49474 Federal Register / Vol. 62, No. 183 / Monday, September 22, 1997 / Notices

5. Provide suggestions regarding how

the matter should be addressed by the

PTO.

III. Guidelines for Oral Testimony

Individuals wishing to testify must

adhere to the following guidelines:

1. Anyone wishing to testify at the

hearings must request an opportunity to

do so no later than November 3, 1997.

Requests to testify may be accepted on

the date of the hearing if sufficient time

is available on the schedule. No one will

be permitted to testify without prior

approval.

2. Requests to testify must include the

speaker’s name, affiliation and title,

mailing address, and telephone number.

Facsimile number and Internet mail

address, if available, should also be

provided. Parties may include in their

request an indication as to whether the

party wishes to testify during the

morning or afternoon session of the

hearing.

3. Speakers will be provided between

five and fifteen minutes to present their

remarks. The exact amount of time

allocated per speaker will be

determined after the final number of

parties testifying has been determined.

All efforts will be made to accommodate

requests for additional time for

testimony presented before the day of

the hearing.

4. Speakers may provide a written

copy of their testimony for inclusion in

the record of the proceedings. These

remarks should be provided no later

than November 25, 1997.

5. Speakers must adhere to guidelines

established for testimony. These

guidelines will be provided to all

speakers on or before November 11,

1997. A schedule providing

approximate times for testimony will be

provided to all speakers the morning of

the day of the hearing. Speakers are

advised that the schedule for testimony

will be subject to change during the

course of the hearings.

IV. Guidelines for Written Comments

Written comments should include the

following information:

1. Name and affiliation of the

individual responding;

2. If applicable, an indication of

whether comments offered represent

views of the respondent’s organization

or are the respondent’s personal views;

and

3. If applicable, information on the

respondent’s organization, including the

type of organization (e.g., business,

trade group, university, or non-profit

organization) and respondent’s position,

including type of experience (e.g.,

attorney handling prosecution and/or

patent litigation, patent agent

prosecuting patent applications, or

judge deciding patent issues).

If possible, parties offering testimony

or written comments should provide

their comments in machine-readable

format. Such submissions may be

provided by electronic mail messages

sent over the Internet, or on a 3.5’’

floppy disk formatted for use in either

a Macintosh or MS–DOS based

computer. Machine-readable

submissions should be provided as

unformatted text (e.g., ASCII or plain

text), or as formatted text in one of the

following file formats: Microsoft Word

(Macintosh, DOS, or Windows versions)

or WordPerfect (Macintosh, DOS, or

Windows versions).

Information that is provided pursuant

to this notice will be made part of a

public record and may be available via

the Internet. In view of this, parties

should not provide information that

they do not wish to be publicly

disclosed or made electronically

accessible. Parties who would like to

rely on confidential information to

illustrate a point are requested to

summarize or otherwise provide the

information in a way that will permit its

public disclosure.

Dated: September 16, 1997.

Bruce A. Lehman,

Assistant Secretary of Commerce and

Commissioner of Patents and Trademarks.

[FR Doc. 97–25068 Filed 9–19–97; 8:45 am]

BILLING CODE 3510–16–M

COMMODITY FUTURES TRADING

COMMISSION

Chicago Board of Trade Futures

Contracts in Corn and Soybeans;

Proposed Order To Change and To

Supplement Proposal

AGENCY: Commodity Futures Trading

Commission.

ACTION: Notice of, and Request for

Public Comment on, Proposed Order to

Chicago Board of Trade to Change and

to Supplement Chicago Board of Trade

Proposal on Delivery Specifications.

SUMMARY: The Commodity Futures

Trading Commission (‘‘Commission’’)

has issued a Proposed Order to 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), to Change and to

Supplement its Proposal regarding the

delivery terms of the CBT corn and

soybean futures contracts. The CBT

proposal was submitted in response to

a December 19, 1996, notification to the

CBT by the Commission that the CBT

corn and soybean futures contracts no

longer accomplish the objectives of that

section of the Act. The Commission in

its Proposed Order, proposes to change

and to supplement the CBT proposal for

its soybean futures contract by: i)

retaining the Toledo, Ohio, switching

district as a delivery location; ii)

retaining St. Louis-East St. Louis-Alton

as a delivery location for shipping

stations; and iii) making soybeans from

the Toledo delivery location deliverable

at contract price and from all other

locations at a premium over contract

price of 150 percent of the difference

between the Waterways Freight Bureau

Tariff No. 7 rate applicable to that

location and the rate applicable to

Chicago, Illinois, with Chicago at

contract price. The Commission, with

respect to the CBT corn contract, is

proposing to make corn from shipping

locations on the northern Illinois River

deliverable at a premium over contract

price of 150 percent of the difference

between the Waterways Freight Bureau

Tariff No. 7 rate applicable to that

location and the rate applicable to

Chicago, Illinois, with Chicago at

contract price. With respect to both the

CBT corn and soybean futures contracts,

the Commission also proposes to change

and to supplement the proposed

contingency plan for alternative

delivery procedures when traffic on the

northern Illinois River is obstructed and

to eliminate the $40 million minimum

net worth eligibility requirement for

issuers of shipping certificates. Finally,

the Commission is proposing to

disapprove the proposed terms of the

July and December 1999 corn futures

contracts and the July and November

1999 soybean futures contracts and is

proposing to apply the changes and

supplements described above to such

contracts under sections 5a(a)(10),

5a(a)(12), and 8a(7) of the Act.

The Commission has determined that

publication of the Proposed Order 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

October 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 at

[secretary@cftc.gov]. Reference should
Federal Register / Vol. 62, No. 183 / Monday, September 22, 1997 / Notices 49475

be made to ‘‘Proposed Order—Corn and

Soybean 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

[PArchitzel@cftc.gov].

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,

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. If the contact

market within seventy-five days fails to make

the changes which in the opinion of the

Commission are necessary to accomplish the

objectives of this subsection, then the

Commission after granting the contract

market an opportunity to be heard, may

change or supplement such rules and

regulations of the contract market to achieve

the above objectives * * *.

The Commission, on September 15,

1997, issued a Proposed Order under

section 5a(a)(10) of the Act to change

and to supplement the proposal of the

CBT relating to the delivery

specifications of the corn and soybean

futures contracts. That proposal was

submitted in response to prior

Commission notification to the CBT that

its futures contracts for corn and

soybeans no longer were in compliance

with the requirements of section

5a(a)(10) of the Act. The text of the

Proposed Order is set forth below.

In the Matter of the Section 5a(a)(10)

Notification to the Board of Trade of the City

of Chicago, Dated December 19, 1996,

Regarding Delivery Point Specifications of

the Corn and Soybean Futures Contracts.

Dated: September 15, 1997.

Proposed Order of the Commodity Futures

Trading Commission to Change and to

Supplement Proposed Rules of the Board of

Trade of the City of Chicago, Submitted for

Commission Approval in Response to a

Section 5a(a)(10) Notice Relating to Futures

Contracts in Corn and Soybeans.

The Commodity Futures Trading

Commission (CFTC or Commission)

hereby:

(1) proposes under section 5a(a)(10) of

the Commodity Exchange Act (Act) to

change and to supplement the proposed

delivery specifications of the Board of

Trade of the City of Chicago (CBT)

soybean futures contract by making all

changes to such rules and regulations as

required to effect the following:

i. retaining the Toledo, Ohio,

switching district as a delivery location;

ii. retaining St. Louis-East St. LouisAlton as a delivery location for shipping

stations; and

iii. making soybeans from the Toledo

delivery location deliverable at contract

price and making soybeans from

shipping locations within the St. LouisEast St. Louis-Alton and the northern

Illinois River delivery locations

deliverable at a premium over contract

price of 150 percent of the difference

between the Waterways Freight Bureau

Tariff No. 7 rate applicable to that

location and the rate applicable to

Chicago, Illinois, with Chicago at

contract price;

(2) proposes under section 5a(a)(10) of

the Act to change and to supplement the

proposed delivery specifications of the

CBT corn futures contract by making all

changes to such rules and regulations as

required to make corn from shipping

locations on the northern Illinois River

deliverable at a premium over contract

price of 150 percent of the difference

between the Waterways Freight Bureau

Tariff No. 7 rate applicable to that

location and the rate applicable to

Chicago, Illinois, with Chicago at

contract price;

(3) proposes under section 5a(a)(10) of

the Act to change and to supplement the

proposed CBT contingency plan for

alternative delivery when river traffic is

obstructed by reducing the continuous

period of lock closure which triggers

application of the plan’s special

procedures from the 45 days proposed

to 15 days, by eliminating the condition

which triggers the contingency plan that

notice of the lock closure must have

been given six-months prior to such

closure, by making the contingency plan

applicable whenever a majority of

shipping stations within the northern

Illinois River delivery area are affected

by closure of any lock or locks and by

changing the differential from 100

percent of the Waterways Freight

Bureau Tariff No. 7 rate as proposed to

150 percent.

(4) proposes under sections 5a(a)(10)

and 15 of the Act to change and to

supplement the proposed CBT corn and

soybean futures contracts by eliminating

the $40 million minimum net worth

eligibility requirement for issuers of

shipping certificates; and

(5) proposes to disapprove under

sections 5a(a)(10), 5a(a)(12), and 15 of

the Act and Commission rule 1.41(b) the

terms of the July and December 1999

corn futures contracts and the July and

November 1999 soybean futures

contracts and proposes to apply the

changes and supplements described

above to such contracts under sections

5a(a)(10), 5a(a)(12), and 8a(7).

The complete text of the revisions

proposed by the Commission to the

proposed CBT rules appears in

attachment 1 of this Order.

The Commission, as detailed below,

bases these proposed actions on its

finding that the response of the CBT to

the section 5a(a)(10) notification relating

to its corn and soybean futures contracts

does not meet the requirements, or

accomplish the statutory objectives, of

that section and also violates section 15

of the Act. The Commission’s

determination is based upon: (1) the

inadequate amount of deliverable

supplies of soybeans available under the

proposed contract terms in the delivery

area as proposed; (2) the failure of the

proposed corn and soybean contracts to

include necessary locational

differentials; (3) the failure of the

proposed corn and soybean contracts to

provide an adequate rule for alternative

deliveries if river transportation is

obstructed; and (4) the substantial

impediment to eligibility for issuing

corn and soybean shipping certificates

imposed by the $40 million net worth

requirement.

Specifically, under the CBT proposal,

the amount of deliverable supplies of

soybeans during the critical summer

delivery months of July, August, and

September fails to meet the minimum

level that, in the opinion of the

Commission, is necessary to tend to

prevent or diminish price manipulation,

market congestion, or the abnormal

movement of soybeans in interstate

commerce. The gross amount of

potentially deliverable supplies

historically has failed to reach the

minimum level on a significant number

of occasions during the past 11 years the

Commission has examined. Moreover,

on those occasions when the gross

amount of potentially deliverable

supplies did exceed that minimum

level, it frequently did so only because

of supplies available at the Chicago/

Burns Harbor (Chicago) delivery point,

the continuing decline of which

precipitated the section 5a(a)(10)

notification in the first instance. This

inadequacy is further heightened when

appropriate downward adjustments are

made to reflect only that portion of the
49476 Federal Register / Vol. 62, No. 183 / Monday, September 22, 1997 / Notices

1The lack of locational price differentials not

only violates section 5a(a)(10) of the Act, but also

is contrary to Commission Guideline No. 1 and the

Commission’s policy on differentials. See, CFTC

Guideline No. 1, 17 CFR part 5, appendix A; and

Memorandum from Mark Powers, Chief Economist

to the Commission, dated March 22, 1977, (1977),

adopted by the Commission at its meeting of May

3, 1977.

gross deliverable supply which would

likely be available for futures deliveries.

Thus, gross deliverable supplies would

be diminished by the effects of the

proposed three-day barge queuing rule,

prior commercial commitments of

available stocks, the lack of locational

price differentials, and the unjustifiably

high financial eligibility requirements.

The frequent interruptions in barge

transportation on the northern Illinois

River due to lock closings and weather

conditions also create foreseeable

disruptions to deliverable supplies

under the CBT proposal. The

inadequacy of deliverable supplies of

soybeans under the CBT proposal

requires the retention of the CBT’s

current delivery points at Toledo and St.

Louis, where additional deliverable

supplies would be available.

The Commission does not find that

available deliverable supplies of corn

under the CBT’s proposal are

inadequate under section 5a(a)(10) so as

to require additional delivery points.

However, the adequacy of corn supplies

cannot be accurately and fully

ascertained until after there is a history

of deliveries occurring under the

proposal. To the extent that in operation

the proposal results in inadequate

deliverable supplies of corn, the

Commission will reconsider the need to

require additional delivery points for

the corn contract. To that end, the

Commission directs the CBT to report

on the experience with deliveries and

expiration performance in the corn

futures contract on an annual basis for

a five-year period after contract

expirations begin under the revised

contract terms.

