[Federal Register Volume 61, Number 241 (Friday, December 13, 1996)]
[Notices]
[Pages 65550-65551]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-31720]


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COMMODITY FUTURES TRADING COMMISSION


Chicago Mercantile Exchange: Proposed Amendments to the Frozen 
Pork Bellies Futures and Options Contracts Converting the Futures 
Contract to a Cash Settled Contract From a Physical Delivery Contract, 
and Conforming Amendments to the Options Contract

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of availability of the terms and conditions of proposed 
and amended commodity futures contracts.

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SUMMARY: The Chicago Mercantile Exchange (CME or Exchange) has 
submitted amendments to its frozen pork bellies futures contract that 
would replace the contract's existing physical delivery provisions with 
a cash settlement system based on cash prices for fresh pork bellies. 
The proposed amendments also would revise the futures contract's 
trading months, speculative position limits, maximum daily price 
fluctuation limits and last trading day.
    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. On behalf of 
the Commission, the Division is requesting public comment on the 
proposal.

DATES: Comments must be received on or before January 13, 1997.

ADDRESSES: Interested persons should submit their views and comments to 
Jean A. Webb, Secretary, Commodity Futures Trading Commission, Three 
Lafayette Centre, 1155 21st St. NW, Washington, DC 20581. In addition, 
comments may be sent by facsimile transmission to (202) 418-5521, or by 
electronic mail to [email protected]. Reference should be made to the 
CME frozen pork bellies futures contract.

FOR FURTHER INFORMATION CONTACT: Please contact Fred Linse of the 
Division of Economic Analysis, Commodity Futures Trading Commission, 
Three Lafayette Centre, 1155 21st St., NW, Washington, DC 20581, 
telephone 202-418-5273, or electronic mail: [email protected].

SUPPLEMENTARY INFORMATION: The existing terms of the frozen pork 
bellies futures contract provide for physical delivery of 40,000 pounds 
of frozen pork bellies meeting specified quality, packaging and weight 
requirements. Delivery is at CME-approved public cold storage 
warehouses. The contract also currently specifies a maximum daily price 
fluctuation limit of $.030 per pound, which is applicable through the 
last trading day of each expiring contract month. In addition, the 
contract's existing terms specify that trading ends on the business day 
immediately preceding the last three business days of the contract 
month. Trading is currently conducted in the contract months of 
February, March, May, July and August.
    The contract's current terms also provide for net long or short 
speculative position limits of 1,000 contracts in all contract months 
combined and 800 contracts in any individual non-spot contract month. 
The contract's existing spot-month speculative position limits are 150 
contracts in any expiring contract month (except May) as of the close 
of business on the last trading day preceding the first business day of 
the contract month and 100 contracts in any expiring contract month 
(except May) as of the close of business on the sixth business day 
following the first Friday of the contract month.1
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    \1\ For the May contract month, the contract's existing 
speculative limits are 200 contracts as of the close of business on 
the last trading day prior to the first business day of the contract 
month and 150 contracts as of the close of business on the sixth 
business day following the first Friday of the contract month.
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    The proposed amendments would delete all physical delivery 
provisions of the futures contract. These provisions would be replaced 
by terms specifying mandatory cash settlement of all open positions at 
the expiration of trading in a contract month. The proposed cash 
settlement price would be the weighted average price for all negotiated 
transactions for 12-14 pound, 14-16 pound, and 16-18 pound, skin-on, 
fresh pork bellies, as reported by the U.S. Department of Agriculture 
Federal-State Market News Service in the National Carlot Meat Report 
during the last five trading days of each expiring contract month.
    Under the proposed amendments, trading in the futures contract 
would terminate on the second-to-last Friday of the contract 
month.2 The proposed amendments would provide for trading in the 
contract months of January, March, May, July, August, September, and 
November. In addition, the proposed amendments would specify that no 
maximum daily price fluctuation limit would apply to trading in an 
expiring contract month during the last five days of trading.
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    \2\ If a holiday falls on the second-to-last Friday or on any of 
the four weekdays prior to that Friday, trading would end on the 
first prior Friday that was not a holiday or so preceded by a 
holiday
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    The proposed amendments will delete the contract's existing 
speculative limit for all contract months combined. Under the proposed 
amendments, the contract's spot-month speculative position limits for 
each listed month would be set at 400 contracts as of the close of 
business (COB) on the last trading day prior to the first business day 
of the contract month, 200 contracts as of COB on the business day 
immediately preceding the last ten trading days of the contract, and 40 
contracts in the expiring month as of COB on the business day 
immediately preceding the last five trading days of the contract. The 
speculative position limit for any individual non-spot contract month 
would continue to be 800 contracts.
    The proposed amendments also will modify the rules of the option 
contract to conform to the proposed changes to the futures contract and 
will change the last trading day for the option contract from the first 
Friday of the delivery month to the business day immediately preceding 
the last five trading days for the underlying futures contract.
    In addition, the proposed amendments would rename the contracts as 
the ``fresh pork bellies'' futures and options contracts.
    In support of the proposed amendments, the CME indicates that the 
proposal to eliminate physical delivery of frozen pork bellies and 
provide for mandatory cash settlement based on

