[Federal Register Volume 62, Number 50 (Friday, March 14, 1997)]
[Notices]
[Pages 12156-12158]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-6470]


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COMMODITY FUTURES TRADING COMMISSION


Chicago Board of Trade Futures Contracts in Corn and Soybeans; 
Notice That Delivery Point Specifications Must Be Amended

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of, and request for public comment on, response of the 
Chicago Board of Trade to notification to amend delivery 
specifications.

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SUMMARY: The Commodity Futures Trading Commission (``Commission''), by 
letter dated December 19, 1996, notified the Board of Trade of the City 
of Chicago (``CBT''), under section 5a(a)(10) of the Commodity Exchange 
Act (``Act''), 7 U.S.C. 7a(a)(10), that the delivery terms of the CBT 
corn and soybean futures contracts no longer accomplish the objectives 
of that section of the Act. Under section 5a(a)(10), the CBT was 
required to respond by March 4, 1997, seventy-five days from the date 
of the notice.
    By letter dated March 4, 1997, from Patrick H. Arbor, to 
Chairperson Brooksley Born, the CBT responded by providing a status 
report to the Commission of its actions. In that response, the CBT 
reported that a ``working alternative'' had been approved by the 
exchange board and would be forwarded to the membership for a vote.
    The Commission is providing notice of the CBT's working alternative 
in order to provide the public with an opportunity to comment to the 
Commission on it. The Commission has determined that publication of the 
CBT working alternative for public comment is in the public interest, 
will assist the Commission in considering the views of interested 
persons, and is consistent with the purposes of the Commodity Exchange 
Act.

DATES: Comment must be received by March 31, 1997.

ADDRESSES: Comments should be mailed to the Commodity Futures Trading 
Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington, 
D.C. 20581, attention: Office of the Secretariat; transmitted by 
facsimile at (202) 418-5521; or transmitted electronically at 
[[email protected]]. Reference should be made to ``Corn and Soybean 
Delivery Points.''

FOR FURTHER INFORMATION CONTACT: Blake Imel, Acting Director, or Paul 
M. Architzel, Chief Counsel, Division of Economic Analysis, Commodity 
Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, 
NW., Washington, D.C. 20581, (202) 418-5260, or electronically, Mr. 
Architzel at [PA[email protected]].

SUPPLEMENTARY INFORMATION: Section 5a(a)(10) of the Act provides that 
as a condition of contract market designation, boards of trade are 
required to:

permit the delivery of any commodity, on contracts of sale thereof 
for future delivery,

[[Page 12157]]

of such grade or grades, at such point or points and at such quality 
and locational price differentials as will tend to prevent or 
diminish price manipulation, market congestion, or the abnormal 
movement of such commodity in interstate commerce. If the Commission 
after investigation finds that the rules and regulations adopted by 
a contract market permitting delivery of any commodity on contracts 
of sale thereof for future delivery, do not accomplish the 
objectives of this subsection, then the Commission shall notify the 
contract market of its finding and afford the contract market an 
opportunity to make appropriate changes in such rules and 
regulations.

    The Commission, by letter dated December 19, 1996, notified the CBT 
under section 5a(a)(10) of the Act that its futures contracts for corn 
and soybeans no longer were in compliance with the requirements of that 
section of the Act. The text of the section 5a(a)(10) letter was 
published in the Federal Register and public comment was requested. 61 
FR 67998 (December 26, 1996).
    The section 5a(a)(10) letter offered the CBT guidance in meeting 
the requirements of the Act in the form of four conceptual alternatives 
to the current delivery specifications. These four alternatives 
constituted ``a range of possibilities which could constitute 
'appropriate changes' by providing for the necessary, viable linkage 
with the cash market.'' 61 FR 67998, 68013. In offering this guidance, 
the Commission noted that:

(b)y providing these alternatives, the Commission is not limiting 
the CBT's ability to respond to this Section 5a(a)(10) notification, 
nor is it specifying exact design criteria. Rather, these are 
examples of various means by which the Commission believes the 
objectives of the section could be met. In any event, the particular 
contract specifications proposed by the CBT in response to this 
notification, in order to meet the statutory requirement, should 
provide for a linkage with the cash market through specific terms 
which are in conformity with a substantial segment of that 
underlying market.