Neither the CBT proposal for

soybeans nor its proposal for corn

provides for locational price

differentials among spatially separated

delivery points, as section 5a(a)(10) of

the Act requires. In addition to tending

to reduce deliverable supplies, the lack

of locational price differentials

reflecting the differentials in the

underlying cash markets for corn and

soybeans would render the futures

contracts susceptible to price

manipulation, market congestion, and

the abnormal movement of the

commodities in interstate commerce.1

In addition, the proposed contingency

plan providing for alternative delivery

procedures when river traffic is

obstructed violates the provisions of

section 5a(a)(10). By requiring lengthy

advance notice of a river obstruction

before the contingency plan applies, by

limiting the contingency plan only to

instances of river obstructions south of

the delivery area, and by specifying a

differential that does not conform to the

differential proposed by the

Commission, the proposed plan fails to

diminish the potential for price

manipulation, market congestion, or the

abnormal movement of the commodities

in interstate commerce.

Finally, in addition to its likely

detrimental effect on the amount of

available deliverable supplies on the

contracts, the proposed $40 million net

worth eligibility requirement for issuers

of shipping certificates poses a

significant, unnecessary, and unjustified

barrier to entry to those wishing to

participate as issuers of shipping

certificates on the contracts in violation

of section 15 of the Act. This proposed

$40 million net worth requirement is in

addition to other minimum financial

requirements that shipping certificate

issuers must meet, including minimum

working capital of $2 million, a bond or

other financial guarantee equal to the

full market value of all outstanding

shipping certificates, and a limitation on

the value of outstanding certificates an

issuer may issue to 25 percent of the

issuer’s net worth. These requirements

are fully adequate to ensure the

financial ability of issuers to perform

their responsibilities under the

contracts. The burden imposed by the

additional $40 million net worth

requirement on those otherwise eligible

to participate in the contract as shipping

certificate issuers would not only be

unnecessary, but would act as a

significant barrier to participation as an

issuer and would preserve a high level

of concentration among issuers.

Accordingly, as provided under

section 5a(a)(10) of the Act, the

Commission hereby notifies the CBT

that it will have an opportunity to be

heard on this proposed Order by the

Commission. To that end, the

Commission will convene a public

hearing at its Washington, D.C., office,

on October 15, 1997, beginning at 1:00

p.m. (or at an earlier date if the CBT

requests), in order to provide the CBT

with an opportunity to appear before the

Commission to make an oral

presentation regarding the matters

raised in this proposed Order. The

Commission will also accept written

comments from the CBT on the

proposed Order on or before the date of

the hearing.

The Commission’s conclusions, as

discussed in greater detail below, are

supported by factual analyses made by

the CFTC staff and by a large number of

well-informed written comments

submitted to the Commission by

commercial users of the corn and

soybean futures contracts and by other

interested persons. The Commission

also analyzed the documentary evidence

submitted by the CBT and other

commenters in support of the CBT

proposal. In addition, the CBT and other

interested members of the public

presented oral and written comments to

the Commission during an open meeting

of the Commission. Written and oral

comments received were reviewed by

the Commission and were considered by

the Commission in arriving at its

conclusions.

I. The Section 5a(a)(10) Proceeding

The Commission, by letter dated

December 19, 1996, commenced this

proceeding by issuing to the CBT a

notification under section 5a(a)(10) of

the Act finding that the delivery

specifications of its 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.’’ Letter of

December 19, 1996, to Patrick Arbor

from the Commission, 61 FR 67998

(December 26, 1996) (section 5a(a)(10)

notification). The section 5a(a)(10)

notification detailed long-term trends in

the storage, transportation and

processing of corn and soybeans, related

those trends to changes in cash market

conditions at the CBT delivery

locations, and analyzed the lack of

consistency between the cash market for

these commodities and the delivery

provisions of these contracts. Id.,

68000–68004.

The section 5a(a)(10) notification also

recounted the CBT’s failure over the last

25 years adequately to address these

structural problems with the contracts.

As noted in the section 5a(a)(10)

notification, section 5a(a)(10) was itself

expressly added to the Act in 1974 after

a number of apparent manipulations

and problem liquidations involving the

CBT grain contracts. Id. 68005. In July

1989 an emergency action was required

relating to CBT’s soybean contract

because of a commercial trader’s

holding of futures positions which

exceeded the total amount of soybeans

that could be delivered at the contract’s

delivery points. By 1991 several major
Federal Register / Vol. 62, No. 183 / Monday, September 22, 1997 / Notices 49477

2While the CBT labeled its submission of the

proposed rule amendments as having been made

pursuant to section 5a(a)(12), as well as section

5a(a)(10), of the Act, the Commission is applying its

specific authority and procedures set forth in

section 5a(a)(10) with regard to its consideration of

the CBT’s submission.

Section 5a(a)(12) of the Act provides that ‘‘the

Commission shall disapprove after appropriate

notice and opportunity for hearing any such rule

which the Commission determines at any time to

be in violation of the provisions of this Act or the

regulations of the Commission.’’ In addition,

section 8a(7) of the Act empowers the Commission

to alter or to supplement exchange rules as

necessary or appropriate ‘‘to insure fair dealing in

commodities traded for future delivery on such

contract market.’’ Such changes or alterations may

address contract terms or conditions, among other

matters.

The Commission is exercising its authority under

section 5a(a)(10) of the Act to change and to

supplement the CBT proposals. Nevertheless, the

Commission, for the reasons detailed below,

necessarily also finds that the CBT proposal must

be disapproved under section 5a(a)(12) of the Act

as being inconsistent with the requirements of

sections 5a(a)(10), 8a(7) and 15 of the Act and must

be altered and supplemented under section 8a(7) of

the Act.

3On March 4, 1997, the CBT had notified the

Commission that its Board had authorized the

submission of the proposed amendments to the CBT

membership for a formal vote. On April 15, 1997,

the CBT membership voted in favor of the proposed

amendments, and the CBT formally submitted them

for Commission review the next day.

4Also on April 24, 1997, the CBT informed the

Commission by letter that it would the next day list,

or relist, for trading the July and December 1999

corn futures contract months and the July and

November 1999 soybean futures contract months.

By letter dated May 2, 1997, the Commission

notified the CBT that the listing or relisting of these

contract months ‘‘is not legally authorized at the

present time,’’ that the Commission ‘‘reserves all of

its authority under sections 5a(a)(10), 5a(a)(12) and

8a(7) of the Act to approve, disapprove,

supplement, or modify the proposed delivery

specifications of the CBT corn and soybeans futures

contract and to apply that determination to the[se]

* * * trading months,’’ and that the CBT ‘‘must

notify all market participants that the Commission

has not approved the listing of these contract

months.’’

5The Commission received close to 700

comments on the CBT’s proposal, the largest

number of comments ever received by the

Commission on any issue before it. The vast

majority of the comments were opposed to the CBT

proposal for a variety of reasons. Many of the

comments were well reasoned and contained

valuable factual information and data which were

important supplements to the information provided

by the CBT in its submission.

6Both written and oral statements in connection

with the meeting were submitted to the

Commission for inclusion in the record and, along

with a transcription of the meeting, have been

entered into the Commission’s comment file.

Participants included a United States Senator from

the State of Ohio (transcript at 69–75) and United

States Representatives from the States of Michigan

(transcript at 9–14) and Ohio (transcript at 14–26);

representatives of six commercial users of the

contracts (transcript at 116–168); and

representatives of three producer associations

(transcript at 169–183). The CBT presented its

views through the statements of six persons

(transcript at 27–29, 36–69).

7 In this regard, the Act, Guideline No. 1, and

Commission rule 1.41 provide that the Exchange

must demonstrate that its proposed rule

amendments meet the requirements of the law.

When exchange submissions fail to provide

sufficient information to permit the Commission to

make a determination, the Commission can refuse

to consider a proposed amendment and can remit

the proposed rule for further justification. See, 17

CFR 1.41(b). However, in this case the Commission

chose to supplement the CBT submission with its

own research and to act on the CBT proposal.

8A shipping certificate is a negotiable instrument

that represents a commitment by the issuer to

deliver (i.e., load into a barge) corn or soybeans to

the certificate holder, pursuant to terms specified

by the CBT, whenever the holder decides to

surrender the certificate to the issuer. Unlike an

issuer of a corn or soybean warehouse receipt,

which must have the product in storage to back the

receipt, an issuer of a shipping certificate would be

able to honor its delivery obligation not only from

inventories, but also from anticipated receipts or

purchases of corn or soybeans after the holder

surrenders the certificate.

studies had been completed

demonstrating the inadequacy of the

CBT’s delivery points. Nevertheless, the

CBT’s response to these problems was

limited. Id. 68006. As the Commission

noted in the section 5a(a)(10)

notification, when in 1992 it approved

certain changes proposed by the CBT to

address these problems, the

Commission cautioned that the CBT’s

response was merely a short-term

palliative, and the Commission urged

the CBT to consider actively more

significant contract changes. Id. 68007.

Only three years later, three of the

existing six Chicago warehouses regular

for delivery ceased operations, a

symptom of the serious, fundamental

problems with the contracts’ delivery

specifications. At the urging of the

Commission, the CBT formed a special

task force to address the delivery

problems. That task force took a year

developing proposed changes to the

contracts’ specifications which were

modified by the CBT’s board of

directors. The modified proposal was

then defeated by a vote of the CBT

membership on October 17, 1996.

Subsequently, on December 19, 1996,

after an additional Chicago delivery

warehouse stopped accepting soybeans

and corn in late October 1996, the

Commission formally commenced this

proceeding under section 5a(a)(10) of

the Act. The section 5a(a)(10)

notification found that the CBT corn

and soybean futures contracts no longer

met the requirements of that section of

the Act and notified the CBT that it had

until March 4, 1997, the statutory period

of 75 days, to submit for Commission

approval proposed amendments to the

contracts’ delivery specifications to

bring them into compliance with the

Act. Neither the CBT nor the nearly 700

comments filed with the Commission

regarding the CBT proposal have

challenged the factual basis for the

December notification, and indeed, both

the CBT and many commenters have

acknowledged the correctness of that

Commission action.

The CBT, on April 16, 1997,

submitted its response to the section

5a(a)(10) notification in the form of

proposed exchange rule amendments.2

Previously, the Commission had

published the substance of the proposed

amendments in the Federal Register for

a 15-day comment period.3 62 FR 12156

(March 14, 1997). In response to

requests for additional time to comment

on the proposal, the Commission on

April 24, 1997, extended the comment

period until June 16, 1997. 62 FR 1992.4

The CBT requested the opportunity to

appear before the Commission ‘‘to

address issues that have been generated

during the comment period.’’ 5 The

Commission granted the CBT’s request

(62 FR 29107 (May 29, 1997)), holding

a public meeting on June 12, 1997, to

accept oral and written statements by

the CBT and interested members of the

public. The participants represented a

cross-section of views, both favoring

and opposing the CBT proposal.6

II. The CBT Proposal Responding to the

Section 5a(a)(10) Notification

In correspondence dated April 16,

1997, the CBT responded to the section

5a(a)(10) notification by submitting

proposed amendments to the terms and

conditions of its corn and soybean

futures contracts for Commission

review. The data submitted by the CBT

to justify its proposal were inadequate

to permit a determination of whether

the proposal met the requirements of

section 5a(a)(10) of the Act and

contained certain flaws.7 Therefore, the

Commission was required

independently to collect and to analyze

the data necessary for a proper analysis

of the CBT’s proposal. The CBT

supplemented its original submission

on more than one occasion—most

recently on August 25, 1997.

The CBT’s proposal would replace the

existing delivery system involving

delivery of warehouse receipts

representing stocks of grain in store at

terminal elevators in Chicago, Toledo,

and St. Louis with delivery of shipping

certificates.8 The shipping certificates

would provide for corn or soybeans to

be loaded into a barge at a shipping

station located along a 153-mile segment

of the Illinois River from Chicago

(including Burns Harbor, Indiana) to

Pekin, Illinois. Delivery in Chicago

would also be permitted by rail or

vessel. Delivery at all eligible locations

would be at par. (See map below.)

In addition to being located along the

defined segment of the Illinois River
49478 Federal Register / Vol. 62, No. 183 / Monday, September 22, 1997 / Notices

9These limitations are: (a) for northern Illinois

River locations, 30 times the registered daily barge

loading rate; (b) a value no greater than 25% of the

operator’s net worth; and (c) for Chicago and Burns

Harbor locations only, the registered storage

capacity of the facility.

10The issuer’s registered daily rate of loading

shall be not less than (a) for northern Illinois River

locations, one barge per day per shipping station

and (b) for Chicago and Burns Harbor locations

only, three barges per day per shipping station.

11This charge is 12⁄100 of one cent per bushel for

Chicago and 10⁄100 of one cent per bushel for issuers

along the northern Illinois River.

and capable of loading barges, firms

eligible to issue shipping certificates

would be required to meet a minimum

net worth standard of $40 million. This

minimum net worth standard is not

applicable to the CBT’s other

agricultural futures contracts and would

be in addition to the CBT’s existing

requirement of $2 million working

capital required of firms regular for

delivery of all agricultural products. The

proposal also would require the issuer

to have a letter of credit or other

guaranteed credit instrument

collateralizing the full market value of

the issued certificates and would

establish limits on the amount of

outstanding shipping certificates by

firm.9 In addition, the proposal would

impose requirements regarding an

issuer’s rate of loading barges.10 Once a

shipping certificate has been

surrendered to the issuer, the issuer

would have to begin loading product

within three business days of surrender

and receipt of loading orders or one

business day after placement of the

certificate holder’s barge, whichever is

later. This loading would be required to

take precedence over all other barge

loadings for eight hours per day at the

issuer’s loading facility.