[[Page 65551]]

cash prices for fresh pork bellies is intended to reflect changes in 
cash market practices. The CME indicates, specifically, that the 
quantity of frozen pork bellies being placed into cold storage is 
declining because more pork bellies are being utilized as fresh pork 
bellies. The CME notes that, as a result of this trend, the demand for 
pork bellies is becoming less seasonal and is tending to follow more 
closely the production of that commodity. The CME submits that, 
therefore, the industry has less need for a contract to hedge a 
seasonal, stored commodity, and a growing need to hedge forward 
contracts for fresh pork bellies on a year round basis.
    With respect to the proposed cash settlement provisions, the CME 
indicates that physical delivery of fresh pork bellies would be very 
difficult due to the fact that such bellies are highly perishable and 
thus are not merchantable for much more than 72 hours. The CME believes 
that cash settlement is the only feasible method of settling futures 
positions, since there could be many problems and/or delivery failures 
with a physically delivered fresh pork bellies futures contract. The 
CME also indicates its belief that the proposed cash settlement price 
would not be susceptible to manipulation or distortion.
    The CME proposes to make the amendments effective with respect to 
newly listed contract months only, following Commission approval.
    On behalf of the Commission, the Division is requesting comment on 
the CME's proposals. In particular, the Division is seeking comments 
regarding the extent to which the proposed cash settlement prices will 
reflect the underlying cash market and the susceptibility of the 
proposed cash settlement price to manipulation or distortion.
    Copies of the terms and conditions will be available for inspection 
at the Office of the Secretariat, Commodity Futures Trading Commission, 
Three Lafayette Centre, 1155 21st St., N.W., Washington, D.C. 20581. 
Copies of the terms and conditions can be obtained through the Office 
of the Secretariat by mail at the above address or by phone at (202) 
418-5097.
    Other materials submitted by the Exchange may be available upon 
request pursuant to the Freedom of Information Act (5 U.S.C. 552) and 
the Commission's regulations thereunder (17 C.F.R. Part 145 (1987)), 
except to the extent they are entitled to confidential treatment as set 
forth in 17 CFR 145.5 and 145.9. 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 17 CFR 145.7 and 145.8.
    Any person interested in submitting written data, views, or 
arguments on the proposed terms and conditions, or with respect to 
other materials submitted by the CME, should send such comments to Jean 
A. Webb, Secretary, Commodity Futures Trading Commission, Three 
Lafayette Centre, 1155 21st St., N.W., 20581 by the specified date.

    Issued in Washington, DC, on December 10, 1996.
Blake Imel,
Acting Director.
[FR Doc. 96-31720 Filed 12-12-96; 8:45 am]
BILLING CODE 6351-01-P