[Federal Register Volume 61, Number 19 (Monday, January 29, 1996)]
[Rules and Regulations]
[Pages 2717-2719]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-1511]



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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 30


Foreign Option Transactions

AGENCY: Commodity Futures Trading Commission.

ACTION: Order.

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SUMMARY: The Commodity Futures Trading Commission (Commission) is: 
confirming that the Part 30 Order issued on February 17, 1993 (the 
``Initial Order'') to the Tokyo Grain Exchange (TGE) continues in 
effect subsequent to the merger on October 1, 1993 of the TGE with the 
Tokyo Sugar Exchange (TSE) with the TGE as the surviving entity; and 
allowing the option contract on the raw sugar futures contract traded 
on TGE to be offered or sold to persons located in the United States.
    This Order is issued pursuant to Commission rules 30.3 and 30.10, 
17 CFR 30.3 and 30.10 (1995), which: granted an exemption to designated 
members of the Exchange from the application of certain of the 
Commission's foreign futures and option rules based on substituted 
compliance with comparable Japanese regulatory and self-regulatory 
requirements; and authorized options on U.S. soybean futures contracts 
traded on the TGE to be offered or sold in the United States, 58 FR 
10953 (Feb. 23, 1993). By this Order, the Commission also acknowledges 
the substitution of the merged TGE as the party to several ongoing 
information sharing and financial intermediary recognition arrangements 
entered into with the former TGE, the Ministry of Agriculture, Forestry 
and Fisheries (``MAFF'') and the Commission as described in the Initial 
Order.

EFFECTIVE DATE: February 28, 1996.

FOR FURTHER INFORMATION CONTACT: Jane C. Kang, Esq. or Robert 
Rosenfeld, Esq., Division of Trading and Markets, Commodity Futures 
Trading Commission, Three Lafayette Centre, 1155 21st Street, NW., 
Washington, DC 20581. Telephone: (202) 418-5435.

SUPPLEMENTARY INFORMATION: The Commission has issued the following 
Order:
United States of America Before The Commodity Futures Trading 
Commission

Order Pursuant to Commission Rules 30.3 and 30.10 Confirming that the 
Initial Order to the TGE Continues in Effect Subsequent to the Merger 
of TGE and TSE and Permitting Option Contracts on the Raw Sugar Futures 
Contract Traded on the TGE To Be Offered or Sold to Persons Located in 
the United States Thirty Days After Publication of This Notice in the 
Federal Register Absent Further Notice

    In the Initial Order,1 the Commission exempted certain 
designated members of the TGE from the application of certain of the 
foreign futures and option rules based on substituted compliance with 
comparable Japanese regulatory and self-regulatory requirements and 
allowed option contracts on U.S. soybean futures contracts traded on 
the TGE to be offered or sold in the United States.2 Among other 
conditions, the Initial Order specified that:

    \1\ See 58 FR 10953 (February 23, 1993).
    \2\ Commission rule 30.3(a), 17 CFR 30.3(a), makes it unlawful 
for any person to engage in the offer or sale of a foreign option 
product until the Commission, by order, authorizes such foreign 
option to be offered or sold in the United States.

    Except as otherwise permitted under the Commodity Exchange Act 
and regulations thereunder, * * * no offer or sale of any Tokyo 
Grain Exchange option product in the United States shall be made 
until thirty days after publication in the Federal Register of 
notice specifying the particular option(s) to be offered or sold 
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pursuant to this Order.

    On October 1, 1993, the membership of the TSE merged with the TGE 
with the TGE as the surviving entity. The merger was approved by the 
MAFF, the government regulator with oversight responsibility for both 
exchanges.
    The Exchange has represented, among other things, that the basis 
upon which the Commission issued the Initial Order as well as the terms 
and conditions set forth therein continue in effect with respect to TGE 
subsequent to the merger with TSE.3 In particular, the Exchange 
has represented that: 4

    \3\ In this connection, the Initial Order was issued, in part, 
based on the Exchange's commitment to phase in physical segregation 
requirements for customer property. Specifically, a special 
enforcement order issued by MAFF on December 14, 1990 required that 
one quarter of all customer property held by an FCM be physically 
segregated in accordance with Article 92-2 of the CEL, with an 
additional quarter to be segregated on April 1 of each subsequent 
year until April 1, 1996, when 100% of all customer property will be 
required to be segregated. Therefore, 75% of customer property is 
currently subject to physical segregation at the TGE. Under the CEL, 
the segregation protection is supplemented by the Guarantee Money 
Fund, the Commodity Transaction Responsible Reserve Fund, Membership 
Trust Money and the Compensation Fund.
    \4\ See letter dated June 14, 1995 from Seiji Mori, TGE, to 
Andrea M. Corcoran, Commission and letters dated July 11 and July 
28, 1995 from Itsuji Yanagisawa, TGE, to Jane C. Kang, Commission.

    (1) the recognition and continued oversight by MAFF of TGE 
remain unaffected by the merger;
    (2) the TSE futures and options which are now traded on the TGE 
Sugar Market are designated and traded according to the requirements 
of the Japanese Commodity Exchange Law (``CEL''), which the 
Commission considered in issuing the Initial Order to the TGE; and 

[[Page 2718]]

    (3) no significant rule changes have been implemented at TGE as 
a result of the merger: the only modifications made to date have 
been those necessary to bring futures and options contracts traded 
at TSE within the TGE regulatory structure.

