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[Federal Register: July 8, 1997 (Volume 62, Number 130)]
[Notices]
[Page 36499-36501]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08jy97-35]

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COMMODITY FUTURES TRADING COMMISSION.


Chicago Board of Trade Futures Contract in Wheat; Request for
Public Comment on Delivery Point Specifications

AGENCY: Commodity Futures Trading Commission.

ACTION: Request for Public Comment on the Delivery Specifications of
the Chicago Board of Trade's Wheat Futures Contract.

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SUMMARY: The Commodity Futures Trading Commission (``Commission''), by
letter dated December 19, 1996, issued a request to the Board of Trade
of the City of Chicago (``CBT'') to undertake a study of the delivery
specifications of its wheat futures contract and to submit its findings
to the Commission by April 18, 1997, 120 days from the date of the
Commission's request. By letter dated April 18, 1997, the CBT responded
by providing a status report to the Commission of its actions. In that
response, the CBT reported that the CBT would refrain from acting on
the recommendations of the special task force which it had appointed
and would instead conduct market research to determine whether a
broader review of the contract not limited to its delivery terms should
be undertaken.

[[Page 36500]]

    The Commission is seeking public comment on various issues relating
to the current delivery specifications of the wheat futures contract.
The Commission has determined that it is in the public interest to do
so, and that such publication will assist the Commission in considering
the views of interested persons, and is consistent with the purposes of
the Commodity Exchange Act.

DATES: Comment must be received by August 22, 1997.

ADDRESSES: Comments should be mailed to the Commodity Futures Trading
Commission, Three Lafayette Centre, 1155 21st Street, N.W., Washington,
D.C. 20581, attention: Office of the Secretariat; transmitted by
facsimile at (202) 418-5521; or transmitted electronically to
[[email protected]]. Reference should be made to ``Wheat Delivery
Points.''

FOR FURTHER INFORMATION CONTACT: John Mielke, Acting Director, or Paul
M. Architzel, Chief Counsel, Division of Economic Analysis, Commodity
Futures Trading Commission, Three Lafayette Centre, 1155 21st Street,
N.W., Washington, D.C. 20581, (202) 418-5260, or electronically, Mr.
Architzel at [[email protected]].

SUPPLEMENTARY INFORMATION: The Commodity Futures Trading Commission
(``Commission''), by letter dated December 19, 1996, notified the Board
of Trade of the City of Chicago (``CBT''), under Section 5a(a)(10) of
the Act (``Act''), 7 U.S.C. Sec. 7a(a)(10), that the delivery terms of
the CBT corn and soybean futures contracts no longer accomplish the
statutory objectives of ``permit[ting] the delivery of any commodity *
* * at such point or points and at such quality and locational price
differentials as will tend to prevent or diminish price manipulation,
market congestion, or the abnormal movement of such commodity in
interstate commerce.'' (December notification). In addition, the
Commission instructed the CBT to consider immediately the adequacy of
the delivery specifications of its wheat futures contract.\1\ The
Commission directed the CBT to complete its consideration of, and to
report to the Commission on its consideration of them, within 120 days
of the notice--April 18, 1997.
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    \1\ The CBT's wheat futures contract provides for the delivery
of various grades and classes of wheat, but traditionally the
futures contract has priced No. 2 soft red winter wheat. Delivery is
made by the transfer of warehouse receipts representing wheat in
store at regular warehouses. Delivery may be made in Chicago at par,
in Toledo at a discount of 2 cents per bushel, and in St. Louis at a
premium of 8 cents per bushel.
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    The CBT responded by way of a status report. Letter dated April 18,
1997, to Chairperson Brooksley Born from Patrick H. Arbor.
Specifically, it reported that although a Task Force appointed by the
Board of Directors had recommended certain changes to the delivery
terms of the wheat futures contract, the Board had decided to refrain
from acting on those recommendations at this time. The CBT stated that
instead it would conduct a market research effort to determine whether
a broader review of the contract should be undertaken.
    In a subsequent letter dated April 30, 1997, to Chairperson Born,
Mr. Arbor maintained that, ``as the Commission is aware, the declining
warehouse capacity in Chicago has not had a material impact on the
CBOT's wheat contract given the active cash markets in Toledo and St.
Louis, the contract's other delivery points.'' Moreover, the CBT noted
that * * * ``the operation of the CBOT's wheat contract has not been
the focus of any `comprehensive studies' in recent years, nor has an
even arguable consensus emerged as to the existence or identity of a
problem. Finally, the CBT protested the Commission's plan to seek
public comment on these issues, questioning whether the ``Commission
plan[s] routinely to subject other contracts at the CBOT or other
exchanges to a comment process or public poll without having
substantiated any flaw in such contracts'' and maintaining that
``design and delivery issues are subject to potentially limitless
debate * * *.''
    The December notification relating to the delivery specifications
of the corn and soybean futures contracts was based on: (1) The
continuing diminution of the role of terminal markets in the cash
market for grain; (2) the increasing shift of the locus of the main
channels of commodity flows away from the delivery points on the
contracts, particularly the par-delivery point of Chicago; (3) the
continuing decline in cash market activity generally at the contracts'
delivery points, particularly Chicago; and (4) the serious, precipitous
drop in regular warehouse storage capacity at the Chicago delivery
point over the past fourteen months. The delivery specifications for
the CBT wheat futures contract are also subject to many of the same
trends that have affected adversely the corn and soybean contracts. For
example, the closure of terminal elevators at Chicago, the contract's
par delivery point, affects delivery capacity for wheat as surely as
for corn and soybean futures.\2\
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    \2\ In limiting the effect of the December notification under
section 5a(a)(10) of the Act to the CBT corn and soybean futures
contract, the Commission noted that ``the CBT wheat futures contract
[specifications] are also subject to many of the same trends which
have affected adversely the corn and soybean contracts.'' The
Commission did not include the wheat contract in the section
5a(a)(10) December notification on the basis of any determination
that its terms meet the Act's requirements, but rather to provide
the CBT a fuller opportunity to consider the issues related to wheat
before making any determination of the issue. The Commission
believed this was appropriate in light of the CBT's full
consideration of the issues relating to its corn and soybean
contracts during the previous year. 61 FR 67999.
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    Contrary to the CBT's contention that the wheat futures contract
has not been focus of any comprehensive studies in recent years, the
scope of several of the 1991 studies that were summarized in the
December notification included the delivery terms of the CBT wheat
contract, as well as the corn and soybean contracts. Indeed, the
Commission's study specifically analyzed possible revisions to delivery
specifications for the CBT's wheat contract, suggesting consideration
of a number of possible alternatives to address the problems in
deliverable supplies plainly evident by the time of the 1991 study.
These included: (1) An expanded Toledo delivery area; (2) shipping
certificate deliveries in an area focused near the confluence of the
Ohio and Mississippi rivers; or (3) a shipping certificate contract
deliverable to lower Mississippi River export elevators. In addition,
an October 11, 1995, letter from Commission Chairwoman Mary Schapiro to
the CBT expressing the Commission's concerns regarding the adequacy of
the delivery provisions in light of the recent closure of Chicago
elevators specifically included reference to the wheat contract and
urged the CBT to take remedial action to correct the long-term problems
in these contracts, including the wheat futures contract.
    Although the Commission previously requested comment on the wheat
contract in connection with its publication of the December
notification and request for public comment, most commenters limited
the focus of their comments to the corn and soybean futures contracts,
the subject of the Section 5a(a)(10) notification. In view of the CBT's
determination to continue its research and study of these matters, the
Commission has concluded that public comment on these issues, including
potential changes to the wheat contract's delivery specifications, may
facilitate their consideration. It also will assist the Commission in
its consideration of the concerns identified

