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[Federal Register: December 1, 1997 (Volume 62, Number 230)]
[Notices]
[Page 63529-63532]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01de97-59]

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COMMODITY FUTURES TRADING COMMISSION


Chicago Board of Trade Futures Contracts in Corn and Soybeans;
Draft Proposed Revisions to Delivery Specifications

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of, and Request for Public Comment on, Draft Proposed
Revisions by the Chicago Board of Trade to Delivery Specifications on
Corn and Soybean Futures Contracts.

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SUMMARY: The Commodity Futures Trading Commission (Commission) on
November 7, 1997, issued an Order changing and supplementing under
section 5a(a)(10) of the Commodity Exchange Act (Act), 7 U.S.C.
7a(a)(10), the delivery terms of the corn and soybean futures contracts
of the Board of Trade of the City of Chicago (CBT). The CBT previously
had submitted proposed changes to the delivery specifications of its
corn and soybean futures contracts 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 November 7 Order changed and
supplemented the CBT proposal for its soybean futures contract by
making changes relating to the delivery locations proposed by the CBT
and for both its soybean and corn futures contracts by making changes
relating to the locational price differentials proposed by the CBT, to
a contingency rule proposed by the CBT and to a minimum net worth
requirement for eligibility to issue shipping certificates proposed by
the CBT. The November 7 Order also provided that the CBT was not
precluded ``from submitting for Commission review and approval under
sections 5a(a)(10) and 5a(a)(12) of the Act any alternative proposed
delivery specifications for its corn or soybean futures contracts.''
    The CBT on November 18, 1997, provided to the Commission draft
proposed revisions to the corn and soybean futures contracts which,
although approved by the CBT Board of Directors, have not yet been
presented to the CBT membership for its approval. Those draft proposed
revisions contain delivery specifications different from those
contained in the Commission's November 7 Order.
    The Commission is providing notice of the CBT's draft proposed
revisions in order to provide the public with an opportunity to comment
to the Commission on them. The Commission has determined that
publication of the CBT's draft proposed revisions 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: Comments must be received by January 15, 1998.

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
[[email protected]]. Reference should be made to ``Corn and Soybean
Delivery Points; Draft Proposed Revisions.''

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 [[email protected]].

SUPPLEMENTARY INFORMATION:

I. Background

    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

[[Page 63530]]