Shipping certificate holders would be

required to pay shipping certificate

issuers a daily premium charge until the

certificate is surrendered.11 The last

trading day for expiring corn and

soybean futures months would be the

business day preceding the 15th

calendar day of the delivery month,

with all deliveries of shipping

certificates required to be completed by

the second business day following the

last trading day. Currently, the last

trading day is the eighth-to-last business

day of the delivery month, with futures

delivery of warehouse receipts

continuing through the end of the

month.

The CBT’s proposal would eliminate

the current delivery points on its corn

and soybean futures contracts at Toledo,

Ohio, and St. Louis, Missouri.

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BILLING CODE 6351–01–C
49480 Federal Register / Vol. 62, No. 183 / Monday, September 22, 1997 / Notices

12The size of the largest long position in an

expiring futures contract was also found to be

associated with price inverses when deliverable

stocks were less than 2,400 contracts. Of the five

expirations in which the largest long position was

600 contracts or less, price inverses occurred only

once. However, for the ten expirations in which the

largest long position exceeded 600 contracts,

inversions occurred nine times. At higher stock

levels—that is, above the 2,400-contract level for

soybeans—that relationship between position size

and price inverses was not observed.

13 In all seven expirations the largest long position

exceeded 600 contracts.

14Although this incident involved soybean

futures, it was recognized to have broader

implications for CBT’s grain contracts and led to an

appraisal of the adequacy of the CBT’s delivery

terms generally for its wheat, corn, and soybean

futures and to revisions to all three contracts.

III. Deliverable Supplies of Soybeans

Are Inadequate Under Section 5a(a)(10)

A. The Standard for Measuring

Adequacy of Deliverable Supplies

Pursuant to section 5a(a)(10), the

Commission must assess whether the

CBT proposal meets the standard set by

that section to ‘‘permit the delivery

* * * at such point or points and at

such * * * locational price differentials

as will tend to prevent or diminish price

manipulation, market congestion, or the

abnormal movement of such commodity

in interstate commerce.’’

One criterion for whether a delivery

proposal meets the standards of section

5a(a)(10) is whether the available

deliverable supplies of the commodity

at the delivery points specified are

adequate to prevent manipulation,

market congestion, and the abnormal

movement of the commodity in

interstate commerce. As discussed

below, other aspects of a proposed

futures contract may violate section

5a(a)(10) by tending to cause the

prohibited results, but adequate

deliverable supplies are a sine qua non

for any contract under section 5a(a)(10).

The Commission believes that, to

meet the statutory requirement of

tending to prevent manipulation, market

congestion, or the abnormal movement

of a commodity in interstate commerce,

a futures contract should have a

deliverable supply that, for all delivery

months on the contract, is sufficiently

large and available to market

participants that futures deliveries, or

the credible threat thereof, can assure an

appropriate convergence of cash and

futures prices. To prevent unwarranted

distortion of futures prices in relation to

the cash market, the futures contract’s

delivery terms must reflect a product—

in quality, form, location, mode of

transportation, etc.—that is readily

saleable in the cash market.

Commission Guideline No. 1 (17 CFR

part 5, appendix A) provides some

guidance with respect to the adequacy

of the delivery terms of a futures

contract. Guideline No. 1 requires that

exchanges provide justification

concerning significant contract terms—

particularly delivery provisions—for

new or amended futures contracts. This

justification should provide evidence

that the proposed contract terms and

conditions are in conformity with

practices in the underlying cash market,

that those terms and conditions will

provide for a deliverable supply that

will not be conducive to price

manipulation or distortion, and that

such a supply reasonably can be

expected to be available to the short

trader and saleable by the long trader at

its market value in normal cash market

channels.

Judging the adequacy of deliverable

supply in the context of a section

5a(a)(10) proceeding is more important

than and significantly different from

determining adequacy in the routine

review of applications for new contract

market designations. This section

5a(a)(10) proceeding involves contracts

that are known to have very large and

well-established markets, a history of

large trader positions, and a decadeslong history of surveillance problems.

Indeed, the Commission has already

made an affirmative and unchallenged

finding that the delivery provisions of

the current contracts violate the terms of

section 5a(a)(10) of the Act, and the

issue before it is whether the CBT’s

proposal goes far enough to cure the

illegality of the contracts.

To determine an appropriate standard

for measuring the adequacy of

deliverable supplies under the CBT

proposal, the Commission has examined

separately for corn and soybeans the

relationship between the level of

deliverable stocks and the presence of a

price premium for the expiring futures

month over the next futures month (a

price inverse). The presence of such a

premium is an indication of tight

deliverable supplies, potentially

creating a price distortion. In situations

where limited deliverable supplies lead

to such a price inverse, futures contracts

are significantly vulnerable to price

manipulation, market congestion, and

the abnormal movement of the

commodity in interstate commerce

under the terms of section 5a(a)(10).

For soybeans, the Commission’s staff

analysis demonstrated a consistent

positive relationship between price

inverses and deliverable stocks of less

than 12 million bushels (2,400

contracts). Price inversions occurred in

ten of the 15 expirations when

deliverable stocks were less than 12

million bushels. This level of

deliverable stocks constitutes four times

the speculative position limit for the

contract (2,400 contracts), a benchmark

historically used by the Commission’s

staff in analyzing deliverable supplies

for new contracts.12

The analysis for the corn market

found a comparable relationship

between price inverses and deliverable

supplies at the stock level of 15 million

bushels (3,000 contracts). Price inverses

occurred in seven of the ten corn

expirations when deliverable stocks

were less than 3,000 contracts.13 This

analysis supports using as a measure of

an inadequate level of deliverable

supplies under section 5a(a)(10) a level

below 12 million bushels (2,400

contracts) for soybeans and below 15

million bushels (3,000 contracts) for

corn.

However, the history of these

contracts may demonstrate that a higher

level of supplies is, in fact, necessary to

protect against manipulation. In

particular, an additional measure would

be based on historic experience with

manipulation and price distortion in

these contracts. During the July 1989

soybean expiration, the Commission

exercised its surveillance powers to

force the reduction of the long futures

position of the Ferruzzi group of

companies, and the CBT declared a

market emergency and ordered the

phased reduction of all positions above

a specified size. Both the Commission

and the CBT believed that the position

of the Ferruzzi group posed a significant

threat of manipulation and acted on that

belief.14 Just prior to the CBT emergency

action, Ferruzzi’s long position in the

July 1989 soybean future was about 20

million bushels (4,000 contracts). To

avoid a repetition of such a situation,

deliverable supplies of at least 4,000

contracts would be necessary.

In its analysis of the adequacy of the

deliverable supplies under the CBT

proposal, the Commission has

considered both of these measures, as

well as other relevant information.

B. The CBT Submission Does Not

Demonstrate That Its Proposal Meets the

Statutory Standard of Adequate

Deliverable Supplies

The CBT has failed to provide data

that demonstrates the adequacy of

available deliverable supplies. It

supports its proposal by general

statements about production and

transactions in the cash markets in the

vicinity of the delivery area, contending,

for example, that its proposed delivery

area
Federal Register / Vol. 62, No. 183 / Monday, September 22, 1997 / Notices 49481

15According to the CBT, the firms and their

percentage share of loading capacity are: Archer

Daniels Midland Co., 41 percent; Continental Grain

Company, 23 percent; Cargill, Inc., 12 percent;

Consolidated Grain and Barge, ten percent; Sours

Grain Company, six percent; American Milling

Company, six percent; and Garvey International,

two percent. (CBT April 16, 1997, submission,

attachment 14.)

16Corn and soybeans are both harvested

beginning in September or October, the beginning

of a new crop year. All deliveries of corn and

soybeans throughout the year subsequent to harvest

are made from stored supplies. These supplies are

consumed over time, reaching their lowest level

over the summer until the next harvest replenishes

the supply.

17To account for the fact that a portion of the corn

and soybeans shipped during September may

include some new crop supplies that are not

available earlier in the crop year, the estimated

northern Illinois River deliverable stocks for

delivery months preceding September were reduced

in certain years to reflect the likelihood that part of

the September shipments consisted of new crop

supplies. The indicated reductions were made only

in years where available USDA data on harvesting

progress for crop-reporting districts in northern/

central Illinois and Illinois production data by

county indicated that significant quantities of corn

and soybeans had been harvested in September.

Deliverable supplies for all months of a given crop

year prior to September were reduced by an amount

equal to 50 percent of the September shipments (an

amount suggested by trade sources) whenever the

quantity of new crop supplies available in

September in those counties within 25 miles of the

proposed northern Illinois River and Chicago

delivery area exceeded the quantity shipped during

the month. The use of new crop supplies from

counties within 25 miles of the revised delivery

points was based on the assumption that most new

crop supplies available early in the harvest period

are likely to be moved to the delivery points by

trucks moving relatively short distances from farms

to avoid creating unnecessary delays in harvesting.

In addition, trade sources indicated that most

supplies that move to the proposed northern Illinois

River delivery points are trucked from locations

within 25 miles of these points.

* * * is located along more than 150 miles

of the northern Illinois River, which is one

of the world’s largest and most active cash

grain markets, handling over 500 million

bushels of corn and soybeans per year. It

substantially increases the supply of grain

eligible for delivery on our futures contracts

over the current delivery system, thereby

minimizing the potential for price distortions

and manipulation.

CBT July 1, 1997, submission, p. 2–2.

Data concerning corn and soybean

production and handling in the areas

near the delivery points are not an

adequate measure of deliverable

supplies under the contracts in light of

the CBT proposal’s heavy reliance on

barge delivery along the northern

Illinois River which involves product

primarily destined for the export

market. Most production and handling

of corn and soybeans in the vicinity of

the delivery points historically have

involved product destined for the

domestic market, and only a portion of

that product has traditionally been

loaded on barges as provided in the CBT

proposal. Therefore, the proper measure

of available supplies must be based on

barge shipment data. To rely on

additional supplies currently destined

for the domestic market would be to

assume that the futures contract would

divert those supplies to the export

market, thus causing an abnormal

movement in interstate commerce

forbidden by section 5a(a)(10).

The CBT argues that the supplies

available for delivery along the northern

Illinois River are adequate by citing the

delivery capacity of firms along the

river. The CBT states that there are

seven firms with a cumulative daily

barge loading capacity of 5.5 million

bushels of grain and a 30-day loading

capacity of 171.8 million bushels of

grain.15 (CBT April 16, 1997, submission

at attachment 4.)

The CBT’s reliance on the loading

capacity of firms in the delivery area as

an indicator of adequacy of deliverable

supply is misplaced. As the unused

delivery capacity in Chicago clearly

demonstrates, delivery capacity bears

little relation to the amount of

deliverable supplies actually available

at a particular location. The CBT’s

capacity measure, which is based on its

proposed maximum limits on the

shipping station’s ability to issue

shipping certificates (30 times a

station’s daily (8-hour) loading

capacity), far exceeds the highest

observed level of actual combined

monthly corn and soybean barge

shipments at the delivery points during

the 11-year period studied, 1986

through 1996.

Moreover, the CBT overstated the

loading capacity related to the contracts

by including the capacity of three firms

that would not meet contract

requirements, particularly the $40

million net worth requirement, to

qualify as shipping certificate issuers

under the contracts. In doing so, it also

significantly understated the level of

concentration of the proposed delivery

system and ignored the exclusionary

effect of its $40 million net worth

requirement.

The CBT, in its submission, also

provided inflated data on barge

shipments. These data significantly

overstated the amount of barge

shipments by including shipments from

a certain part of the Illinois River

outside of the defined delivery area of

the contracts. CBT’s data also included

barge shipments by all shippers,

including those not meeting the

eligibility requirements to be issuers of

certificates under the contracts and thus

overstated the deliverable amounts

available in that respect as well.

C. The CBT Proposal Fails to Meet the

Minimum Threshold for Deliverable

Supply for Soybeans

1. Methodology. The Commission

staff compiled an extensive amount of

data from which the Commission could

estimate deliverable supplies. These

data were assembled from information

supplied by the United States

Department of Agriculture (USDA), the

Army Corps of Engineers, the Coast

Guard, grain merchants, and the CBT.

The CBT proposal provides for

delivery from Chicago by rail, vessel,

and barge and along the northern

Illinois River by barge. The contracts are

essentially reflections of the export

market for corn and soybeans, since the

vast majority of corn and soybeans

loaded on vessels and barges at Chicago

and on barges along the northern Illinois

River are destined for export markets.

While Chicago rail shipments may play

some role in the domestic market, that

role has diminished so as to be very

small.

