Meet the New Hemp Derivatives Exchange

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The trends toward legalized marijuana have been full of controversy. One aspect of “the other marijuana industry” is that around industrial hemp. This industry has been largely ignored since being all but killed after World War II, but that has been changing over the years.

Now there is a new effort for industrial hemp. The U.S. Commodity Futures Trading Commission (CFTC) has issued an Order of Registration to Seed SEF LLC. This Chicago-based entity has been granted a fully registered status with the CFTC as a Swap Execution Facility (SEF). In short, this will allow for trading to begin in hemp derivatives via the exchange.

Seed SEF has said on its site that it has the support of the National Hemp Association, the Hemp Industries Association, the Canadian Hemp Trade Alliance and the European Industrial Hemp Association, among others.

It is important to draw the line over industrial hemp and the marijuana industry. Industrial hemp’s definition by the federal government of the United States as hemp that contains less than 0.3% tetrahydrocannabinol (THC), the main mind-altering ingredient found in the cannabis plant. Seed SEF also said that since it started in 2004, the United States has become the largest global importer of industrial hemp.

SEFs are trading facilities that operate under the CFTC’s regulatory oversight. They are set up for trading and processing swaps to provide greater pre-trade and post-trade transparency to the swaps market.

Seed SEF’s CEO, Edward Woodford, said that one of the first products will be industrial hemp derivatives. He noted:

For the past year, we have been working closely with farmers and processors around the country to identify the risks that we can address with forwards and options. Because of recent changes in federal law and regulation, industrial hemp presents unique opportunities and risk management challenges in manufacturing, food and health applications that Seed SEF’s products will address.

Seed SEF President Brian Liston further said:

We are excited to be registered. Seed SEF is looking forward to continuing its work with agricultural producers, processors and manufacturers on risk management services for the emerging agricultural products that consumers around the world are embracing.” Liston noted that “the staff in the Division of Market Oversight at the CFTC had been extremely responsive.

Including this order, there are now 23 SEFs fully registered with the CFTC. The CFTC statement said:

Upon review of Seed’s application, the CFTC determined that Seed has demonstrated compliance with the Commodity Exchange Act (CEA) and the CFTC’s regulations applicable to SEFs. The terms and conditions applicable to the Order include, among others, that Seed shall comply with all provisions of the CEA and all requirements in the CFTC’s regulations, as may be amended or adopted from time to time, that are applicable to SEFs. Seed also shall comply with all representations and submissions made by it in support of its application for registration as a SEF.

The CFTC issued the Order pursuant to Section 5h of the CEA and CFTC Regulation 37.3(b). Registered SEFs must comply with the core principles in Section 5h of the CEA and any CFTC regulations applicable to them.