an opportunity to make appropriate changes in such rules and
regulations. If the contract market within seventy-five days of such
notification 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, by letter dated December 19, 1996, commenced a
proceeding under section 5a(a)(10) of the Act by issuing to the CBT a
notification 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 CBT, on April 16, 1997, submitted its response to the section
5a(a)(10) notification in the form of proposed exchange rule
amendments. Those proposed rule amendments would have replaced the
existing delivery system involving delivery of warehouse receipts
representing stocks of grain stored at terminal elevators in Chicago,
Toledo, and St. Louis with delivery of shipping
certificates.<SUP>1</SUP> A shipping certificate would have provided
for corn or soybeans to be loaded into a barge at one of the shipping
stations located along a 153-mile segment of the Illinois River from
Chicago (including Burns Harbor, Indiana) to Pekin, Illinois and
additionally to be delivered in Chicago by rail or vessel. Delivery at
all eligible locations would have been at par. The CBT's proposal would
have eliminated the current delivery points on its corn and soybean
futures contracts at Toledo, Ohio and St. Louis, Missouri and would
have restricted firms eligible to issue shipping certificates to those
meeting a minimum net worth requirement of $40 million, in addition to
a number of other requirements.
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    \1\ A shipping certificate is a negotiable instrument that
represents a commitment by the issuer to deliver (e.g., 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.
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    The Commission published the substance of the CBT's proposed
amendments in the Federal Register for public comment, receiving almost
700 comments, the largest number of comments ever received by the
Commission on any issue before it. In addition, at the request of the
CBT, the Commission held a public meeting on June 12, 1997, to accept
oral and written statements by the CBT and interested members of the
public. 62 FR 29107 (May 29, 1997).
    On September 15, 1997, the Commission issued a proposed order,
publishing its text in the Federal Register with a request for public
comment. 62 FR 49474 (September 22, 1997). Over 230 commenters
submitted comments to the Commission on the proposed order. In
addition, the Commission held a public meeting on October 15, 1997, at
which the CBT was afforded an opportunity to appear before the
Commission and to be heard. Subsequently, the CBT filed written
exceptions to the proposed order.
    On November 7, 1997, the Commission issued a final Order to the CBT
under section 5a(a)(10) of the Act. 62 FR 60831 (November 13, 1997)
(November 7 Order or Order). The Commission's Order found that the
CBT's proposal failed to meet the requirements of sections 5a(a)(10),
5a(a)(12), 8a(7), and 15 of the Act because of (1) an inadequate amount
of deliverable supplies of soybeans; (2) the failure to include
required locational differentials; (3) the failure to provide an
adequate rule for alternative deliveries if river transportation were
obstructed; and (4) the substantial impediment to eligibility for
issuing corn and soybean shipping certificates imposed by the CBT's
proposed $40 million minimum net worth requirement.
    Based on these findings, the Commission changed and supplemented
the delivery locations for CBT's soybean futures contract by retaining
the Toledo, Ohio switching district and the St. Louis/East St. Louis/
Alton areas as delivery locations, with Toledo priced at par and the
St. Louis/East St. Louis/Alton area priced 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. The Commission also required that both
corn and soybeans from shipping locations on the northern Illinois
River be 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 ordered that the
contingency plan for alternative delivery procedures when traffic on
the northern Illinois River is obstructed be changed and supplemented
and that the $40 million minimum net worth eligibility requirement for
issuers of shipping certificates be eliminated. The Commission ordered
that the contract terms as changed and supplemented would apply
beginning with contract months in the year 2000 and that the
preexisting contract terms would apply to contract months in the year
1999.
    The Commission's Order did not ``preclude( ) the CBT from
submitting for Commission review and approval under sections 5a(a)(10)
and 5a(a)(12) of the Act any alternative proposed delivery
specifications for its corn or soybean futures contracts.'' 62 FR
60833. To the contrary, the Order provided that the CBT--

    Will continue to be free to propose revisions of the new terms
to the Commission for its consideration under sections 5a(a)(10) and
5a(a)(12) or to submit a petition to the Commission to reconsider or
to amend this Order. If the CBT believes that an alternative to the
new terms and to its original proposal would better serve its
business interests and would also meet the statutory requirements,
the CBT should submit such a proposed rule revision or petition.

Id. at 60834.
    By letter dated November 17, 1997, the CBT on November 18, 1997,
notified the Commission that it would be submitting for Commission
review such an alternative for contract months in the year 2000 and
thereafter. Proposed revisions of the CBT corn and soybean futures
contracts will be submitted to the CBT membership for its approval in
mid-December 1997, and the CBT expects to submit the proposed revisions
for Commission review and action upon membership approval. However, the
CBT has requested that the Commission seek public comment at this time
on the draft proposed revisions in anticipation of the CBT's receiving
the requisite approval of its membership in order to expedite the
Commission's consideration and review of them. The Commission has
determined that publication of the draft proposed revisions at this
time is in the public interest and will assist the Commission in its
consideration of these issues.

