[Federal Register Volume 62, Number 130 (Tuesday, July 8, 1997)]
[Notices]
[Pages 36499-36501]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-17721]


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COMMODITY FUTURES TRADING COMMISSION.


Chicago Board of Trade Futures Contract in Wheat; Request for 
Public Comment on Delivery Point Specifications

AGENCY: Commodity Futures Trading Commission.

ACTION: Request for Public Comment on the Delivery Specifications of 
the Chicago Board of Trade's Wheat Futures Contract.

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SUMMARY: The Commodity Futures Trading Commission (``Commission''), by 
letter dated December 19, 1996, issued a request to the Board of Trade 
of the City of Chicago (``CBT'') to undertake a study of the delivery 
specifications of its wheat futures contract and to submit its findings 
to the Commission by April 18, 1997, 120 days from the date of the 
Commission's request. By letter dated April 18, 1997, the CBT responded 
by providing a status report to the Commission of its actions. In that 
response, the CBT reported that the CBT would refrain from acting on 
the recommendations of the special task force which it had appointed 
and would instead conduct market research to determine whether a 
broader review of the contract not limited to its delivery terms should 
be undertaken.

[[Page 36500]]

    The Commission is seeking public comment on various issues relating 
to the current delivery specifications of the wheat futures contract. 
The Commission has determined that it is in the public interest to do 
so, and that such publication 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 August 22, 1997.

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

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

SUPPLEMENTARY INFORMATION: 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 Act (``Act''), 7 U.S.C. Sec. 7a(a)(10), that the delivery terms of 
the CBT corn and soybean futures contracts no longer accomplish the 
statutory objectives of ``permit[ting] the delivery of any commodity * 
* * 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.'' (December notification). In addition, the 
Commission instructed the CBT to consider immediately the adequacy of 
the delivery specifications of its wheat futures contract.\1\ The 
Commission directed the CBT to complete its consideration of, and to 
report to the Commission on its consideration of them, within 120 days 
of the notice--April 18, 1997.
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    \1\ The CBT's wheat futures contract provides for the delivery 
of various grades and classes of wheat, but traditionally the 
futures contract has priced No. 2 soft red winter wheat. Delivery is 
made by the transfer of warehouse receipts representing wheat in 
store at regular warehouses. Delivery may be made in Chicago at par, 
in Toledo at a discount of 2 cents per bushel, and in St. Louis at a 
premium of 8 cents per bushel.
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    The CBT responded by way of a status report. Letter dated April 18, 
1997, to Chairperson Brooksley Born from Patrick H. Arbor. 
Specifically, it reported that although a Task Force appointed by the 
Board of Directors had recommended certain changes to the delivery 
terms of the wheat futures contract, the Board had decided to refrain 
from acting on those recommendations at this time. The CBT stated that 
instead it would conduct a market research effort to determine whether 
a broader review of the contract should be undertaken.
    In a subsequent letter dated April 30, 1997, to Chairperson Born, 
Mr. Arbor maintained that, ``as the Commission is aware, the declining 
warehouse capacity in Chicago has not had a material impact on the 
CBOT's wheat contract given the active cash markets in Toledo and St. 
Louis, the contract's other delivery points.'' Moreover, the CBT noted 
that * * * ``the operation of the CBOT's wheat contract has not been 
the focus of any `comprehensive studies' in recent years, nor has an 
even arguable consensus emerged as to the existence or identity of a 
problem. Finally, the CBT protested the Commission's plan to seek 
public comment on these issues, questioning whether the ``Commission 
plan[s] routinely to subject other contracts at the CBOT or other 
exchanges to a comment process or public poll without having 
substantiated any flaw in such contracts'' and maintaining that 
``design and delivery issues are subject to potentially limitless 
debate * * *.''
    The December notification relating to the delivery specifications 
of the corn and soybean futures contracts was based on: (1) The 
continuing diminution of the role of terminal markets in the cash 
market for grain; (2) the increasing shift of the locus of the main 
channels of commodity flows away from the delivery points on the 
contracts, particularly the par-delivery point of Chicago; (3) the 
continuing decline in cash market activity generally at the contracts' 
delivery points, particularly Chicago; and (4) the serious, precipitous 
drop in regular warehouse storage capacity at the Chicago delivery 
point over the past fourteen months. The delivery specifications for 
the CBT wheat futures contract are also subject to many of the same 
trends that have affected adversely the corn and soybean contracts. For 
example, the closure of terminal elevators at Chicago, the contract's 
par delivery point, affects delivery capacity for wheat as surely as 
for corn and soybean futures.\2\
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    \2\ In limiting the effect of the December notification under 
section 5a(a)(10) of the Act to the CBT corn and soybean futures 
contract, the Commission noted that ``the CBT wheat futures contract 
[specifications] are also subject to many of the same trends which 
have affected adversely the corn and soybean contracts.'' The 
Commission did not include the wheat contract in the section 
5a(a)(10) December notification on the basis of any determination 
that its terms meet the Act's requirements, but rather to provide 
the CBT a fuller opportunity to consider the issues related to wheat 
before making any determination of the issue. The Commission 
believed this was appropriate in light of the CBT's full 
consideration of the issues relating to its corn and soybean 
contracts during the previous year. 61 FR 67999.
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    Contrary to the CBT's contention that the wheat futures contract 
has not been focus of any comprehensive studies in recent years, the 
scope of several of the 1991 studies that were summarized in the 
December notification included the delivery terms of the CBT wheat 
contract, as well as the corn and soybean contracts. Indeed, the 
Commission's study specifically analyzed possible revisions to delivery 
specifications for the CBT's wheat contract, suggesting consideration 
of a number of possible alternatives to address the problems in 
deliverable supplies plainly evident by the time of the 1991 study. 
These included: (1) An expanded Toledo delivery area; (2) shipping 
certificate deliveries in an area focused near the confluence of the 
Ohio and Mississippi rivers; or (3) a shipping certificate contract 
deliverable to lower Mississippi River export elevators. In addition, 
an October 11, 1995, letter from Commission Chairwoman Mary Schapiro to 
the CBT expressing the Commission's concerns regarding the adequacy of 
the delivery provisions in light of the recent closure of Chicago 
elevators specifically included reference to the wheat contract and 
urged the CBT to take remedial action to correct the long-term problems 
in these contracts, including the wheat futures contract.
    Although the Commission previously requested comment on the wheat 
contract in connection with its publication of the December 
notification and request for public comment, most commenters limited 
the focus of their comments to the corn and soybean futures contracts, 
the subject of the Section 5a(a)(10) notification. In view of the CBT's 
determination to continue its research and study of these matters, the 
Commission has concluded that public comment on these issues, including 
potential changes to the wheat contract's delivery specifications, may 
facilitate their consideration. It also will assist the Commission in 
its consideration of the concerns identified