    In particular, the TGE has summarized relevant changes resulting 
from the merger as follows:

    (1) Membership. Although many TSE members were also TGE members, 
TSE had an additional category of membership--associate members who 
are permitted to trade only for their own accounts and must execute 
their trades through a futures commission merchant (``FCM'') member 
of the TGE. Therefore, TGE rules were amended to add associate 
members to the existing regular member and FCM categories.
    (2) Creation of Two Markets. The integrated, centrally located 
TGE marketplace now consists of a TGE Agricultural Market, trading 
commodities previously associated with TGE and a TGE Sugar Market, 
trading commodities previously associated with TSE.
    (3) Staff. Staff of the two exchanges merged to form staff of 
the TGE to ensure there is no diminution in oversight or staff 
expertise. The 38 staff members who are responsible for market 
surveillance comprise one-third of the total Exchange staff.

    By letter dated June 14, 1995, TGE requested that the Commission 
confirm that the Initial Order continues in effect relative to the 
merged entity which came into existence on October 1, 1993 and 
supplement the Initial Order authorizing the offer and sale in the 
United States of options on the U.S. soybean futures contract by also 
authorizing the TGE's option contract on the raw sugar futures contract 
to be offered or sold to persons located in the United States. 5

    \5\ The TGE's application had submitted terms for two option 
contracts on raw sugar futures contracts. The last trading day for 
one of those contracts was October 31, 1995. Accordingly, this Order 
authorizes the one option contract on the raw sugar futures contract 
which started trading on January 1, 1995 as described below in the 
``Contract Specifications''.
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    Based upon the foregoing, and subject to the terms and conditions 
specified in the Initial Order, the Commission hereby publishes this 
Order in the Federal Register confirming the continued applicability of 
the Initial Order to the newly merged entity, TGE, and allowing the 
option contract based on the raw sugar futures contract traded on the 
TGE to be offered or sold to persons located in the United States 
thirty days after publication of this Order in the Federal Register, 
unless prior to that date the Commission receives any comments which 
may result in a determination to delay the effective date of the Order 
pending review of such comments. Under such circumstances the 
Commission will provide notice.

Contract Specifications Options on Raw Sugar Futures (March 1996 
Contract)

Year Contract Began Trading--May 1992
Trading Hours
    Morning: Opening Session, 9:10 a.m.-9:30 a.m.; Continuous Session 
9:30 a.m.-11:30 a.m.
    Afternoon: Opening Session, 1:00 p.m.-1:15 p.m.; Continuous 
Session, 1:15 p.m.-3:00 p.m.; Closing Session, 3:00 p.m.-3:15 p.m.
Contract Unit--One TGE Raw sugar futures contract
Delivery Months--January, March, May, July, September and November 
within a 15 month period
Price Quotation--Yen per 1,000 kilogram
Minimum Price Fluctuation--10 yen per 1,000 kilogram (500 yen per 
contract)
Maximum Daily Price Fluctuation--1,000 yen per 1,000 kilogram with 
variable limits effective under certain conditions.
Strike Price Increment--1,000 yen per 1,000 kilogram intervals with one 
strike price at-the-money and minimum of three exercise prices above 
and three below.
Speculative Position Limits--None
Last Trading Day--The last business day 3 months prior to the delivery 
month of the underlying futures contract.
Expiration Date--3:45 p.m. of the last trading day
Automatic Exercise--None
Exercise Style--American style. The option holder shall give an 
exercise notice to the FCMs by 3:30 p.m. of any business day up to the 
last trading day. FCMs and regular members shall give an exercise 
notice to the FCMs from 3:00 p.m. to 3:45 p.m. of any business day up 
to the last trading day. The Exchange shall proportionally assign an 
exercised position to the option writer.
Customer Margin--The writer shall deposit 50,000 yen (the half amount 
of the initial margin of the underlying futures contract) plus the 
option premium per one contract to FCMs.
Commission Fee
    New Order, 3,000 yen or less per one contract
    Resale/Repurchase (for liquidation), 2,000 yen or less per one 
contract.

    Note: The first trading day of March 1996 contract started from 
January 4, 1995.

List of Subjects in 17 CFR Part 30

    Commodity futures, Commodity options, Foreign transactions.

    Accordingly, 17 CFR Part 30 is amended as set forth below:

PART 30--FOREIGN FUTURES AND FOREIGN OPTION TRANSACTIONS

    1. The authority citation for Part 30 continues to read as follows:

    Authority: Secs. 2(a)(1)(A), 4, 4c, and 8a of the Commodity 
Exchange Act, 7 U.S.C. 2, 6, 6c and 12a.

    2. Appendix B to Part 30 is amended by adding the following entry 
after the existing entries for the ``Tokyo Grain Exchange'' to read as 
follows:

  Appendix B.--Option Contracts Permitted To Be Offered or Sold in the  
                     U.S. Pursuant to Sec.  30.3(a)                     
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                                                         FR date and    
          Exchange              Type of contract          citation      
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*                *                *                *                *   
                                  *                *                    
Tokyo Grain Exchange........  Option Contract on    1996; ____FR____    
                               the Raw Sugar                            
                               Futures Contract.                        
                                                                        
*                *                *                *                *   
                                  *                *                    
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[[Page 2719]]

    Issued in Washington, D.C. on January 22, 1996.
Jean A. Webb,
Secretary to the Commission.
[FR Doc. 96-1511 Filed 1-26-96; 8:45 am]
BILLING CODE 6351-01-P