[[Page 36501]]

in the December notification relating to the CBT wheat futures
contract. The Commission is of the view that the public has an
important role to fulfill and a critical interest in a full airing of
these issues. Accordingly, the Commission is hereby separately
requesting written data and views from interested members of the public
relating to the CBT wheat contract. The submission of data relating to
cash market flows of No. 2 soft red winter wheat, relevant locational
price differentials, and other relevant economic evidence would be
especially useful. Commenters are specifically requested to address the
following issues:
    1. Does a problem exist with regard to the current delivery
specifications of the CBT wheat contract? If so, to what extent is the
problem a lack of adequate deliverable supplies at Chicago, Toledo, and
St. Louis? With respect to Toledo and St. Louis, are the differentials
on the contract set appropriately to reflect cash market price
differentials? What is the economic deliverable capacity at St. Louis
in light of the through-put nature of the facilities located there?
    2. To what extent do the current CBT delivery specifications for
wheat reflect flows of wheat in the cash market? To the extent that the
delivery terms of the futures contract differ from the wheat flows in
the cash market, does this have any detrimental impact on the trading
of the wheat futures contract or on the cash market for wheat?
    3. What is the likely effect of a failure to modify the current
delivery terms of the contract?
    4. What alternative delivery specifications are available to
increase deliverable supplies on the contract?
    In this respect, commenters are requested to address the following
questions, supplying, to the extent available, economic data or studies
in support of their conclusions:
    a. Given the declining role of Chicago as a cash market for wheat,
should it be retained as a delivery point on the futures contract?
    b. What are the advantages and disadvantages of expanding the
Toledo, Ohio delivery point to encompass off-water elevators in
neighboring counties?
    c. What are the advantages and disadvantages of expanding the St.
Louis, Missouri delivery point to encompass river stations and off-
water elevators in neighboring counties?
    d. What are the advantages and disadvantages of permitting delivery
at St. Louis via shipping certificates, rather than warehouse receipts?
Should such shipping certificates be backed by warehouse receipts at or
near that location or by financial guarantees of performance?
    e. If delivery at St. Louis by shipping certificate is advisable,
should other delivery points on the contract also provide for delivery
by shipping certificate? Is consistency of delivery instrument among
delivery points necessary or desirable? What is the likely effect of
lack of consistency in the type of delivery instrument for different
delivery points?
    f. What are the advantages and disadvantages of providing for
delivery via shipping certificates at elevators located: (i) On the
Mississippi River located between St. Louis and Memphis or (ii) on the
Mississippi River between St. Louis and Cairo and (iii) on the Ohio
River between Cairo and Louisville, Kentucky?
    g. What are the advantages and disadvantages of specifying delivery
to lower Mississippi River export elevators?
    5. Is there a single location, or a limited number of locations,
that offer either sufficient stocks or receive sufficient flows of one
class of wheat adequate to support futures trading and to tend to
prevent or diminish price manipulation, market congestion or the
abnormal movement of such commodity in interstate commerce?

    Issued in Washington, D.C., this 1st day of July, 1997 by the
Commodity Futures Trading Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 97-17721 Filed 7-7-97; 8:45 am]
BILLING CODE 6351-01-P
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