The northern Illinois River’s

potentially available deliverable stocks

for each delivery month were estimated

by summing barge shipments from

relevant points on the northern Illinois

River for that month and all subsequent

months of the same crop year to and

including September, which was

assumed to be the end of the crop

year.16 Since the amount shipped during

a given month and in each succeeding

month of the crop year must have been

in transit or in storage in some location

tributary to the river at the beginning of

the month, this summing procedure

provides an estimate of the corn and

soybean stocks available to the proposed

delivery points at the beginning of each

delivery month.17

Because these stocks reflect the

quantity of soybeans and corn actually

shipped via the northern Illinois River,

they represent a reasonable and accurate

historical estimate of the quantity of

these commodities that were

economically available to the proposed

northern Illinois River delivery points at

prevailing cash market price

relationships. While other supplies of

corn and soybeans are in the vicinity,

they historically moved to other

demand centers rather than for delivery

into the export market by barge

shipments. If the CBT contracts under

the proposed delivery terms were to

draw these supplies from their usual

destinations in the domestic market to

futures deliveries, an abnormal

movement in interstate commerce

would occur. Therefore, such other

supplies should not be considered in

determining the adequacy of potentially

available deliverable supplies.
49482 Federal Register / Vol. 62, No. 183 / Monday, September 22, 1997 / Notices

18As shown in the charts for shipments by all

firms, including those firms that would be ineligible

to issue certificates under the CBT proposal, the

proposal improved marginally in that gross

deliverable supplies for all firms were less than

2,400 contracts in two rather than four years for

July.

For Chicago, potentially available

deliverable supplies were estimated as

the sum of stocks available at the

beginning of each delivery month plus

receipts of corn or soybeans during that

month. Receipts were included because

shipping certificates do not require the

commodity to be in store at the delivery

point. Thus, Chicago warehouse

operators potentially could issue

shipping certificates against stocks in

store at the beginning of a delivery

month and against actual and/or

anticipated receipts of corn or soybeans

as well.

These potentially available

deliverable supply estimates were

adjusted to reflect the effect of the

proposed financial requirements on the

number of firms that would be eligible

to make delivery and, for Chicago, the

proposed limits on the number of

shipping certificates that could be

issued by those firms. The proposal

restricts eligibility of issuers of shipping

certificates to firms meeting a $40

million net worth requirement. This

eligibility requirement would eliminate

barge shipments made by ineligible

firms and likely would reduce

deliverable supplies originating from

the proposed northern Illinois River

delivery area by an average of about five

percent. However, it is possible that a

portion of the supplies that normally are

shipped by the three firms not meeting

that eligibility requirement—although

by no means all those supplies—would

be made available for futures delivery

by diversion of the supplies to the four

eligible firms. Accordingly, the

Commission calculated two separate

estimates of potentially available

deliverable supplies: one excluding

shipments made by firms not eligible to

issue shipping certificates on the

contract and the second including such

ineligible firms’ shipments.

Another adjustment was made to

reflect current capacity restraints.

Because of the recent closure of four of

the six elevators in Chicago, prior years’

data for Chicago were adjusted to reflect

current maximum capacity levels in that

area.

Through this analysis, the

Commission arrived at potentially

available gross deliverable supplies,

discussed below. As is also described in

more detail below, those amounts must

be reduced because of various

additional factors limiting the available

deliverable supplies.

2. Gross Deliverable Soybean

Supplies. Delivery months under the

CBT proposed soybean futures contract

include July, August, and September,

months which are at the end of the crop

year and which therefore historically

reflect the lowest available supplies. As

shown in the following charts for

soybeans attributable to the four firms

which would be eligible to issue

shipping certificates, gross deliverable

supplies under the CBT proposal

(Chicago supplies plus northern Illinois

River supplies) for July, August, and

September do not meet the minimum

level considered by the Commission to

be required by section 5a(a)(10) of the

Act. Specifically, for July, the total

deliverable supply of soybeans was less

than the 2,400-contract level in four of

the 11 years covered by the analysis,

while the 4,000-contract level was not

reached in six of the 11 years. For

August, gross deliverable soybean

supplies for the four eligible firms fell

below 2,400 contracts in five years, and

the 4,000-contract level was not reached

in any of the 11 years. Soybean

deliverable supplies for the four eligible

firms in September were less than the

2,400-contract level in seven of the 11

years and did not reach the 4,000-

contract level on any occasion.18 As

demonstrated in the following charts,

Chicago supplies played a critically

important role in almost all instances in

which the 2,400-contract level was

reached or exceeded.

BILLING CODE 6351–01–P
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49484 Federal Register / Vol. 62, No. 183 / Monday, September 22, 1997 / Notices

BILLING CODE 6351–01–C
Federal Register / Vol. 62, No. 183 / Monday, September 22, 1997 / Notices 49485

19Unlike the soybean futures contract, there is no August contract month listed for corn.

3. Gross Deliverable Corn Supplies. The CBT proposed corn contract would include the contract months of July

and September, inter alia.19 In the case of corn, the estimated gross deliverable supplies for July attributable to the

four eligible firms reached or exceeded the 3,000-contract levels in all years and the 4,000-contract level in all years

but one. However, gross deliverable supplies of corn for the four eligible firms in September fell below the 3,000-

contract level in eight of the 11 years in the period analyzed and were less than 4,000 contracts in nine years. The

gross deliverable supply estimates for all existing firms differed only slightly from the results for the four eligible

firms.
49486 Federal Register / Vol. 62, No. 183 / Monday, September 22, 1997 / Notices

BILLING CODE 6351–01–C
Federal Register / Vol. 62, No. 183 / Monday, September 22, 1997 / Notices 49487

4. September New Crop Production.

Although neither corn nor soybeans

reached adequate minimum levels of

potentially available gross deliverable

supplies for September, because

September is a transition month

between old and new crop, deliverable

supply estimates based upon barge

shipments data for September may

understate actual September deliverable

supplies. The harvest of the new crops

in corn and soybeans begins in

September, and thus, new crop

production may be available for delivery

on the September contracts.

Accordingly, the Commission also

calculated estimates of new crop

production of corn and soybeans that

may have become available during the

month of September.

The following table shows estimated

September new crop production within

25 miles (trucking distance) of the

proposed delivery points for corn and

soybeans derived from USDA data.

While these stocks might have been

available for delivery during September,

the extent to which this new crop

production has already been included in

the September Illinois River shipment

data shown above or was already

committed to other uses, particularly

processing, cannot be ascertained.

A significant amount of corn was

produced during September in most

years and potentially might augment to

some extent the gross deliverable

supplies discussed above. However,

there were very low levels of September

soybean production during at least five

of the 11 years analyzed, and even

taking September production into

account, September soybean supplies

fall below a minimum adequate level.

Further, September soybean production

does not in any way supplement the

inadequate gross deliverable supplies of

soybeans in July and August.

The likelihood of price manipulation

in September may be somewhat

lessened because it is a transitional

month between old and new crop years.

The end of the crop year generally is a

period of low supplies and relatively

high prices. However, at harvest

supplies are replenished, and the arrival

of these new crop supplies frequently

leads to lower prices. Significant new

crop supplies usually become available

in areas tributary to the northern Illinois

River by mid October. The incentive to

manipulate prices of the September

futures contracts by attempting to corner

the low remaining old crop supplies

would be reduced by the potential

losses that a manipulator might incur in

reselling the shipping certificates or

product obtained through September

deliveries at lower prices after the

arrival of new crop supplies.

Under the CBT proposal, the use of

Illinois River shipping certificates rather

than Chicago or Toledo warehouse

receipts to effect delivery might also

permit expanded deliveries of new crop

production under the September

contract. Rather than requiring

movement of new crop supplies into a

warehouse at a terminal market before

delivery, as is necessary under current

warehouse receipt delivery, the CBT

proposal allows the issuance of

shipping certificates for locations much

closer to the production area and for up

to 30 days of loading capacity and thus

would give issuers more opportunity to

deliver new crop production. They may

issue shipping certificates on the basis

that new crop supplies which are not

immediately in hand will be available

by the time loading is required under

the shipping certificate.

The Commission considers the low

levels of gross deliverable supplies of

corn in September to be of less

regulatory concern than the low levels

of soybeans, which extend throughout

the three summer months. Not only is

the shortage of corn supplies of brief

duration, but the fact that abundant

supplies of new crop production are

expected soon lessens the likelihood

that corn shortage in that month would

lead to the prohibited effects under

section 5a(a)(10).

ESTIMATED CORN AND SOYBEAN PRODUCTION LOCATED NEAR PROPOSED

DELIVERY POINTS DURING SEPTEMBER

[5,000-Bushel Contract Units]

Year

Estimated September

production

Corn Soybeans

1986 .................. 15,219 3,109

1987 .................. 26,78 36,056

1988 .................. 6,354 2,046

1989 .................. 2,013 583

1990 .................. 2,686 782

1991 .................. 41,663 8,729

1992 .................. 1,284 1,356

1993 .................. 644 29

1994 .................. 2,800 6,471

1995 .................. 2,574 487

1996 .................. 1,926 46

* The estimated production by September 30

of each year was calculated by multiplying

USDA harvesting progress estimates for the Illinois and Indiana crop reporting districts that

are adjacent to the revised delivery points by

USDA production data for counties located

within about 25 miles of the proposed delivery

points.

5. Reductions From the Gross

Deliverable Supplies. Additional factors

must be considered which necessarily

reduce the above estimates of gross

deliverable supplies. These factors

include: (a) the reliance on Chicago as

a source of deliverable supplies; (b) the

three-day barge queuing and priority

load-out requirement; and (c) prior

commercial commitments of available

supplies. In addition, further reductions

must be made from gross deliverable

supplies resulting from the CBT

proposal’s lack of locational price

differentials, the $40 million net worth

requirement for issuers of shipping

certificates, and foreseeable disruptions

in barge transportation on the Illinois

River; these additional factors are

analyzed separately in later sections of

this proposed Order.

a. Reliance on Chicago. To the extent

that gross deliverable supplies of

soybeans in some years have been at or

above the 2,400- and 4,000-contract

levels, they have generally depended on

Chicago supplies to do so. For July,

deliverable supplies of soybeans

originating solely from the northern

Illinois River delivery area reached or

exceeded the 2,400-contract level in

only three of the 11 years. In August and

September, soybean deliverable

supplies originating from the northern

Illinois River alone did not exceed the

2,400-contract level on any occasion.

The 4,000-contract level was not

exceeded by northern Illinois River

deliverable supplies of soybeans in any

year in the July, August, or September

delivery months. Thus, to the very

limited extent that gross deliverable

supplies in the past would have reached

a minimum level, they would have done

so because of the supplies in Chicago.

Cash market activity in Chicago is

likely to continue its historical decline.

While the estimation procedure for

gross deliverable supplies used in this

analysis tried to correct for the

precipitous decline of Chicago by using

100 percent of the current capacity as a

constraint on past supplies, that method

certainly overstates the actual

deliverable supplies that may originate

from that location in the future. Chicago

for many years has held stocks well

below their maximum capacity levels,

particularly in the critical summer

months. The following chart

demonstrates that underutilization of

the remaining capacity in Chicago is

continuing, despite the dramatic

contraction in available capacity, and is

most likely to continue to do so in the

future. The likely result is that Chicago

supplies will be reduced significantly in

the future and would not be available in

significant quantities under the CBT

proposal.

BILLING CODE 6351–01–P
49488 Federal Register / Vol. 62, No. 183 / Monday, September 22, 1997 / Notices

BILLING CODE 6351–01–C
Federal Register / Vol. 62, No. 183 / Monday, September 22, 1997 / Notices 49489

b. The Three-Day Barge Loading

Requirement. The CBT proposal

includes a provision requiring a

shipping certificate issuer to begin

loading grain into the receiver’s barges

within three business days after it

receives loading instructions and the

receiver’s barges are at the delivery

facility ready to load. Most significantly,

the issuer would be required to give

preference to shipping certificate

holders relative to any other customer or

proprietary business for eight hours of

load-out capacity per day. This

requirement is contrary to the current

contracts’ delivery terms and to cash

market practice, where new shippers are

accommodated on a first-come, firstserved basis. Concerns have been

expressed by some commenters that, by

requiring issuers to cease loading corn

and soybeans in barges for their cash

market business in order to meet the

requirements of the shipping certificates

and by requiring that only limited

advance notice would have to be given

to issuers, the CBT proposal would

discourage potential issuers from

issuing shipping certificates for futures

delivery.

The CBT, on the other hand, has

argued that the impact of the proposed

preferential load-out requirement for

futures deliveries on an issuer’s

willingness to issue shipping certificates

would be limited because the rules

would require the issuer to load out

only eight hours per day, leaving the

remaining 16 hours of each day to load

other barges. CBT’s position assumes,

without providing supporting data, that

labor physically and economically

would be available for such a 24-hour

day and that additional transportation

and grain supplies could quickly be

procured and coordinated to move the

grain to the waiting barges.

While the effect of the proposed

loading requirements on the willingness

of issuers to issue shipping certificates

for futures delivery is difficult to

measure, it represents a significant

departure from cash market practice and

most likely would reduce the amount of

available deliverable supplies.

c. Prior Commercial Commitments of

Stocks. An additional factor which

would reduce the above estimates of

gross deliverable supplies is prior

commitment of stocks. Determining

deliverable supplies on the basis of

shipment information does not make

necessary deductions for that amount of

the shipments which would be

unavailable for futures delivery because

they were otherwise committed and

because no substitution was possible at

an equivalent market price. While a

number of commenters indicated that

much of the corn and soybeans shipped

on the Illinois River is not irrevocably

committed, at least up to the point when

the grain is loaded into a barge, the

ability of firms economically to obtain

supplies to meet existing commitments

from alternative sources would be

limited at times. This situation would

be more likely to occur in those periods

when supplies are limited, such as

during the critical summer months of

July, August, and September. The

commitment of supplies of corn and

soybeans under forward contracts or

other marketing arrangements would at

times make them unavailable to the

futures delivery process until futures

prices were significantly distorted

relative to cash prices. Thus, it is likely

that the actual available deliverable

supplies for the futures contracts would

be significantly less than indicated by

the above gross estimates.