II. CBT's Draft Proposed Revisions

    CBT's draft proposed revisions for contract months in the year 2000
and thereafter would have the following terms. The soybean futures
contract would call for shipping certificate

[[Page 63531]]

delivery from shipping stations located along the entire Illinois River
(extending from Chicago and including Burns Harbor, Indiana, to
Grafton, Illinois at the river's mouth) and that portion of the upper
Mississippi River from the mouth of the Illinois River to St. Louis.
Delivery at Chicago/Burns Harbor would be at par, and delivery at other
locations would be at the following premiums: shipping stations located
along the Illinois River from river mile 304 at the junction of the
Calumet Sag Channel and the Chicago Sanitary & Ship Canal to river mile
170 between Chillicothe and Peoria would be priced at a premium of 2
cents per bushel; shipping stations located from river mile 170 to the
mouth of the Illinois River at Grafton would be priced at a premium of
3 cents per bushel; and shipping stations located at the St. Louis/East
St. Louis/Alton delivery area would be priced at a premium of 5 cents
per bushel.
    The corn futures contract would retain the delivery locations
contained in the Commission's November 7 Order: shipping stations
located along that portion of the northern Illinois River from Chicago
(including Burns Harbor, Indiana) to Pekin, Illinois. Delivery at
Chicago/Burns Harbor would be at par; delivery from shipping stations
located along the Illinois River from river mile 304 at the junction of
the Calumet Sag Channel and the Chicago Sanitary & Ship Canal to river
mile 170 between Chillicothe and Peoria would be priced at a premium of
2 cents per bushel; and delivery from river mile 170 to river mile 151
at Pekin would be at a premium of 3 cents per bushel.
    To qualify for regularity, a shipping certificate issuer would have
to register to load a minimum of 3 barges per day at Chicago/Burns
Harbor and at St. Louis/East St. Louis/Alton (for soybeans) and one
barge per day at all other locations. In addition, a regular issuer
would have to be capable of registering a minimum number of
certificates equivalent to 30 barges (1,650,000 bushels) of corn or
soybeans. A shipper would also have to have a net worth equivalent to
four times the value of the certificates issued and could not issue
certificates for an amount greater than 30 times its registered daily
barge-loading capacity or, in the case of Chicago, its registered
storage capacity. The contracts would also provide a contingency plan
in case of obstructions to river traffic that would require a shipper
to make the product available in a loaded barge with freight pre-paid
to New Orleans at an Illinois or Mississippi River location below the
obstruction. The receiver would be obligated to reimburse the shipper
at a flat specified rate (detailed below) intended to cover the cost of
shipping from the original shipping station to New Orleans.
    The quality specifications, unit of trading, delivery months, last
trading day, price basis, price fluctuation limits, and speculative
position limits for the corn and soybean futures contracts would be the
same as those for the respective existing futures contracts.
    The terms of CBT's draft proposed revisions differ in a number of
ways from the contract terms contained in the Commission's November 7
Order. In particular, for soybeans the draft proposed revisions would
delete Toledo, Ohio as a delivery point, but add shipping stations on
the Illinois River from Pekin to the river's mouth. In addition, for
both corn and soybeans the draft proposed revisions would establish a
fixed cents per bushel price differentials for all non-par locations
within a specified ``region,'' in contrast to the Commission's Order
which established separate price differentials for each non-par
location based on the difference between 150% of tariff rate applicable
to that shipping station and 150% of tariff rate applicable to Chicago.
    The CBT's draft proposed revisions would also establish a new
regularity requirement on shipping certificate issuers which is not
contained in the Commission's Order. Specifically, issuers would have
to register a minimum number of shipping certificates equivalent to 30
barges (1,650,000 bushels) of corn or soybeans. In addition, the CBT's
draft proposed revisions for soybeans would require issuers at St.
Louis/East St. Louis/Alton to load three barges per day, rather than
one barge per day as provided in the Commission's Order.
    Finally, the reimbursement method for makers of delivery under the
draft proposed revisions to the contingency rule would be different
from that established in the Commission's Order. In particular, the
draft proposed revisions would require shippers affected by a river
obstruction to make the product available in a loaded barge with
freight pre-paid to New Orleans at an Illinois or Mississippi river
location below the obstruction. Under the Order, the shipper is merely
required to provide the product at a shipping station below the
obstruction. In addition, under the CBT's draft proposed revisions, the
receiver would be obligated to reimburse the shipper at a fixed rate
intended to cover the full cost of shipping the product from the
original shipping station to New Orleans, set at 20 cents per bushel
for Chicago/Burns Harbor issuers, 16 cents per bushel for northern
Illinois River issuers, 12 cents per bushel for southern Illinois River
issuers, and for soybeans only, 7 cents per bushel for St. Louis/East
St. Louis/Alton issuers. Under the Commission's Order, reimbursement is
made based on the difference in barge freight to New Orleans from the
original shipping station and the alternative shipping station,
calculated at 150% of the tariff rate applicable to the respective
stations, and thus is the same as the method of establishing locational
differentials between delivery locations under normal (non-contingency)
situations.
    The complete text of the CBT's draft proposed revisions for the
corn and soybean futures contracts can be accessed through the
Commission's internet web site, at http://www.cftc.gov., ``What's
Pending,'' and is also available by request from the Commission's
Office of the Secretariat at the address noted above.

