[Federal Register Volume 63, Number 209 (Thursday, October 29, 1998)]
[Notices]
[Pages 58016-58017]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-28983]


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COMMODITY FUTURES TRADING COMMISSION


Chicago Mercantile Exchange: Proposed Amendments to the Cash 
Settlement Provisions of the CME Russian Ruble Futures Contract

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of availability of proposed amendments to the terms and 
conditions of commodity futures contract.

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SUMMARY: The Chicago Mercantile Exchange (CME or Exchange) has 
submitted proposed amendments related to the cash settlement provisions 
of its Russian ruble futures contract. Under the proposal, the CME 
would no longer base the cash settlement price of the Russian Ruble 
futures contract on the reciprocal of the daily rubles per dollar spot 
exchange rate as determined by the Moscow Interbank Currency Exchange 
(MICEX). Rather, the CME would base the cash settlement price on two 
surveys performed by the CME clearing house at random times on the last 
day of trading. The survey procedure would be similar to the procedure 
used for the daily survey that, under current rules, is used as a 
backup procedure for cash settlement of the Russian ruble futures 
contract.
    The Commission has determined that publication of the proposal for 
comment is in the public interest, will assist the Commission in 
considering the views of interested persons, and is consistent with the 
purpose of the Commodity Exchange Act.

DATES: Comments must be received on or before November 13, 1998.

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, DC 20581. In 
addition, comments may be sent by facsimile transmission to facsimile 
number (202) 418-5521, or by electronic mail to [email protected]. 
Reference should be made to the proposed amendments to the CME Russian 
Ruble futures contract.

FOR FURTHER INFORMATION CONTACT: Please contact Michael Penick of the 
Division of Economic Analysis, Commodity Futures Trading Commission, 
Three Lafayette Centre, 1155 21st Street NW, Washington, 20581, 
telephone (202) 418-5279. Facsimile number: (202) 418-5527. Electronic 
mail: [email protected]

SUPPLEMENTARY INFORMATION: Under current rules for the CME ruble 
futures contract, the cash settlement price is the reciprocal of the 
spot rate of Russian rubles per US dollar determined by the Moscow 
Interbank Currency Exchange on the last day of trading. In the event 
that MICEX does not determine and/or disseminate that spot exchange 
rate on the last trading day, CME rules provide for a ``backup'' 
procedure to establish an alternative cash settlement price. That price 
is based on the results of a daily survey by the CME of Russian ruble-
US dollar interbank market participants.
    Under the backup procedure, the CME surveys at least twelve 
financial institutions that are active participants in the spot and/or 
non-deliverable forward markets. At 11:00 a.m. Moscow time, each 
participant is asked for its perception of the prevailing bid and the 
prevailing offer for a typically sized Russian ruble per US dollar spot 
transaction in the Moscow marketplace. If the CME receives more than 
eight responses, eight institutions are randomly selected for use in 
the rate calculation. The midpoint of each of the eight bid/offer pairs 
is determined, and the highest two and the lowest two midpoints are 
eliminated. The remaining four midpoints are averaged, and the 
reciprocal of that average is the daily rate, which could be used as 
the final settlement price, as noted above. If the CME is unable to 
obtain eight responses, but is able to obtain at least five responses, 
then the CME determines the midpoint of each bid/offer pair, eliminates 
the highest and the lowest midpoint, and averages the remaining 
midpoints. The reciprocal of that average is the final settlement 
price. If fewer than five responses are received, then the CME would 
invoke its emergency provisions to settle the expiring contract.
    Under the proposal, the CME would modify the cash settlement 
provisions by removing reference to the MICEX spot exchange rate and by 
establishing a new survey procedure for deriving a ruble/dollar 
exchange rate for cash settlement. Specifically, the CME would perform 
two surveys of financial institutions at randomly selected times