6. Conclusion. In summary, the

proposed delivery provisions of the

soybean contract clearly fail to meet the

statutory requirement for minimum

levels of deliverable supplies

throughout the summer months of July,

August, and September even before the

above reductions (plus those discussed

below) have been made, and the

additional reductions required by these

factors would further reduce the

available deliverable supplies. For these

reasons, price distortions and

manipulation, market congestion, and

abnormal movements of soybeans in

interstate commerce would be likely to

occur. Additional delivery points to

increase the available deliverable

supplies of soybeans, as well as other

adjustments to CBT’s proposal

discussed below, are necessary to

achieve the objectives of section

5a(a)(10).

As to the CBT proposal for corn, gross

deliverable supplies throughout the year

appear to be adequate except for

September. While gross deliverable

supplies for September do not meet the

minimum level, they may be

supplemented to some unknown extent

by new crop production in September,

and the September corn contract would

be less likely to be subject to

manipulation than other months with

similar low levels because of the

expectation of abundant supplies of new

crop production in the immediate

future. While these gross estimates of

deliverable supply overstate economic

deliverable supplies and must be

reduced by the other factors discussed,

the degree of reduction cannot be

estimated with any certainty. The

Commission’s proposed action in

changing and supplementing the

proposed corn contract to add locational

differentials, to eliminate the net worth

eligibility requirement, and to broaden

the contingency plan for river

disruptions, discussed below, will have

the effect of alleviating some limitations

on deliverable supplies of corn under

CBT’s proposal. Accordingly, based on

the record before it, the Commission

does not find that the available

deliverable corn supplies are inadequate

under section 5a(a)(10) such that

additional delivery points are necessary.

Actual trading experience will reveal

whether the level of deliverable

supplies meets the requirements of

section 5a(a)(10). Accordingly, the

Commission directs the CBT to report

on the actual delivery and contract

expiration experience on an annual

basis for the first five years after contract

expirations begin under the revised

contract terms.

IV. The Lack of Locational Price

Differentials Violates Section 5a(a)(10)

Section 5a(a)(10) requires that, where

more than one delivery point or

commodity grade is specified, a futures

contract must specify quality and

locational price differentials to the

extent necessary to prevent price

manipulation, market congestion, or the

abnormal movement of the commodity

in interstate commerce. Guideline No. 1

and the Commission’s policy on price

differentials are predicated upon, and

give further specificity to, section

5a(a)(10)’s requirements. As discussed

above, Guideline No. 1 requires that

futures contract terms and conditions

provide for a deliverable supply that

will not be conducive to price

manipulation or distortion and that

such a supply reasonably can be

expected to be available to the short

trader and saleable by the long trader at

its market value in normal cash market

channels. In addition, the Commission’s

policy on price differentials requires

that, where cash market locational or

quality differentials are stable, the

futures contract should reflect ‘‘normal

commercial price differences as they are

represented by cash price differences

* * *.’’ When cash market price

differences are unstable or where the

product flow in the cash market is not

relevant to the two futures market

points, the Commission’s policy

requires that differentials must be set at

levels which fall within the range of

values which are commonly observed.

The CBT’s failure to specify locational

price differentials violates section

5a(a)(10) as well as the requirements of

Guideline No. 1 and the Commission’s

policy on locational price differentials.

The cash market on the northern Illinois

River clearly reflects a unidirectional
49490 Federal Register / Vol. 62, No. 183 / Monday, September 22, 1997 / Notices

20Available information suggests that the cash

market value of corn and soybeans loaded into

vessels and rail cars at Chicago may at times equal

or exceed the value of corn or soybeans loaded into

barges at locations on the northern Illinois River

delivery area. However, with the precipitous

decline in the available deliverable supplies in

Chicago, such occasional variances from the prices

loaded on barges at Chicago and along the northern

Illinois River will likely play a small role in the

cash market in the future and are not considered to

be a significant factor in setting locational

differentials under the CBT’s proposal.

21The acronym FOB, free on board, means that,

under the terms of the sale of a commodity, the

price agreed between the buyer and seller includes

the cost of loading the product into transportation

equipment (barges, rail cars, vessel, etc.) at a

designated location.

22CIF New Orleans means that, under the terms

of the sale, the price agreed upon between the buyer

and the seller includes the freight and insurance to

transport the products to New Orleans and to

deliver them there. This market, which calls for

grain to be shipped at the cost of the seller to export

points in New Orleans, is very liquid, with corn and

soybeans being actively traded throughout the year.

23The CBT implicitly recognized these cash

market value relationships and the importance of

barge-freight differences in valuing the commodities

in formulating its proposed plan to price alternative

delivery locations in response to transportation

disruptions on the Illinois River. As described

below, that proposal provides that alternative

localities must be priced CIF New Orleans with the

delivery taker reimbursing the maker for the cost of

freight to New Orleans from the original delivery

location.

flow of corn and soybeans and exhibits

significant locational price differences,

which have a stable relationship with

one another, at the proposed delivery

points. The failure of the CBT proposal

to provide for locational price

differentials reflecting the cash market

not only would reduce available

deliverable supplies on the contracts,

but would result in price distortions and

susceptibility to price manipulation,

market congestion, and the abnormal

movement of corn and soybeans.

Although the CBT describes its

delivery system as a simple single

delivery area, in fact it is a multiple

delivery point system without

differentials. This multiple delivery

point system is comprised of physicallylinked, but spatially-separated points

along the northern Illinois River, which

are affected by a unidirectional demand

from the Gulf market across five

different barge freight zones, including

Chicago. Chicago may also be affected,

at times, by a number of competing cash

market demand pulls.

The CBT argues that section 5a(a)(10)

is not violated by its proposal’s lack of

differentials because ‘‘locational

differentials for corn and soybeans at

par fall well within the expected values

of cash market differentials between the

delivery points’’ and that ‘‘the

differences in barge freight costs

between locations on the NIR are

typically * * * smallest during the

summer.’’ CBT June 16, 1997

submission, 40. However, this is not the

appropriate review standard because the

relative value of these commodities

among the northern Illinois River

delivery points is constant, quite

transparent and based on established

barge freight differences. Furthermore,

even if it were, we find that a lack of

price differentials is not commonly

observed in the cash market.20

Moreover, differences in barge freight

costs, while lower during the late spring

and early summer months, begin to

increase and are quite significant during

the critical July and August period.

The value of corn and soybeans

loaded into barges generally is greater at

barge-loading facilities located down

river relative to the value of grain

loaded in barges at upriver locations,

including Chicago. As indicated above,

the CBT proposal essentially would

price corn and soybeans when they are

loaded on barges along the northern

Illinois River destined for the export

market centered in New Orleans. The

futures contracts would be priced free

on board (FOB) barge at the loading

facilities.21 Currently, the cash market

for such products prices them at the CIF

New Orleans price, which is uniform

and widely known.22 The cost of barge

freight to New Orleans included in that

price varies based on established barge

freight costs that are higher at Chicago

and lower as one descends the northern

Illinois River and thus is closer to New

Orleans. Those freight rates are

transparent and widely reported. While

they vary to some extent, they are

expressed and reported publicly as a

varying percentage of the fixed amounts

found in the Waterways Freight Bureau

Tariff No. 7. By backing out the freight

amounts from the CIF price, one can

calculate the differences in the value of

the commodity FOB various Illinois

River points.

During the critical summer months

the price differential based on the

freight rate between Chicago (the most

northerly Illinois River delivery point)

and Pekin (the most southerly Illinois

River delivery point) has ranged in

recent years between 4.1 and 5.3 cents

per bushel of corn and between 4.4 and

5.7 cents per bushel of soybeans. These

differences are very significant and are

sufficient to distort prices, to limit

deliverable supplies, and to divert them

from one delivery point to another.23

Where, as here, a contract requires

multiple delivery points in order to

yield sufficient deliverable supplies and

significant normal commercial price

differences exist in the cash market

between those locations, section

5a(a)(10) requires that the terms of the

futures contract include locational price

differentials. The failure to set

locational price differentials reflecting

normal cash market price differences

has the economic effect of excluding the

disadvantaged delivery point from being

used for delivery. Such an exclusion

may result in abnormal movement of the

commodity away from the

disadvantaged delivery point and to the

advantaged delivery point. In order for

a disadvantaged delivery point to

function, the futures price has to

increase above the commodity’s

underlying cash market value at the

disadvantaged delivery point to

overcome this built-in penalty. This

opens the door to price distortion and

price manipulation in the amount of the

‘‘differential penalty.’’ Alternatively,

market congestion at the advantaged

delivery point may result. These are

precisely the types of market abuse that

section 5a(a)(10) sought to avoid by

requiring exchanges to ‘‘permit delivery

* * * at such * * * locational price

differentials as will tend to prevent or

diminish price manipulation, market

congestion, or the abnormal movement

of such commodity in interstate

commerce.’’ For these reasons, the

Commission finds that the lack of

locational price differentials violates

section 5a(a)(10).

V. The Failure Adequately to Address

Foreseeable Interruptions to Deliveries

Violates Section 5a(a)(10)

An additional concern regarding the

operation of the CBT proposal

applicable to both the corn and soybean

contracts is its reliance chiefly upon a

single mode of transportation to effect

delivery—Illinois River barge

transportation. A large number of

commenters questioned the reliability of

barge transportation on the Illinois River

from the standpoint of assuring that

takers of futures delivery would be able

to receive and to transport their grain

promptly in the event of a disruption of

barge transportation on the river due to

weather or lock maintenance.

There has been a long history of

repeated, significant interruptions in

transportation along the northern

Illinois River. In three of the last 13

years, one or more of the locks on this

portion of the river have been closed for

repair by the Army Corps of Engineers

for 60 or more consecutive days during

the critical summer months, with the

result that no barge traffic could pass

through that point on the river on its
Federal Register / Vol. 62, No. 183 / Monday, September 22, 1997 / Notices 49491

24Specifically, in 1984 the Lockport and Brandon

Road locks were closed for 60 days in July, August,

and September; in 1987 the Peoria lock was closed

for 60 days in July, August, and September; and in

1995 the Lockport, Brandon Road, Dresden Island,

and Marseilles locks each were closed for between

64 days and 77 days in July, August, and

September.

25 In addition to actions taken by the Coast Guard,

the U.S. Army Corps of Engineers, which has

operational control over river locks, may close a

lock when it determines that icing conditions so

require.

26The CBT proposed a separate rule, regulation

1081.01(12)(G)(8), to address possible disruptions to

shipping traffic within the delivery area. That

proposed rule provides that, if it becomes

impossible to load at a designated shipping station

‘‘because of an Act of God, fire, * * * an act of

government, labor difficulties, or unavoidable

mechanical breakdown, the shipper will arrange for

water conveyance to be loaded at another regular

shipping station * * *’’ and will compensate the

taker for resulting transportation costs, if any. It

further provides, however, that if the impossibility

of delivery exists at a majority of shipping stations

within the delivery area, then shipment may be

delayed. Although this proposed rule addresses

conditions impeding delivery at one or some

locations within the delivery area, it does not offer

an acceptable solution to the contingency that all

or most deliveries may be rendered impossible due

to disruptions of river traffic south of the delivery

area or at points affecting a majority of shipping

stations within the delivery area. Because of the

increased likelihood of price manipulation or

market congestion arising from delayed delivery in

such circumstances, a different and more effective

contingency plan is required under section

5a(a)(10).

27Even if such differing tariffs would not have

such adverse results, it would be ‘‘necessary or

appropriate * * * to insure fair dealing * * *’’ in

such futures contracts to apply the same differential

in both instances under section 8a(7) of the Act.

way south to New Orleans.24 In

addition, traffic on the Illinois River is

frequently impacted by weather

conditions, including wind, high water

during the spring and summer, and

icing during the winter. The Coast

Guard, an agency of the U.S.

Department of Transportation, is

responsible for maintaining safe passage

along the nation’s waterways and, when

conditions warrant, issues safety

advisories or compulsory safety zones

restricting transportation on certain

segments of the river. Between January

1991 and June 1997 the Coast Guard

issued compulsory safety zones on

segments of the northern Illinois River

on 21 separate occasions. The delivery

area on the northern Illinois River was

affected by such a safety zone for

substantial portions of the river from

early June through the middle of August

in 1993.25

The CBT proposal’s heavy reliance on

barge delivery would disadvantage

receivers during those periods when

barge traffic is negatively impacted by

weather conditions or lock maintenance

and repair. Prolonged closure of the

river would increase the susceptibility

of the futures contract to manipulation

by issuers, who could issue large

numbers of certificates during periods

when those taking delivery would be

unable to transport and to sell the

product at an economic value in relation

to the CIF New Orleans market.