[[Page 36501]]

in the December notification relating to the CBT wheat futures 
contract. The Commission is of the view that the public has an 
important role to fulfill and a critical interest in a full airing of 
these issues. Accordingly, the Commission is hereby separately 
requesting written data and views from interested members of the public 
relating to the CBT wheat contract. The submission of data relating to 
cash market flows of No. 2 soft red winter wheat, relevant locational 
price differentials, and other relevant economic evidence would be 
especially useful. Commenters are specifically requested to address the 
following issues:
    1. Does a problem exist with regard to the current delivery 
specifications of the CBT wheat contract? If so, to what extent is the 
problem a lack of adequate deliverable supplies at Chicago, Toledo, and 
St. Louis? With respect to Toledo and St. Louis, are the differentials 
on the contract set appropriately to reflect cash market price 
differentials? What is the economic deliverable capacity at St. Louis 
in light of the through-put nature of the facilities located there?
    2. To what extent do the current CBT delivery specifications for 
wheat reflect flows of wheat in the cash market? To the extent that the 
delivery terms of the futures contract differ from the wheat flows in 
the cash market, does this have any detrimental impact on the trading 
of the wheat futures contract or on the cash market for wheat?
    3. What is the likely effect of a failure to modify the current 
delivery terms of the contract?
    4. What alternative delivery specifications are available to 
increase deliverable supplies on the contract?
    In this respect, commenters are requested to address the following 
questions, supplying, to the extent available, economic data or studies 
in support of their conclusions:
    a. Given the declining role of Chicago as a cash market for wheat, 
should it be retained as a delivery point on the futures contract?
    b. What are the advantages and disadvantages of expanding the 
Toledo, Ohio delivery point to encompass off-water elevators in 
neighboring counties?
    c. What are the advantages and disadvantages of expanding the St. 
Louis, Missouri delivery point to encompass river stations and off-
water elevators in neighboring counties?
    d. What are the advantages and disadvantages of permitting delivery 
at St. Louis via shipping certificates, rather than warehouse receipts? 
Should such shipping certificates be backed by warehouse receipts at or 
near that location or by financial guarantees of performance?
    e. If delivery at St. Louis by shipping certificate is advisable, 
should other delivery points on the contract also provide for delivery 
by shipping certificate? Is consistency of delivery instrument among 
delivery points necessary or desirable? What is the likely effect of 
lack of consistency in the type of delivery instrument for different 
delivery points?
    f. What are the advantages and disadvantages of providing for 
delivery via shipping certificates at elevators located: (i) On the 
Mississippi River located between St. Louis and Memphis or (ii) on the 
Mississippi River between St. Louis and Cairo and (iii) on the Ohio 
River between Cairo and Louisville, Kentucky?
    g. What are the advantages and disadvantages of specifying delivery 
to lower Mississippi River export elevators?
    5. Is there a single location, or a limited number of locations, 
that offer either sufficient stocks or receive sufficient flows of one 
class of wheat adequate to support futures trading and to tend to 
prevent or diminish price manipulation, market congestion or the 
abnormal movement of such commodity in interstate commerce?

    Issued in Washington, D.C., this 1st day of July, 1997 by the 
Commodity Futures Trading Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 97-17721 Filed 7-7-97; 8:45 am]
BILLING CODE 6351-01-P