[Federal Register Volume 63, Number 43 (Thursday, March 5, 1998)]
[Notices]
[Pages 10861-10862]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-5631]


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COMMODITY FUTURES TRADING COMMISSION


Proposed Merger of the Coffee, Sugar & Cocoa Exchange, Inc. and 
the New York Cotton Exchange

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of proposed merger of the Coffee, Sugar & Cocoa 
Exchange, Inc. and the New York Cotton Exchange and of proposed rule 
amendments to implement the merger.

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SUMMARY: The Coffee, Sugar & Cocoa Exchange, Inc. (``CSCE'') and New 
York Cotton Exchange (``NYCE'') (CSCE and NYCE are referred to 
collectively as the ``Exchanges'') have submitted proposed rule 
amendments, incident to a plan of merger, to the Commission pursuant to 
Section 5a(a)(12)(A) of the Commodity Exchange Act (``Act''). Acting 
pursuant to authority delegated by Commission Regulation 140.96, the 
Division of Trading and Markets (``Division'') has determined to 
publish the proposal for public comment. The Division believes that 
publication of the proposal is in the public interest and will assist 
the Commission in considering the views of interested persons.

DATES: Comments on the proposed merger must be received by April 6, 
1998.

FOR FURTHER INFORMATION CONTACT: Thomas Smith, Attorney, Division of 
Trading and Markets, Commodity Futures Trading Commission, Three 
Lafayette Centre, 1155 21st Street, NW, Washington, D.C. 20581. 
Telephone: (202) 418-5495; or electronic mail: [email protected].

SUPPLEMENTARY INFORMATION:

I. Description of Merger Agreement

    By letter dated February 5, 1998, the Exchanges submitted to the 
Commission, pursuant to Section 5a(a)(12)(A) of the Act, proposed rule 
amendments to implement a plan of merger.1 The proposed 
merger would be effected in two stages: the first stage (``Initial 
Merger'') and the second stage (``Secondary Merger'').
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    \1\ The proposed merger and rule amendments were unanimously 
adopted, respectively, by the CSCE Board of Managers and the NYCE 
Board of Managers at separate meetings held on December 4, 1997. The 
Exchanges' respective memberships approved the merger on December 
22, 1997.
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    The Initial Merger, which the Exchanges plan to implement by June 
30, 1998, would involve the Exchanges' reorganizing under the control 
of a common parent corporation, the Board of Trade of the City of New 
York, Inc. (``NYBT'').2 Following the Initial Merger, CSCE 
and NYCE would continue to exist as separate corporate entities, and 
all contract designations and self-regulatory functions would remain 
intact at the respective exchange. The members of CSCE and NYCE would 
retain their respective trading rights in CSCE and NYCE as provided by 
the Exchanges' rules until the time of the Secondary Merger. The 
Secondary Merger would not occur until notes being issued in the 
Initial Merger, as described below, were paid in full. At the time of 
the Secondary Merger, CSCE and NYCE would merge with NYBT, and CSCE and 
NYCE would no longer exist as separate corporate entities.
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    \2\ The NYBT is a corporation organized under the New York Not-
for-Profit Corporation Law (``NPCL'') and was formed to act as a 
holding company for the Exchanges.
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II. Terms of the Merger Proposal

    Pursuant to the Initial Merger, full members of the Exchanges would 
relinquish their ``member'' rights as that term is defined in the NPCL 
(i.e., voting, participation in governance or distribution rights), and 
NYBT would become the sole member of CSCE and NYCE. In return, full 
CSCE members would receive: (1) a Class A Full Membership in NYBT; (2) 
a cash payment of $14,300; (3) a fully transferable, non-interest 
bearing note for $85,700 issued by NYBT and payable in six annual 
installments of $14,283.33; and (4) a non-voting membership (to be 
denoted a ``Class B Membership'') in CFFE Regulatory Services, LLC 
(``CFFE Regulatory'').3
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    \3\ CFFE Regulatory will be the sole member of Cantor Financial 
Futures Exchange, Inc. (``CFFE'')--an exchange that recently 
submitted to the Commission an application for designation as a 
contract market in US Treasury bond, ten-year note, five-year note 
and two-year note futures contracts. See 63 FR 5505 (February 3, 
1998). CFFE was formed pursuant to an agreement between NYCE and a 
subsidiary of Cantor Fitzgerald, LP, an interdealer broker in the US 
Treasury securities market, whereby Cantor Fitzgerald would provide 
the use of its electronic trading system for the trading of the 
various proposed US Treasury futures contracts.
    Pursuant to the Initial Merger, each NYBT Full Member would 
receive, in exchange for $100, a Class B Membership in CFFE 
Regulatory. In aggregate, the CFFE Regulatory Class B Memberships, 
which would be distributed solely to Full Members of NYBT, would 
represent 90 percent of the economic interest of CFFE Regulatory. 
The remaining 10 percent of the economic interest in CFFE Regulatory 
would be held by NYCE in the form of a Class A Membership. NYCE will 
be the sole voting member of CFFE Regulatory.
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    Full NYCE members would receive: (1) a Class B Full Membership in 
NYBT; (2) a cash payment of $3,600; (3) a fully-transferable, non-
interest bearing note for $21,400 issued by NYBT and payable in six 
annual installments of