The Commission is of the view that it

is not an appropriate use of exchange

emergency authority to address such

significant and foreseeable disruptions

to the operation of contract terms.26 In

response to repeated requests by the

Commission staff, the CBT, by

submission dated August 22, 1997,

sought to cure this defect by proposing

a plan to be followed in the case of

transportation disruptions. This

proposed contingency plan provides

that, in the event that either the Peoria

or LaGrange lock on the Illinois River

(the two most southerly locks without

an auxiliary) is scheduled, with sixmonths prior notice, to be closed for a

period of 45 days or more, then the

delivery maker and taker may mutually

agree to alternative terms, or failing

such agreement, the deliverer is

obligated to provide loaded barges to the

receiver at a point between the lowest

closed lock and St. Louis or on the midMississippi River between St. Louis and

Dubuque, inclusive. The loaded barges

would be valued CIF New Orleans, with

the delivery taker responsible for paying

to the delivery maker the transportation

cost between the original shipping

station and New Orleans. The

reimbursement in transportation cost

would be computed based upon 100

percent of the Waterways Freight

Bureau Tariff No. 7 barge freight rate.

This proposal falls short of achieving

its apparent objective of addressing the

susceptibility of the corn and soybean

futures contracts to price manipulation,

market congestion, or the abnormal

movement of the commodity in

interstate commerce resulting from

disruptions to river traffic. First, the

proposed rule only addresses sustained

blockages due to lock closures south of

the delivery area. However, a similar

situation could be precipitated by

closure of one or a number of locks

within the delivery area sufficient to

disrupt traffic at a majority of shipping

stations. Repairs are often made to more

than one set of locks at a time, having

the potential to increase the breadth of

the disruption within the delivery area

from such projects. Thus, although the

same foreseeable situation rendering the

contracts vulnerable to price

manipulation or market congestion

exists when the disruption is within the

delivery area as when it is south of the

delivery area, the contingency plan fails

to address the former situation.

Secondly, when a sustained river

closure of less than 45 days is

announced, vulnerability to price

manipulation is foreseeable. This is also

true when locks are closed on less than

the six-months notice, which the CBT

has proposed as a condition for

triggering the contingency procedures.

This vulnerability arises from the ability

of shipping certificate issuers under the

CBT proposal to issue certificates

representing up to 30 days of their

capacity. Thus, an announced river

closure of between 30 and 45 days, for

example, would enable eligible issuers

to deliver into the market the maximum

number of shipping certificates

permitted, secure in the knowledge that

the holders of those certificates could

not accept delivery of the corn or

soybeans while the river is closed and

that, once the obstruction to river

movement was ended, the issuer could

only be required to deliver on cancelled

certificates over an entire-month period.

In this connection, it should be noted

that closings are announced for lock

repairs, which generally are scheduled

for the late summer months, the time

when deliverable supplies are lowest

and river traffic is generally at its lowest

level. Futures contracts during these

months would be most susceptible to

manipulation if a prolonged closure

extending to the arrival of the new crop

allows futures deliverers to depress the

price of an old crop futures month to

levels reflecting new crop values, when

the broader cash market is reflecting the

usual old crop-new crop supply and

demand conditions.

In addition, the proposal to value

alternate delivery locations using 100

percent of the Waterways Freight

Bureau Tariff No. 7 rate is inconsistent

with the locational price differential

found by the Commission to be

required, as discussed below. The

application of divergent differentials to

the contracts, depending upon whether

deliveries were subject to the

contingency rule or to normal delivery

procedures, could also contribute to

price manipulation, market congestion,

or the abnormal movement of

commodities in interstate commerce. 27

VI. The Minimum Net Worth Eligibility

Requirement for Issuers Violates

Section 15

In addition to the CBT’s existing

requirement of $2 million working

capital required of firms regular for

delivery under all its agricultural

contracts, the CBT has proposed to

require that firms eligible to issue

shipping certificates under its proposed

soybean and corn contracts must also
49492 Federal Register / Vol. 62, No. 183 / Monday, September 22, 1997 / Notices

28British American Commodity Options Corp. v.

Bagley, [1975–1977 Transfer Binder] Comm. Fut. L.

Rep. (CCH) ¶ 20,245 at 21,334 (S.D.N.Y. 1976) aff’d

in part and rev’d in part on other grounds, 552 F.

2d. 282 (2d. Cir. 1977, cert. denied, 98 S. Ct. 427

(1977).

29The HHI is calculated by summing the squares

of the individual market share of all of a market’s

participants. The 3,300 figure was obtained using

rated delivery capacity of the four firms currently

meeting the proposed capital requirements to

measure market share. Those firms and their

respective market shares are Archer Daniels

Midland Co. (49 percent), Continental Grain

Company (22 percent), Cargill, Incorporated (19

percent), and Consolidated Grain and Barge (10

percent). Adding in the three firms (American

Milling Company, Garvey International, and Sours

Grain Company) who, absent the proposal’s $40

million net worth requirement, also would be

eligible to issue delivery certificates in the proposed

markets would lower the HHI to 2,511, still a high

level of concentration but substantially less than

that under the CBT proposal.

30Concerns about this concentration among those

firms eligible to issue shipping certificates are

compounded by the sizeable control some of the

firms have over barge ownership, Gulf exports, and

processing facilities. Several commenters expressed

concern that this concentration increases the

opportunity for price manipulation.

meet a minimum net worth standard of

$40 million. This requirement has the

effect of reducing the amount of

economically deliverable supplies by

making ineligible for delivery certain

existing loading facilities in the delivery

areas owned by otherwise eligible firms.

In addition, the requirement also

constitutes a barrier to entry of firms

wishing to establish facilities and to

become eligible to issue shipping

certificates. The Commission has

analyzed this requirement under the

provisions of section 15 of the Act and

finds that it constitutes an unjustifiable

barrier to entry and leads to undue

market concentration when considered

in the context of the other requirements

those firms must meet.

Section 15 of the Act requires the

Commission, when considering

exchange rule proposals or

amendments, to consider the public

interest to be protected by the antitrust

laws and to endeavor to take the least

anticompetitive means of achieving the

objectives of the Act.28 Therefore, the

CBT proposal’s possible anticompetitive

effects must be evaluated against its

potential effectiveness in achieving the

policies and purposes of the Act.

Because shipping certificates for

contract delivery purposes are

unsecured, all existing futures contracts

that use shipping certificate delivery

specify certain financial requirements

for certificate issuers. Consistent with

this approach, the CBT proposal

requires that issuers of certificates have

through-loading facilities on the

northern Illinois River, obtain an

irrevocable letter of credit in an amount

equal to the value of their delivery

commitments, and maintain a minimum

of two million dollars in working

capital. These requirements are

comparable to those imposed on

shipping certificate issuers in other

futures markets, including the CBT’s

own soybean meal, diammonium

phosphate and anhydrous ammonia

futures contracts, the New York Cotton

Exchange’s frozen concentrated orange

juice futures contract and the

Minneapolis Grain Exchange’s white

wheat futures contract. Moreover,

issuers of a shipping certificate under

the CBT proposal would also be limited

to issuing certificates of a value no

greater than 25 percent of the issuer’s

net worth. However, in addition to all

these requirements, the CBT’s proposed

corn and soybean contracts would

require shipping certificate issuers to

have a net worth of $40 million, a

requirement that is not imposed in any

other futures contract involving

shipping certificates.

The effect of the proposed $40 million

net worth requirement would be to limit

issuance of shipping certificates to four

large grain firms among the seven firms

with shipping stations. At least three

firms which currently operate shipping

stations on the designated segment of

the northern Illinois River and

participate in the cash market by selling

barges of corn and soybeans would be

excluded from issuing shipping

certificates for those same commodities

on the CBT futures contracts. The

Commission does not believe the CBT

has presented a reasonable justification

for this requirement.

Although the CBT’s objective of

protecting the financial integrity of the

delivery process is reasonable, it is

adequately achieved through the

working capital and letter of credit

requirements, as it has been for all other

shipping certificate contracts, and

through the limit on the value of

certificates issued to 25 percent of an

issuer’s net worth. Forty million dollars

is a high level of net worth that excludes

three of the seven existing firms with

loading facilities along the northern

Illinois River and would act as a barrier

to other new entrants. The resulting

extremely high level of concentration of

the market restricted to four issuers is

demonstrated by the fact that the

Herfindahl-Hirschman Index (HHI) for

the proposed market is approximately

3,300.29 This increase in concentration

as compared with the current delivery

system—530 points in the HHI—is

likely to create or enhance market

power or facilitate its exercise in this

already highly concentrated market.

The CBT has failed to demonstrate a

need for this particular requirement.

Accordingly, the Commission finds that

the $40 million net worth requirement

is an unjustified barrier to entry into a

highly concentrated market and violates

section 15 of the Act.30

VII. Proposed Changes and

Supplements to Comply With Sections

5a(a)(10) and 15

Under the provisions of section

5a(a)(10) of the Act, the Commission,

having found that the response of the

CBT to the notification relating to its

corn and soybean futures contracts does

not accomplish the statutory objectives

of that section and ‘‘after granting the

contract market an opportunity to be

heard, may change or supplement such

rules and regulations of the contract

market to achieve the above objectives

* * *’’ The Commission has

determined that the following changes

and supplements to CBT’s proposal are

necessary to achieve the objectives of

section 5a(a)(10) and compliance with

section 15 of the Act. The Commission

has determined that deliverable

supplies of soybeans should be

increased through the retention of the

delivery points under CBT’s current

contracts that the CBT has proposed to

eliminate and that appropriate

locational differentials should be

applied to such delivery points. In

addition, the Commission has

determined for both the corn and

soybean contracts to revise the proposed

rule to impose appropriate locational

differentials for Illinois River delivery

points. The Commission has determined

to revise the proposed eligibility

requirements for issuers of corn and

soybean shipping certificates by

eliminating the net worth requirement

of $40 million, which the Commission

believes is an unnecessary barrier to

entry. The Commission also has

determined to revise the river closure

contingency rule by reducing the

continuous period of lock closure from

45 days as proposed to 15 days, by

making it applicable whenever a

majority of shipping stations within the

northern Illinois River delivery area are

affected by closure of any lock or locks,

by making it applicable to all

announced closures with no minimum

notification period specified and by

changing the differential from 100

percent of the Waterways Freight

Bureau Tariff No. 7 rate as proposed to

150 percent.
Federal Register / Vol. 62, No. 183 / Monday, September 22, 1997 / Notices 49493

31Some commenters advocated the addition of

new and completely untried delivery points, such

as locations in the interior of Iowa, or delivery

points that have been used for other contracts, such

as Minneapolis, Minnesota. Although those

suggestions may have merit, the Commission has

decided that the experience with the current

delivery points is entitled to significant weight.

A. Delivery Points

In determining how to remedy the

inadequacy of deliverable supplies

under the CBT soybean proposal, the

Commission accepts the delivery points

in the proposal itself as a starting point

and believes that the most reasonable

and feasible way to enhance deliverable

supplies is by adding additional

delivery points. To do so, the

Commission has decided to retain the

delivery points under which the CBT’s

existing contract has been operating for

years. Thus, the Commission had

determined to retain Toledo and St.

Louis as delivery points for soybeans.

In this regard, many commenters

supported retaining the delivery point at

Toledo, pointing out that Toledo’s

effectiveness as a delivery point is

proven. They also maintained that

Toledo brings with it the strength of

having transportation ties to both the

export markets via vessels on the Great

Lakes and the expanding livestock feed

demand in the southeastern U.S. via rail

transportation. Although St. Louis has

not been a significant delivery point

under the current contract, it likely

would become one under the contract’s

revised shipping certificate format.31

These two delivery points have the

strong advantage of having been chosen

by CBT as appropriate delivery points

for its soybean contract and having been

used as delivery points for the contract

for several years. Toledo has been a

delivery point on the CBT soybean

contract since 1979; St. Louis has been

a delivery point since 1993. The

resulting experience and familiarity

with these delivery points of the CBT,

its members and commercial users of

the soybean contract are strong

indicators that the delivery points are

feasible, workable and acceptable.

As discussed below, they also provide

a substantial increase in the available

deliverable supplies of soybeans. When

Toledo and St. Louis are retained as

delivery points, gross deliverable

supplies are at or above the 2,400-

contract level for all observations in

both July and August during the past 11

years and in September for all but four

of the last 11 years. The gross

deliverable supplies are at or above the

4,000-contract level for 21 of 33

observations. The following chart shows

the increases in gross deliverable

supplies of soybeans which result from

the retention of Toledo and St. Louis as

delivery points.

BILLING CODE 6351–01–P
49494 Federal Register / Vol. 62, No. 183 / Monday, September 22, 1997 / Notices

BILLING CODE 6351–01–C
Federal Register / Vol. 62, No. 183 / Monday, September 22, 1997 / Notices 49495

32Should actual trading experience reveal that

September supplies must be supplemented, one

means of accomplishing that objective would be to

expand the proposed definition of the northern

Illinois River to include a greater segment of the

river’s delivery area. With the specification of

appropriate locational differentials, this change can

be made at a later time with little or no disruption

to the contract.

Accordingly, the retention of Toledo

and St. Louis as delivery points is

necessary and appropriate to provide

sufficient levels of gross deliverable

supplies of soybeans for July and

August. Although the retention of

Toledo and St. Louis does not yield

gross deliverable supplies which meet

the 2,400-contract level in four of the

last 11 years in September, September is

a transition month between the old and

new crop year, as discussed above. New

crop production is in the offing. Thus,

even when September supplies on

occasion fall below the 2,400-contract

level, the incentive to manipulate prices

based on a shortfall of old crop supplies

is reduced because of the likelihood of

rapidly falling prices as new crop

supplies become available in the near

future. In light of the reduced threat of

price manipulation due to the

imminence of new crop production, the

Commission is not ordering that

additional delivery points be added to

the contract beyond retention of Toledo

and St. Louis. Should September

deliverable supplies of soybeans appear

to be inadequate once trading under the

revised soybean contract begins, the

Commission would take appropriate

steps to provide for additional delivery

locations.32

Accordingly, the Commission finds

that retention of Toledo and St. Louis is

necessary and appropriate to provide

the level of economically available

deliverable supplies required by section

5a(a)(10).