III. Procedure for Commission Review

    The CBT's letter of November 17, 1997, indicated the CBT's
intention to file its proposed revisions as applications for contract
market designations and to request ``fast track'' review ``pursuant to
Section 5a(a)(12) of the Act and CFTC regulation rule 1.41.'' The
Commission finds that upon submission by the CBT the proposed revisions
will be ineligible for fast track consideration under the Commission's
rules for the following reasons. The Commission has issued a final
Order under section 5a(a)(10) of the Act relating to the contract terms
of the CBT's corn and soybean futures contracts. The CBT's proposed
revisions to that Order pose difficult economic and legal issues which
cannot appropriately be addressed under the summary fast track
procedures. Moreover, the Commission recognizes that the broad public
interest in this issue requires that the public be given an adequate
opportunity to comment on the proposed revisions. Therefore, the
Commission will consider the proposed revisions, when submitted by the
CBT, under the provisions of sections 5a(a)(10), 5a(a)(12) and 6 of the
Act (and other provisions of the Act, as applicable) and not under the
fast track procedures.
    Even though the Commission finds that the CBT's proposed revisions
will be ineligible for fast track review when submitted, it intends to
act expeditiously on them. Moreover, the Commission believes that
publication of the CBT's draft proposed revisions for a

[[Page 63532]]

comment period of forty-five days will provide sufficient time for
public consideration of these issues and will look with disfavor upon
requests for extension of the comment period.
    Accordingly, for the above reasons, the Commission finds that
publication of the CBT's draft proposed revisions is in the public
interest and will assist the Commission in its consideration of these
issues. Commenters are invited to analyze the following issues relating
to the CBT's draft proposed revisions and to submit written data, views
or comments relating to the draft proposed revisions:
    1. Would available deliverable supplies of corn and soybeans be
sufficient ``to tend to prevent or diminish price manipulation, market
congestion, or the abnormal movement of such commodity in interstate
commerce,'' as required by the Act?
    2. Would the price differentials for delivery at non-par locations
appropriately reflect cash market price differentials for corn or
soybeans at such locations relative to each commodity's value at the
par delivery point of Chicago, Illinois?
    3. Would the proposed load-out provisions calling for three barges
per day at Chicago/Burns Harbor and at St. Louis/East St. Louis/Alton
(for soybeans) and one barge per day at all other locations conform to
commercial practices?
    4. Under the contingency plan for river obstructions, the maker
would be required to provide the product in loaded barges cif New
Orleans. Would the reimbursement to makers of delivery reflect
commercial practices? How does the reimbursement scheme relate to the
locational price differentials for non-contingency conditions?
    5. Would the minimum net worth requirements be necessary to ensure
performance on the corn and soybean futures contracts? Do they unduly
limit eligibility of firms to become issuers of shipping certificates?

    Issued in Washington, D.C., this 26th day of November, 1997, by
the Commodity Futures Trading Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 97-31534 Filed 11-28-97; 8:45 am]
BILLING CODE 6351-01-P
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