[[Page 10862]]

$3,566.67; and (4) a Class B Membership in CFFE Regulatory.
    In addition to the above, holders of NYBT Class A Full Memberships 
would have the right to trade CSCE futures and option contracts. Owners 
of NYBT Class B Full Memberships would have the right to trade NYCE 
futures and option contracts.4 NYBT Class A and NYBT Class B 
Full Members, however, would have equal trading rights in any new 
contracts that were submitted by NYBT, or either of the Exchanges or 
any of their affiliates, and approved by the Commission for trading 
subsequent to the Initial Merger, with certain limited exceptions.
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    \4\ Furthermore, NYBT Class B Full Members also would retain 
their trading privileges in the Citrus Associates of the New York 
Cotton Exchange, Inc. (``Citrus''), now an affiliate of NYCE. 
Pursuant to a reorganization plan approved by NYCE and Citrus, 
members of Citrus will relinquish their ``member'' rights as that 
term is defined in the NPCL, and NYCE will become the sole member of 
Citrus. Citrus Class A members, all of which are NYCE members, will 
retain their Citrus trading privileges, and Citrus associate members 
will retain those rights set forth in the By-Laws and Rules of 
Citrus. Citrus memberships will not be exchanged for NYBT 
memberships. It is anticipated that the reorganization will become 
effective prior to the Initial Merger. Citrus and NYCE have not yet 
submitted proposed rule amendments implementing the NYCE-Citrus 
reorganization to the Commission for review and approval.
    NYBT Class B Full Members also would retain their associate 
memberships (Class A Memberships) in New York Futures Exchange, Inc. 
(``NYFE''), a wholly-owned subsidiary of NYCE. Memberships in NYFE 
will not be converted or exchanged for memberships in NYBT. Pursuant 
to the By-Laws and Rules of NYCE and NYFE, full NYCE members are 
authorized to apply for Class A Memberships in NYFE, and NYFE 
members are authorized to apply for Cotton Associate Memberships in 
NYCE. These rights of associate memberships will be unaffected by 
the merger.
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    The proposal also provides that CSCE associate memberships would be 
converted to NYBT Class C Associate Memberships, NYCE FINEX licenses 
would be converted to NYBT Class D Associate Memberships, and NYCE 
FINEX-Europe permits would be converted to NYBT Class E Associate 
Memberships. Each NYBT Associate Membership would maintain the right to 
trade the same futures and option contracts that it currently is 
permitted to trade under the Exchanges' rules.
    The Secondary Merger would take effect promptly after the full 
payment of the NYBT notes. Pursuant to the merger plan, CSCE and NYCE 
would merge with NYBT in accordance with the provisions of the NPCL, 
and CSCE and NYCE would no longer exist as separate corporate entities. 
The NYBT Class A and NYBT Class B Memberships would be merged into one 
class of full NYBT memberships which would have the trading rights 
previously held by both Class A and Class B Memberships and identical 
governance rights. The trading privileges of NYBT Associate Members 
would not be affected by the Secondary Merger.

III. Request for Comments

    The Commission requests comments from interested persons concerning 
any aspect of the proposed merger of CSCE and NYCE that commenters 
believe raise issues under the Act or Commission regulations, including 
any antitrust implications under Section 15 of the Act.
    Copies of the proposed rule amendments, and related materials, are 
available for inspection at the Office of the Secretariat, Commodity 
Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, 
NW, Washington D.C. 20581. Copies also may be obtained through the 
Office of the Secretariat at the above address or by telephoning (202) 
418-5100.
    Any person interested in submitting written data, views, or 
arguments on the proposed merger or proposed rule amendments should 
send such comments, by the specified date, to Jean A. Webb, Secretary, 
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st 
Street, NW, Washington D.C. 20581; transmitted by facsimile to (202) 
418-5521; or transmit them electronically to [email protected].

    Issued in Washington, D.C., on February 27, 1998.
Alan L. Seifert,
Deputy Director.
[FR Doc. 98-5631 Filed 3-4-98; 8:45 am]
BILLING CODE 6351-01-P