B. Differentials

Section 5a(a)(10) specifies that where

more than one delivery point is

specified, the contracts must specify

locational differentials to the extent

necessary to prevent price

manipulation, market congestion, or the

abnormal movement of the commodity

in interstate commerce. As discussed

above, in light of the significant

locational differentials in the cash

market among the proposed delivery

locations, the CBT’s par delivery

proposal for all potential corn and

soybean delivery locations would

reduce the level of economically

available deliverable supply and would

increase the susceptibility of the

contracts to the prohibited effects under

section 5a(a)(10). Accordingly, to meet

the objectives of section 5a(a)(10),

locational differentials must be set for

the delivery locations on the corn and

soybean contracts.

In setting those differentials, the

Commission has been guided by

commonly observed cash market price

differences among the delivery points.

The cash market differences in the

prices of corn and soybeans for delivery

points on the northern Illinois River are

based primarily upon the cost of barge

freight—the price of the product

increases as one goes down the river,

and the cost of freight to New Orleans

decreases. These differences in freight

prices are transparent, readily available,

and commonly accepted as the best

measure of cash price values. An

analysis of barge freight rate data

indicates that 150 percent of the

Waterways Freight Bureau Rate Tariff

No. 7 rate relative to Chicago, Illinois,

is an appropriate differential.

Barge freight rate data for the years

1990 through 1996 indicate that 150

percent of tariff is well within the range

of commonly observed freight rates, and

it closely approximates the average

percent of tariff quoted by barge

companies for Illinois River shipment

during this period. These data also

indicate that 150 percent of tariff

approximates the average percent of

tariff quoted for July, August, and

September, the months when

deliverable supply concerns and the

need to maximize available deliverable

supplies are the greatest. In addition, a

majority of those commenting on the

issue agreed that it was appropriate to

base price differentials on barge freight

cost differences, and several of the

commenters that suggested a fixed rate

recommended 150 percent of tariff.

St. Louis is being retained as a

delivery point for soybeans. The relative

price of soybeans in the cash market

among the various delivery points on

the northern Illinois River and St. Louis

is consistently determined based on the

difference in freight costs to New

Orleans, and therefore the Commission

has decided to base the differential of

St. Louis on 150 percent of freight tariff

as well. Most commenters agreed that

this approach is the appropriate

measure of such price differences.

The differential applicable to Toledo,

which is retained as a delivery point for

soybeans, cannot be set based on the

differentials relating to barge freight

since Toledo is not located on the

Illinois River and does not tend to

deliver soybeans CIF New Orleans. The

Commission’s policy on differentials

provides that such differentials must fall

within the range of commonly observed

cash market differences. Available data

indicate that cash price differentials

between Chicago and Toledo commonly

range from Chicago’s being at a

premium to its being at a discount to

Toledo. Therefore, establishing Toledo

deliveries at par with Chicago is well

within the range of commonly observed

cash market price differences and

provides an adequate approximation of

the cash market price relationship

between the two delivery points. Most

commenters expressing an opinion on

this issue agreed that soybeans should

be deliverable in Toledo at par with

Chicago.

Accordingly, the Commission has

determined that for soybeans Chicago

and Toledo should be at contract price

with all other points at a premium over

contract price based on 150 percent of

the Waterways Freight Bureau Tariff No.

7 rate. For corn, Chicago should be at

contract price with all other points at a

premium over contract price of 150

percent of the difference between the

Waterways Freight Bureau Tariff No. 7

rate applicable to that location and the

rate applicable to Chicago, Illinois.

C. Disruptions to River Traffic

The CBT proposal’s reliance chiefly

on a single mode of transportation to

effect delivery renders the contract

susceptible to significant possible

disruption of the delivery process,

increasing the possibility of price

manipulation, market congestion, or the

abnormal movement of corn and

soybeans in interstate commerce.

Although the CBT submitted a

contingency plan to address such

disruptions to river traffic, that plan

only addressed long-term disruption to

river traffic resulting from closure of

locks south of the delivery area

announced six months in advance. As

the Commission discussed above,

however, the threat of manipulation of

prices arises from the possible inability

of long position holders to take delivery

from all, or a significant number, of

shipping stations due to the closures of

a lock or locks located either within or

south of the delivery area. The longer

the period of the delay before alternate

delivery procedures can be invoked, the

greater the potential for manipulation.

Moreover, this threat exists equally

when a lock or locks have been closed

with less than six-months notice.

Accordingly, compliance with section

5a(a)(10) of the Act requires that this

threat be diminished by reducing the

period during which delivery may be

delayed by eliminating the six-month

notice requirement and by applying the

contingency delivery provision to

similar circumstances caused by

obstructions to movement on the river
49496 Federal Register / Vol. 62, No. 183 / Monday, September 22, 1997 / Notices

33The Commission notes that historically there

has been very little or no open interest in delivery

months for corn or soybeans that mature two years

or more in the future.

34Bracketed type denotes the Commission’s

proposed changes or supplements to the CBT

proposal. Italics denote changes proposed by the

CBT. Deletions to proposed CBT language are not

shown.

arising either inside or outside of the

delivery area.

In determining the length of an

announced obstruction which should

give rise to a contingency delivery plan,

the Commission analyzed information

on past lock closures by the Army Corps

of Engineers and on the issuance of river

advisories or safety zones by the Coast

Guard. During the last 17 years for

which this information could be

ascertained, it appears that there have

been no unplanned and unannounced

river closures of greater than two weeks

duration. Accordingly, obstructions

lasting at least 15 days after they are

announced are appropriately addressed

by application of the contingency

delivery plan.

In addition, as discussed above, the

application of divergent differentials to

the contracts depending upon whether

the delivery is subject to the

contingency rule might also contribute

to a price manipulation or to market

congestion. Since the Commission has

determined that a differential based on

150 percent of the Waterways Freight

Bureau Tariff No. 7 rate should be

applied to the corn and soybean futures

contracts, the Commission believes that

the provision in the contingency plan

should be conformed to that differential,

which will be applicable to all other

deliveries made on the contracts at nonpar locations.

Accordingly, the Commission is

proposing under section 5a(a)(10) of the

Act to change and to supplement the

provisions of this part of the CBT

proposal by reducing the continuous

period of lock closure from 45 days as

proposed to 15 days, by making the rule

applicable to the closure of any lock or

locks which affects shipments from a

majority of shipping stations within the

northern Illinois River delivery area, by

making the rule applicable to all

announced closures with no minimum

notification period specified and by

changing the differential from 100

percent of the Waterways Freight

Bureau Tariff No. 7 rate as proposed to

150 percent.

D. Net Worth

As the Commission found above,

although the CBT’s objective of

protecting the financial integrity of the

delivery process is reasonable, it would

be adequately achieved through

requirements on working capital, letters

of credit, and the ceiling on issuance of

shipping certificates to 25 percent of net

worth. Contrary to the policies

underlying the federal antitrust laws,

the $40 million net worth requirement

would operate as a significant bar to

entry for entities that would be eligible

in all other respects, and the resulting

market concentration would be very

high. The CBT has failed to demonstrate

a regulatory need for the requirement.

Accordingly, the Commission is

proposing to eliminate it under sections

15 and 5a(a)(10) of the Act.

E. 1999 Contract Months

By letter dated April 24, 1997, to the

Chairperson of the Commission, the

CBT advised the Commission that it had

determined to list or to relist for trading

the July 1999 and November 1999

soybean contracts and the July 1999 and

December 1999 corn contracts,

respectively, prior to Commission

review and approval of the proposed

changes to the delivery specifications.

In doing so, the CBT indicated that it

would

list the aforementioned contracts with a

special indicator * * * denot[ing] that the

Exchange’s Board of Directors and

Membership have approved the terms of the

listed contracts; however, the terms are

subject to CFTC approval.

By letter dated May 2, 1997, the

Commission responded that it ‘‘will

consider whether to approve the listing

of these contract months as part of its

ongoing proceeding pursuant to section

5a(a)(10) of the Act * * *.’’ The

Commission found that the ‘‘listing of

these trading months is not consistent

with Commission rule 1.41(l) and that

* * * their listing for trading by the

CBT is not legally authorized at the

present time.’’

The Commission by this proposed

Order announces its intention to change

and to supplement the CBT’s proposed

amendments to those contracts on the

grounds that they violate sections

5a(a)(10) and 15 of the Act. Accordingly,

the Commission proposes to disapprove

the terms of the 1999 corn and soybean

contracts and proposes to apply the

changes described above to such

contracts under sections 5a(a)(10),

5a(a)(12), 8a(7), and 15 of the Act. The

CBT may propose to list the 1999 corn

and soybean contracts incorporating the

Commission’s proposed changes and

supplements, and the Commission

would approve such listing. The CBT

should give notice to all traders that the

Commission has proposed to disapprove

the CBT’s proposed amendments to the

1999 soybean and corn contracts.33

By the Commission (Chairperson Born,

Commissioner Dial, Commissioner Spears;

Commissioner Tull Dissenting With Opinion,

Commissioner Holum Dissenting Without

Opinion)

CBOT Proposed Delivery Terms for Corn

and Soybeans—Dissenting Opinion of

Commissioner John E. Tull, Jr.

I strongly disagree with the majority’s

decision regarding the Chicago Board of

Trade’s proposed amendments to the

delivery specifications to their corn and

soybean contracts and vote to approve them.

Section 5a(a)(10) of the Commodity

Exchange Act requires us to determine

whether the delivery terms proposed by the

CBOT ‘‘will tend to prevent or diminish price

manipulation, market congestion, or the

abnormal movement of such commodity in

interstate commerce.’’ We must also ‘‘take

into consideration the public interest to be

protected by the antitrust laws in requiring

or approving any rule of a contract market.’’

With all due respect to my colleagues and

our staff, based on my analysis of the data,

I am convinced that the proposed terms for

both contracts as submitted meet these

statutory requirements.

I also note that the CBOT convened two

task forces of industry experts who debated

the delivery points at length and the proposal

has been approved by the exchange

membership. I believe it is the right of a

membership organization such as the CBOT

to write the specifications of its own contract,

as long as those specifications satisfy the

statutory requirements.

Attachment 1

For the reasons explained in the ‘‘Proposed

Order of the Commodity Futures Trading

Commission to Change and to Supplement

Proposed Rules of the Board of Trade of the

City of Chicago, Submitted For Commission

Approval in Response to a Section 5a(a)(10)

Notice Relating to Futures Contracts in Corn

and Soybeans,’’ the Commission is proposing

under section 5a(a)(10) of the Commodity

Exchange Act to change and to supplement

rules and proposed rules of the Board of

Trade of the City of Chicago. As provided

under the Proposed Order, the Commission

proposes to make the following changes:34

1. To change and to supplement the

paragraph of Rule 1036.00 immediately

following the paragraph beginning with the

words ‘‘Corn Differentials,’’ to read as

follows:

In accordance with the provisions of Rule

1041.00A, corn for shipment from regular

warehouses or shipping stations located

within the Chicago Switching District or the

Burns Harbor, Indiana Switching District

may be delivered in satisfaction of corn

futures contracts at contract price, subject to

the differentials for class and grade outlined

above. [Corn for shipment from shipping

stations located on the northern Illinois River

may be delivered at a premium over contract

price of 150 percent of the difference

between the Waterways Freight Bureau Tariff

No. 7 rate applicable to that location and the

rate applicable to Chicago, Illinois, subject to

the differentials for class and grade outlined

above.
Federal Register / Vol. 62, No. 183 / Monday, September 22, 1997 / Notices 49497

*The factor for converting the tariff rate

quoted in tonnage to a bushel basis shall be

35.714 bushels per ton.]

2. To change and to supplement the

paragraph of Rule 1036.00 immediately

following the paragraph beginning with the

words ‘‘Soybean Differentials,’’ to read as

follows:

In accordance with the provisions of Rule

1041.00D, soybeans for shipment from

regular warehouses or shipping stations

located within the Chicago Switching

District, the Burns Harbor, Indiana Switching

District, [or the Toledo, Ohio Switching

District] may be delivered in satisfaction of

soybean futures contracts at contract price,

subject to the differentials for class and grade

outlined above.

[In accordance with the provisions of Rule

1041.00D, soybeans for shipment from

shipping stations located on the northern

Illinois River or from shipping stations

within the St. Louis-East St. Louis and Alton

Switching Districts (i.e., the upper

Mississippi River between river miles 170

and 205) may be delivered in satisfaction of

soybean futures contracts at a premium over

contract price of 150 percent of the difference

between the Waterways Freight Bureau Tariff

No. 7 rate* applicable to that location and the

rate applicable to Chicago, Illinois, subject to

the differentials for class and grade outlined

above.

*The factor for converting the tariff rate

quoted in tonnage to a bushel basis shall be

33.333 bushels per ton.]

