Groups including the Commodity Markets Council and National Grain and Feed Association said the proposed regulation would unnecessarily capture commercial end-users trading derivatives to hedge risk.

“Although we have not seen the final rule text, we appreciate the commission’s responsiveness to the concerns of CMC and other commercial market participants,” Sanjeev Joshipura, president of the Commodity Markets Council, said in an e-mail statement. “While we continue to have concerns around the cost of compliance with this rule, we believe today’s modification is a helpful step.”

The CFTC used recordings of telephone calls in the probe that led to its $200 million settlement with Barclays Plc (BARC) over claims that the bank helped manipulate interest rates.

To contact the reporter on this story: Silla Brush in Washington at sbrush@bloomberg.net

To contact the editor responsible for this story: Maura Reynolds at mreynolds34@bloomberg.net