[Federal Register Volume 61, Number 156 (Monday, August 12, 1996)]
[Notices]
[Pages 41774-41775]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-20446]


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[[Page 41775]]

COMMODITY FUTURES TRADING COMMISSION


MidAmerica Commodity Exchange: Proposed Amendments Converting the 
Live Hogs Futures Contract From a Physical Delivery Contract to a Cash 
Settlement System

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of proposed contract market rule changes.

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SUMMARY: The MidAmerica Commodity Exchange (``MCE'') has submitted 
proposed amendments to its Live Hogs futures contract that would 
convert the delivery provisions of that futures contract from a 
physical delivery contract to a cash settlement system. In accordance 
with Section 5a(a)(12) of the Commodity Exchange Act, and acting 
pursuant to the authority delegated by Commission Regulation 140.96, 
the Acting Director of the Division of Economic Analysis (``Division'') 
of the Commodity Futures Trading Commission (``Commission'') has 
determined, on behalf of the Commission, that the proposed amendments 
are of major economic significance and that publication of the proposed 
amendments would be in the public interest. On behalf of the 
Commission, the Division is requesting comment on this proposal.

DATES: Comments must be received on or before September 11, 1996.

ADDRESSES: Interested persons should submit their views and comments to 
Jean A. Webb, Secretary, Commodity Futures Trading Commission, Three 
Lafayette Centre, 1155 21st Street, NW, Washington, D.C. 20581. 
Reference should be made to the proposed amendments converting the MCE 
live hogs futures contract to cash settlement.

FOR FURTHER INFORMATION CONTACT: Frederick V. Linse, Division of 
Economic Analysis, Commodity Futures Trading Commission, Three 
Lafayette Centre, 1155 21st Street, N.W., Washington, D.C. 20581, 
telephone (202) 418-5273.

SUPPLEMENTARY INFORMATION: The existing terms of the live hogs futures 
contract provides for physical delivery of 20,000 pounds of live hogs 
meeting specified quality and weight requirements at MCE-approved 
public livestock yards at seven delivery points located in six 
different states. The contract's existing terms also specify that 
trading ends on the business day immediately preceding the last five 
business days of the contract month.
    The proposed amendments will delete all physical delivery 
provisions of the futures contract. These provisions will be replaced 
by terms specifying cash settlement of all open positions at the 
expiration of trading in a contract month. The cash settlement price 
will be based on the cash market value of hogs during the last two 
trading days of expiring contract months. Specifically, the proposed 
cash settlement price will equal the two-day weighted average of the 
mid-point of the price range for U.S. No. 1, No. 2, and No. 3 grade 
barrows and gilts in the 220 to 260-pound weight range in the Iowa-
Southern Minnesota region, as reported by the U.S. Department of 
Agriculture (USDA) in its Midwest Direct Hog report. The Iowa-Southern 
Minnesota region is defined by the USDA as the state of Iowa and the 
Southern two tiers of counties in Minnesota. The final cash settlement 
price will be determined in four steps. First, the midpoint of the 
price range for U.S. 1, 2 and 3 barrows and gilts in the 220 to 260-
pound weight range at country points for each of the last two trading 
days will be calculated and rounded to the nearest whole cent. Second, 
the volume percentage for each of last two trading days will be 
calculated by dividing the volume of hog receipts on each such day by 
the total volume of receipts for the two-day period. Third, each day's 
calculated midpoint price is then multiplied by that day's calculated 
volume percentage to determine the weighted value for that day. Fourth, 
the daily weighted values for the two-day period are summed and rounded 
to the nearest whole cent to determine the final cash settlement price.
    The Exchange's proposal also will change the last trading day to 
the tenth business day of the contract month from the sixth to the last 
business day of the contract month.
    According to the MCE, physical delivery through public livestock 
yards no longer reflects dominant cash market practice. The MCE 
indicated that the number of hogs sold for slaughter from Midwestern 
public stockyards has been steadily declining, and totaled just 
1,383,000 sales in 1995, while the number of hogs sold directly to 
packers by producers and other market intermediaries from interior 
country points in the Iowa-Southern Minnesota region has been steadily 
increasing, and equaled 28,424,000 in 1995. The MCE further indicates 
that, as a result of the decline in the importance of sales through 
public livestock yards, the usefulness of the live hogs futures 
contract as a price discovery and risk management tool has been 
adversely affected. The MCE believes that by changing the pricing basis 
for the MCE live hog contract from Midwestern public stockyards to the 
Iowa-Southern Minnesota direct hog market will enable the contract to 
better reflect the cash market for slaughter hogs in the Midwest. The 
Exchange submits that specifying a cash settlement procedure to replace 
the physical delivery settlement mechanism will simplify the settlement 
procedure for the contract and facilitate greater use of the contract 
by hedgers.
    The MCE proposes to make the amendments effective, following 
Commission approval, with respect to all newly listed contract months 
beginning with the February 1997 contract month. No currently listed 
contract month or existing position would be affected by the proposed 
amendments.
    On behalf of the Commission, the Division is requesting comment on 
the proposed amendments. In particular, the Division is seeking comment 
regarding the extent to which the proposed cash settlement price will 
reflect the underlying cash market and the susceptibility of the 
proposed cash settlement price to manipulation or distortion.
    Copies of the proposed amendments will be available for inspection 
at the Office of the Secretariat, Commodity Futures Trading Commission, 
Three Lafayette Centre, 1155 21st Street, N.W., Washington, D.C. 20581. 
Copies of the amended terms and conditions can be obtained through the 
Office of the Secretariat by mail at the above address or by telephone 
at (202) 418-5100.
    The materials submitted by the MCE in support of the proposed 
amendments may be available upon request pursuant to the Freedom of 
Information Act (5 U.S.C. 552) and the Commission's regulations 
thereunder (17 CFR Part 145 (1987)). Requests for copies of such 
materials should be made to the FOI, Privacy and Sunshine Act 
Compliance Staff of the Office of the Secretariat at the Commission's 
headquarters in accordance with CFR 145.7 and 145.8.
    Any person interested in submitting written data, views or 
arguments on the proposed amendments should send such comments to Jean 
A. Webb, Secretary, Commodity Futures Trading Commission, Three 
Lafayette Centre, 1155 21st Street, N.W., Washington, D.C. 20581 by the 
specified date.

    Issued in Washington, D.C. on August 6, 1996.
Blake Imel,
Acting Director.
[FR Doc. 96-20446 Filed 8-9-96; 8:45 am]
BILLING CODE 6351-01-P