3. To change and to supplement Rule

1041.00A to read as follows:

Corn. Corn for shipment from regular

warehouses or shipping stations located

within the Chicago Switching District or the

Burns Harbor, Indiana, Switching District

may be delivered in satisfaction of corn

futures contracts at contract price. [Corn for

shipment from shipping stations located

within the northern Illinois River may be

delivered in satisfaction of corn futures

contracts at a premium over contract price of

150 percent of the difference between the

Waterways Freight Bureau Tariff No. 7 rate*

applicable to that location and the rate

applicable to Chicago, Illinois, subject to the

differentials for class and grade outlined

above.

*The factor for converting the tariff rate

quoted in tonnage to a bushel basis shall be

35.714 bushels per ton.]

4. To change and to supplement Rule

1041.00D to read as follows:

Soybeans. Soybeans for shipment from

regular warehouses or shipping stations

located within the Chicago Switching

District, the Burns Harbor, Indiana,

Switching District [or the Toledo, Ohio,

Switching District] may be delivered in

satisfaction of soybean futures contracts at

contract price. [Soybeans for shipment from

shipping stations located on the northern

Illinois River or from shipping stations

within the St. Louis-East St. Louis and Alton

Switching Districts (i.e., the upper

Mississippi River between river miles 170

and 205) may be delivered in satisfaction of

soybean futures contracts at a premium over

contract price of 150 percent of the difference

between the Waterways Freight Bureau Tariff

No. 7 rate* applicable to that location and the

rate applicable to Chicago, Illinois, subject to

the differentials for class and grade outlined

above.

*The factor for converting the tariff rate

quoted in tonnage to a bushel basis shall be

33.333 bushels per ton.]

5. To change and to supplement Regulation

1044.01 following the list of delivery

locations and immediately prior to the

issuer’s signature block by adding, as follows:

[soybeans only:

ll St. Louis, MO, river mile marker lll

ll Toledo, OH, Switching District]

6. To change and to supplement Regulation

1056.01 by adding after the last paragraph the

following:

[The premium charges on soybeans for

delivery from regular shippers within the

Toledo, Ohio, Switching District shall not

exceed 12/100 of one cent per bushel per

day.

The premium charges on soybeans for

delivery from regular shippers within the St.

Louis-East St. Louis and Alton Switching

Districts (i.e., the upper Mississippi River

between river miles 170 and 205) shall not

exceed 10/100 of one cent per bushel per

day.]

7. To change and to supplement the second

paragraph of Regulation 1081.01(1) to read as

follows:

(c) and in the case of Chicago, Illinois,

Burns Harbor, Indiana, [and Toledo, Ohio,]

Switching Districts only, his registered

storage capacity.

8. To change and to supplement the third

paragraph of Regulation 1081.01(1)(a) to read

as follows:

(a) one barge per day at each shipping

station on the northern Illinois River [and

within the St. Louis-East St. Louis and Alton

Switching Districts (i.e., the upper

Mississippi River between river miles 170

and 205);] and

9. To change and to supplement Regulation

1081.01(2) to read as follows:

Except for shippers located on the northern

Illinois River [and within the St. Louis-East

St. Louis and Alton Switching Districts (i.e.,

the upper Mississippi River between river

miles 170 and 205),] such warehouse shall be

connected by railroad tracks with one or

more railway lines.

10. To change and to supplement the first

sentence of Regulation 1081.01(12)A to read

as follows:

A. Load-Out Procedures for Wheat and

Oats and Rail and Vessel Load-Out

Procedures for Corn and Soybeans from

Chicago, Illinois, Burns Harbor, Indiana, [and

Toledo, Ohio, Switching Districts] Only

* * *.

11. To change and to supplement the first

sentence of Regulation 1081.01(12)B to read

as follows:

B. Load-Out Rates for Wheat and Oats and

Rail and Vessel Load-Out Rates for Corn and

Soybeans from Chicago, Illinois, Burns

Harbor, Indiana, [and Toledo, Ohio,

Switching Districts] Only * * *.

12. To change and to supplement

Regulation 1081.01(12)G(7) to eliminate the

words ‘‘on the Illinois Waterway,’’ to read as

follows:

Any expense for making the grain available

for loading will be borne by the party making

delivery, provided that the taker of delivery

presents barge equipment clean and ready to

load within ten calendar days following the

scheduled loading date of the barge. If the

taker’s barges are not made available within

ten calendar days following the scheduled

loading date, the taker shall reimburse the

shipper for any expenses for making the

grain available. Taker and maker of delivery

have three days to agree to these expenses.

13. To change and to supplement the last

sentence of Regulation 1081.10(12)(G)(8) to

read as follows:

(8) * * *. If the aforementioned condition

of impossibility prevails at a majority of

regular shipping stations, then shipment

[shall be made under the provisions of rule

1081.(12)(G)(9).]

14. To change and to supplement the first

paragraph and paragraph 9(b)(iii) and add a

new paragraph at the end of Regulation

1081.01(12)(G)(9) to read as follows:

(9). In the event that [it has been

announced that river traffic will be

obstructed for a period of fifteen days or

longer as a result of one of the conditions of

impossibility listed in regulation

1081.10(12)(G)(8) and in the event that the

obstruction will affect a majority of regular

shipping stations located on the northern

Illinois River,] then the following barge loadout procedures for corn and soybeans shall

apply:

(b) * * *

(iii) The taker of delivery shall pay the

maker 150% of the Waterways Freight

Bureau Tariff Number 7 barge benchmark

rate from the original delivery point stated on

the Shipping Certificate to NOLA.

[(c) In the event that the obstruction or

condition of impossibility listed in regulation

1081.10(12)(G)(8) will affect a majority of

regular shipping stations located on the

northern Illinois River, but no announcement

of the anticipated period of obstruction is

made, then shipment may be delayed for the

number of days that such impossibility

prevails.]

15. To change and to supplement the first

paragraph of Regulation 1081.01(13)A by

eliminating the words ‘‘and soybeans’’ in

both instances in which they appear.

16. To change and to supplement

Regulation 1081.01(13)D by retaining it and

changing it to read as follows:

[Soybeans. For the delivery of soybeans,

regular warehouses or shipping stations may

be located within the Chicago Switching

District, within the Burns Harbor, Indiana,

Switching District (subject to the provisions

of paragraph A above), within the Toledo,

Ohio, Switching District, or shipping stations

may be located on the northern Illinois River

(subject to the provisions of paragraph A

above), or within the St. Louis-East St. Louis

and Alton Switching Districts (i.e., the upper

Mississippi River between river miles 170

and 205).

Delivery in Toledo must be made at regular

warehouses or shipping stations providing

water loading facilities and maintaining

water depth equal to normal seaway draft of

27 feet. However, deliveries of soybeans may

be made in off-water elevators within the

Toledo, Ohio, Switching District PROVIDED

that the party making delivery makes the
49498 Federal Register / Vol. 62, No. 183 / Monday, September 22, 1997 / Notices

soybeans available upon call within five

calendar days to load into water equipment

at one water location within the Toledo,

Ohio, Switching District. The party making

delivery must declare within one business

day after receiving warehouse receipts and

loading orders the water location at which

soybeans will be made available. Any

additional expense incurred to move delivery

soybeans from an off-water elevator into

water facilities shall be borne by the party

making delivery PROVIDED that the party

taking delivery presents water equipment

clean and ready to load within 15 calendar

days from the time the soybeans have been

made available. Official weights and official

grades as loaded into the water equipment

shall govern for delivery purposes. Delivery

in the greater St. Louis river-loading area

must be made at regular warehouses or

shipping stations providing water loading

facilities and maintaining water depth equal

to the average draft of the current barge

loadings in this delivery area. Official

weights and official grades as loaded into the

water equipment shall govern for delivery

purposes.]

17. To change and to supplement

Regulation 1081.01(14)E by retaining it and

changing it to read as follows:

[Soybeans. The warehouseman or shipper

is not required to furnish transit billing on

soybeans represented by warehouse receipt

or shipping certificate delivery in Toledo,

Ohio. Delivery shall be flat.]

18. To change and to supplement the first

paragraph of the applicant’s declaration

contained in Regulation 1085.01 to read as

follows:

We, the llll (hereinafter called the

Warehouseman/Shipper) owner or lessee of

the warehouse located at llll or

shipping station located at mile marker

llll [of the llll River,] having a

storage capacity * * *.

19. To change and to supplement appendix

4E, paragraph 2, by eliminating the sentence

which reads, ‘‘The net worth of a firm regular

to deliver corn or soybeans must be greater

than or equal to $40,000,000.’’

The Commission has determined that

publication of the Proposed Order for public

comment will assist the Commission in its

consideration of these issues. Accordingly,

the Commission is requesting written

comments from interested members of the

public.

Issued in Washington, D.C., this 16th day

of September, 1997, by the Commodity

Futures Trading Commission.

Catherine D. Dixon,

Assistant Secretary of the Commission.

[FR Doc. 97–24948 Filed 9–19–97; 8:45 am]

BILLING CODE 6351–01–P

COMMODITY FUTURES TRADING

COMMISSION

Sunshine Act Meeting

AGENCY HOLDING THE MEETING:

Commodity Futures Trading

Commission.

TIME AND DATE: 11:00 a.m., Friday,

October 31, 1997.

PLACE: 1155 21st St., N.W., Washington,

D.C. 9th Fl. Conference Room.

STATUS: Closed.

MATTERS TO BE CONSIDERED: Surveillance

Matters.

CONTACT PERSON FOR MORE INFORMATION:

Jean A. Webb, 202–418–5100.

Jean A. Webb,

Secretary of the Commission.

[FR Doc. 97–25193 Filed 9–18–97; 11:28 am]

BILLING CODE 6351–01–M

COMMODITY FUTURES TRADING

COMMISSION

Sunshine Act Meeting

AGENCY HOLDING THE MEETING:

Commodity Futures Trading

Commission.

TIME AND DATE: 11:00 a.m., Friday,

October 24, 1997.

PLACE: 1155 21ST ST., N.W., WASHINGTON,

D.C. 9TH FL. CONFERENCE ROOM.

STATUS: Closed.

MATTERS TO BE CONSIDERED: Surveillance

Matters.

CONTACT PERSON FOR MORE INFORMATION:

Jean A. Webb, 202–418–5100.

Jean A. Webb,

Secretary of the Commission.

[FR Doc. 97–25194 Filed 9–18–97; 8:45 am]

BILLING CODE 6351–01–M

COMMODITY FUTURES TRADING

COMMISSION

Sunshine Act Meeting

AGENCY HOLDING THE MEETING:

Commodity Futures Trading

Commission.

TIME AND DATE: 11:00 a.m., Friday,

October 17, 1997.

PLACE: 1155 21st St., N.W., Washington,

D.C. 9th Fl. Conference Room.

STATUS: Closed.

MATTERS TO BE CONSIDERED: Surveillance

Matters.

CONTACT PERSON FOR MORE INFORMATION:

Jean A. Webb, 202–418–5100.

Jean A. Webb,

Secretary of the Commission.

[FR Doc. 97–25195 Filed 9–18–97; 11:28 am]

BILLING CODE 6351–01–M

COMMODITY FUTURES TRADING

COMMISSION

Sunshine Act Meeting

AGENCY HOLDING THE MEETING:

Commodity Futures Trading

Commission.

TIME AND DATE: 11:00 a.m., Friday,

October 10, 1997.

PLACE: 1155 21st St., N.W., Washington,

D.C. 9th Fl. Conference Room.

STATUS: Closed.

MATTERS TO BE CONSIDERED: Surveillance

Matters.

CONTACT PERSON FOR MORE INFORMATION:

Jean A. Webb, 202–418–5100.

Jean A. Webb,

Secretary of the Commission.

[FR Doc. 97–25196 Filed 9–18–97; 8:45 am]

BILLING CODE 6351–01–M

COMMODITY FUTURES TRADING

COMMISSION

Sunshine Act Meeting

AGENCY HOLDING THE MEETING:

Commodity Futures Trading

Commission.

TIME AND DATE: 11:00 a.m., Friday,

October 3, 1997.

PLACE: 1155 21st St., N.W., Washington,

D.C. 9th Fl. Conference Room.

STATUS: Closed.

MATTERS TO BE CONSIDERED: Surveillance

Matters.

CONTACT PERSON FOR MORE INFORMATION:

Jean A. Webb, 202–418–5100.

Jean A. Webb,

Secretary of the Commission.

[FR Doc. 97–25197 Filed 9–18–97; 11:28 am]

BILLING CODE 6351–01–M

COMMODITY FUTURES TRADING

COMMISSION

Sunshine Act Meeting

AGENCY HOLDING THE MEETING:

Commodity Futures Trading

Commission.

TIME AND DATE: 2:00 p.m., Monday,

October 27, 1997.

PLACE: 1155 21st St., N.W., Washington,

D.C., 9th Fl. Conference Room.

STATUS: Closed.

MATTERS TO BE CONSIDERED:

Adjudicatory Matters.

CONTACT PERSON FOR MORE INFORMATION:

Jean A. Webb, 202–418–5100.

Jean A. Webb,

Secretary of the Commission.

[FR Doc. 97–25198 Filed 9–18–97; 11:28 am]

BILLING CODE 6351–01–M