61 FR 68012.
    The four alternatives offered by the Commission included a prior 
CBT alternative that was previously rejected by the exchange 
membership. This alternative provided for a warehouse receipt contract 
deliverable at Chicago (at par), Toledo, Milwaukee, East Central 
Illinois and the Northern Illinois River. The Commission noted, in 
particular, that any such proposal should be modified to include price 
differentials reflecting the fact that corn and soybeans become more 
highly valued the further south the delivery location is on the 
Northern Illinois River. Another alternative offered was a shipping 
certificate contract centered on the lower Mississippi River. The 
Commission also offered cash-settlement as an alternative for 
consideration.
    Finally, the Commission offered the alternative of increasing 
deliverable supplies by adding to the contract shipping certificates 
providing for delivery at barge loading locations on the Illinois River 
and at St. Louis. Specifically, the Commission suggested that:

(a)n alternative specification that could also result in the 
necessary increase to deliverable supplies would replace the 
existing warehouse-receipt-delivery instrument with a shipping 
certificate and provide for delivery at Illinois River barge loading 
facilities, in addition to the contracts' existing Chicago, Toledo, 
and St. Louis delivery points. The Illinois River delivery area 
could be specified to include all or a substantial part of that 
River. The contracts' par pricing location could be shifted to a 
delivery location/area that has an active cash market, with 
locational price discounts for other delivery points/areas set at 
levels that fall within the range of commonly observed cash price 
differences between the specified delivery locations.

61 FR at 68013 (footnote deleted).
    In publishing the section 5a(a)(10) letter to the CBT, the 
Commission requested comment on general issues related to both the cash 
markets for, and the CBT futures contracts on, corn and soybeans and on 
the specific, relative merits of these suggested alternatives. The 
working alternative under consideration by the CBT incorporates 
portions of one or more of those suggested by the Commission, but is 
sufficiently distinct that public comment on this additional 
alternative would aid the Commission in its consideration of these 
issues.

CBT Working Alternative

    The CBT's working alternative includes the following salient 
features:

                   Features of CBT Working Alternative                  
------------------------------------------------------------------------
                                                                        
------------------------------------------------------------------------
Underlying Instrument:                Corn                Soybeans      
    (No changes to current    U.S. No. 1 +1.5       U.S. No. 1 +6 cents/
     quality differentials).   cents/bu.             bu.                
                              No. 2 par...........  No. 2 par.          
                              No. 3 -1.5 cents/bu.  No. 2-3% foreign    
                                                     matter -6 cents/bu.
Primary Delivery Point......                                            
(1)Illinois Waterway from                                               
 Chicago, IL (including                                                 
 Burns Harbor, IN) to Pekin,                                            
 IL at river mile marker                                                
 151.                                                                   
Alternate Delivery Point....                                            
(1)None.                                                                
Locational Differentials....                                            
(1)None, all locations at                                               
 par.                                                                   
Delivery Instrument.........                                            
(1)Shipping certificate                                                 
 only.                                                                  
Maximum Certificates Allowed                                            
 to Issue.                                                              
(1)Lesser of registered                                                 
 daily rate of loading for                                              
 the shipping station times                                             
 30 or 25% of net worth.\1\                                             
                                      Corn                Soybeans      
Premium to Futures for        4 cents/bu..........  4 cents/bu.         
 f.o.b. water conveyance.                                               
Premium Charge:                                                         
    (Previously referred to                                             
     as storage charge).                                                
(1)$0.0012 per bu. per day                                              
 in Chicago.                                                            
                                                                        