[[Page 58017]]

during MICEX's afternoon System for Electronic Trading (SELT) session 
for transactions between commercial banks (currently conducted between 
12:00 noon and 4:30 p.m. Moscow time) on each Moscow business day.\1\ 
The rubles per dollar exchange rate would be calculated for each of the 
two daily surveys, generally using the same methodology described above 
for the single survey in the current backup procedure (including the 
number of survey participants and the elimination of high and low 
midpoints). The final settlement price would be the reciprocal of the 
average of the two rubles-per-dollar exchange rates calculated from the 
two surveys on the last trading day.
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    \1\ According to Bloomberg Business News, on October 6, 1998, 
MICEX implemented two daily trading sessions--a morning session for 
importers and exporters and an afternoon session for transactions 
between commercial banks.
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    During each survey, the CME would ask participants for two separate 
rubles per dollar exchange rates as well as an overnight interbank 
ruble interest rate. Those two rubles per dollar exchange rates would 
be a ``today rate'' (the exchange rate for same-day settlement) and a 
``tomorrow rate'' (the exchange rate for settlement on the next Moscow 
business day).\2\ In its calculation of the final settlement price, the 
CME would use the today rate from each participant that provides a 
today rate. If any participant provides a tomorrow rate and overnight 
interest rate, but not a today rate, the CME would calculate an 
``implied today rate'' for such participants. The implied today rate is 
calculated using the interest rate parity relation based on the 
tomorrow rate, the overnight ruble interest rate, and the federal funds 
overnight U.S. dollar interest rate.\3\ Thus, under the proposal, the 
result of any single survey (and, thus, the cash settlement price) 
could consist of a mixture of actual and implied today rates.
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    \2\ After the afternoon MICEX session, trading is currently 
allowed only for settlement on the next Moscow business day.
    \3\ In this case, the tomorrow rate and overnight ruble interest 
rate used would be average rates calculated from the daily survey 
results. The federal funds rate would be obtained from Telerate.
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    In the event that the CME were unable to complete both daily 
surveys on the last trading day, the CME would calculate the final 
settlement price based on two surveys, performed under the same 
procedures, conducted on the Moscow business day following the last 
trading day. If the CME were also unable to complete two surveys on the 
second day, then the final settlement price would be based on the 
survey results from the most recent business day prior to the last 
trading day on which two surveys were successfully completed.
    The CME proposes to implement the proposed amendments to the cash 
settlement provisions immediately upon Commission approval. 
Specifically, the amendments would apply to all currently listed 
contract months with open interest. The last such contract is the June 
1999 contract. The CME delisted existing contract months with no open 
interest on October 7, 1998, and has suspended the listing of 
additional contract months. The Commission would review pursuant to 
Commission Regulation 1.41 any proposal by the CME to list additional 
months in the Russian ruble futures contract.
    The Commission requests comment on the proposed changes and the 
proposal to apply those amendments to existing positions and the 
currently listed contact months. The Commission specifically requests 
comment on whether the survey procedure will result in a cash 
settlement price that is reflective of the underlying cash market and 
otherwise meets the standards of the Commission's Guideline No. 1.\4\ 
In that regard, the Commission notes that the CME survey procedure is 
designed to obtain an exchange rate for same-day settlement during the 
afternoon MICEX session and that trading for same-day settlement is not 
currently permitted during that MICEX session. The Commission also 
requests comment on whether the CME procedure will result in a cash 
settlement price that is not readily susceptible to manipulation or 
distortion in light of the degree of liquidity of the Russian ruble 
market. Specifically, will the procedures used by the CME, including 
setting the cash settlement price based on two surveys conducted at 
random times, tend to prevent market participants from influencing the 
cash settlement price? Finally, in the current environment and given 
the proposed cash settlement provisions, can the Russian ruble contract 
be used for hedging or price discovery?
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    \4\ The Commission's Guideline No. 1 (17 CFR Part 5, Appendix A 
Sec. (a)(2)(iii)) requires, for cash settled contracts, that the 
cash price series must be reflective of the underlying cash market 
and be reliable, acceptable, publicly available, and timely and not 
readily susceptible to manipulation.
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    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 St., NW, Washington, D.C. 20581. 
Copies of the proposed amendments can be obtained through the Office of 
the Secretariat by mail at the above address or by phone at (202) 418-
5100.
    Other materials submitted by the CME 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)), except to 
the extent they are entitled to confidential treatments 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 amendments, 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., NW, Washington, DC 20581 by the specified date.

    Issued in Washington, DC, on October 23, 1998.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 98-28983 Filed 10-28-98; 8:45 am]
BILLING CODE 6351-01-M