(1)$0.0010 per bu. per day                                              
 on Illinois River.                                                     
Load-out Rate Barge.........                                            
(1)At the registered daily                                              
 rate of loading for the                                                
 shipping station within 3                                              
 business days following                                                
 receipt of loading orders                                              
 or within 1 business day of                                            
 constructive placement                                                 
 whichever occurs later.                                                
Vessel......................                                            
(1)300,000 bu. per day with                                             
 3 days pre-advice.                                                     
Rail........................                                            
(1)Takers of delivery in                                                
 Chicago and Burns Harbor                                               
 will have the option to                                                
 receive rail loadout at the                                            
 rate of 25 cars per day (35                                            
 cars per day for batch                                                 
 weights and grades).                                                   
Last Trading Day............                                            
(1)The business day prior to                                            
 the 15th calendar day of                                               
 the contract month.                                                    
Last Delivery Day...........                                            
(1)The second business day                                              
 following last trading day.                                            
Regularity Eligibility......                                            
(1)Minimum $2 million                                                   
 working capital and minimum                                            
 $40 million net worth.                                                 
------------------------------------------------------------------------
\1\ Current regular warehouses in Chicago and Burns Harbor would be     
  allowed to issue a maximum number of shipping certificates equal to   
  their current regular capacity.                                       


[[Page 12158]]

    As Commission staff advised the CBT's Task Force during its 
deliberations, the CBT alternative raises several important issues and 
it differs from the Commission's in a number of significant respects. 
The CBT alternative restricts the delivery area to only the northern 
portion of the Illinois River. Unlike the Commission's suggested 
Illinois River Shipping Certificate alternative, the CBT river-based 
delivery area would not be in addition to the existing delivery points 
on the contracts--including St. Louis and Toledo--but in lieu of them. 
Moreover, the CBT alternative does not provide for locational price 
differentials. Finally, unlike the contracts' current specifications 
for loading against warehouse receipts, the CBT is considering 
requiring that originators of shipping certificates maintain separate 
queues, giving takers under the futures contract priority over other 
load-out commitments.
    In order to assist the Commission in its consideration of these 
issues, the Commission requests written data, views or arguments from 
interested members of the public. Commenters are requested to analyze 
and compare the relative merits of the CBT working alternative. 
Commenters are specifically requested to address the following issues:
    1. Does the potential economic deliverable supplies or capacity on 
the contract under the CBT working alternative meet the requirement of 
the section 5a(a)(10) notification that the CBT modify the contracts' 
specifications in order that they ``will tend to prevent or diminish 
price manipulation, market congestion, or the abnormal movement of such 
commodity in interstate commerce''? In particular, how does the 
potential increase in delivery supplies or capacity which results from 
the addition of the Illinois River shipping certificate compare to 
deletion of deliverable supplies or capacity at Toledo? Is the net 
result sufficient to prevent market disruption under foreseeable market 
circumstances?
    2. How should the net change in economic deliverable supplies or 
capacity be measured? How much of the load-out capacity of the barge-
loading facilities on the northern Illinois River likely will be made 
available for delivery, particularly in light of the queuing aspect of 
the CBT working alternative? In this respect, within the defined 
delivery area is there a sufficient number of facilities, and is their 
ownership sufficiently dispersed?
    3. Are the regularity eligibility requirements a significant factor 
in determining the economic delivery capacity under the CBT working 
alternative's terms? Are they sufficient or necessary to assure 
performance on the contract?
    4. What are the implications of the working alternative's proposed 
single delivery area, even if total deliverable supplies or capacity 
were increased?
    5. What are the implications of the absence of locational price 
differentials? In particular, is the working alternative consistent 
with the pricing of corn and soybeans in the cash market of the 
proposed delivery area? What are the implications for the availability 
of registered certificates?

    Issued in Washington, D.C., this 10th day of March 1997, by the 
Commodity Futures Trading Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 97-6470 Filed 3-13-97; 8:45 am]
BILLING CODE 6351-01-P