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[Federal Register: October 29, 1998 (Volume 63, Number 209)]
[Notices]
[Page 58016-58017]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29oc98-47]

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COMMODITY FUTURES TRADING COMMISSION


Chicago Mercantile Exchange: Proposed Amendments to the Cash
Settlement Provisions of the CME Russian Ruble Futures Contract

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of availability of proposed amendments to the terms and
conditions of commodity futures contract.

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SUMMARY: The Chicago Mercantile Exchange (CME or Exchange) has
submitted proposed amendments related to the cash settlement provisions
of its Russian ruble futures contract. Under the proposal, the CME
would no longer base the cash settlement price of the Russian Ruble
futures contract on the reciprocal of the daily rubles per dollar spot
exchange rate as determined by the Moscow Interbank Currency Exchange
(MICEX). Rather, the CME would base the cash settlement price on two
surveys performed by the CME clearing house at random times on the last
day of trading. The survey procedure would be similar to the procedure
used for the daily survey that, under current rules, is used as a
backup procedure for cash settlement of the Russian ruble futures
contract.
    The Commission has determined that publication of the proposal for
comment is in the public interest, will assist the Commission in
considering the views of interested persons, and is consistent with the
purpose of the Commodity Exchange Act.

DATES: Comments must be received on or before November 13, 1998.

ADDRESSES: Interested persons should submit their views and comments to
Jean A. Webb, Secretary, Commodity Futures Trading Commission, Three
Lafayette Centre, 1155 21st Street, NW Washington, DC 20581. In
addition, comments may be sent by facsimile transmission to facsimile
number (202) 418-5521, or by electronic mail to [email protected].
Reference should be made to the proposed amendments to the CME Russian
Ruble futures contract.

FOR FURTHER INFORMATION CONTACT: Please contact Michael Penick of the
Division of Economic Analysis, Commodity Futures Trading Commission,
Three Lafayette Centre, 1155 21st Street NW, Washington, 20581,
telephone (202) 418-5279. Facsimile number: (202) 418-5527. Electronic
mail: [email protected]

SUPPLEMENTARY INFORMATION: Under current rules for the CME ruble
futures contract, the cash settlement price is the reciprocal of the
spot rate of Russian rubles per US dollar determined by the Moscow
Interbank Currency Exchange on the last day of trading. In the event
that MICEX does not determine and/or disseminate that spot exchange
rate on the last trading day, CME rules provide for a "backup"
procedure to establish an alternative cash settlement price. That price
is based on the results of a daily survey by the CME of Russian ruble-
US dollar interbank market participants.
    Under the backup procedure, the CME surveys at least twelve
financial institutions that are active participants in the spot and/or
non-deliverable forward markets. At 11:00 a.m. Moscow time, each
participant is asked for its perception of the prevailing bid and the
prevailing offer for a typically sized Russian ruble per US dollar spot
transaction in the Moscow marketplace. If the CME receives more than
eight responses, eight institutions are randomly selected for use in
the rate calculation. The midpoint of each of the eight bid/offer pairs
is determined, and the highest two and the lowest two midpoints are
eliminated. The remaining four midpoints are averaged, and the
reciprocal of that average is the daily rate, which could be used as
the final settlement price, as noted above. If the CME is unable to
obtain eight responses, but is able to obtain at least five responses,
then the CME determines the midpoint of each bid/offer pair, eliminates
the highest and the lowest midpoint, and averages the remaining
midpoints. The reciprocal of that average is the final settlement
price. If fewer than five responses are received, then the CME would
invoke its emergency provisions to settle the expiring contract.
    Under the proposal, the CME would modify the cash settlement
provisions by removing reference to the MICEX spot exchange rate and by
establishing a new survey procedure for deriving a ruble/dollar
exchange rate for cash settlement. Specifically, the CME would perform
two surveys of financial institutions at randomly selected times

[[Page 58017]]

during MICEX's afternoon System for Electronic Trading (SELT) session
for transactions between commercial banks (currently conducted between
12:00 noon and 4:30 p.m. Moscow time) on each Moscow business day.\1\
The rubles per dollar exchange rate would be calculated for each of the
two daily surveys, generally using the same methodology described above
for the single survey in the current backup procedure (including the
number of survey participants and the elimination of high and low
midpoints). The final settlement price would be the reciprocal of the
average of the two rubles-per-dollar exchange rates calculated from the
two surveys on the last trading day.
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    \1\ According to Bloomberg Business News, on October 6, 1998,
MICEX implemented two daily trading sessions--a morning session for
importers and exporters and an afternoon session for transactions
between commercial banks.
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    During each survey, the CME would ask participants for two separate
rubles per dollar exchange rates as well as an overnight interbank
ruble interest rate. Those two rubles per dollar exchange rates would
be a "today rate" (the exchange rate for same-day settlement) and a
"tomorrow rate" (the exchange rate for settlement on the next Moscow
business day).\2\ In its calculation of the final settlement price, the
CME would use the today rate from each participant that provides a
today rate. If any participant provides a tomorrow rate and overnight
interest rate, but not a today rate, the CME would calculate an
"implied today rate" for such participants. The implied today rate is
calculated using the interest rate parity relation based on the
tomorrow rate, the overnight ruble interest rate, and the federal funds
overnight U.S. dollar interest rate.\3\ Thus, under the proposal, the
result of any single survey (and, thus, the cash settlement price)
could consist of a mixture of actual and implied today rates.
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    \2\ After the afternoon MICEX session, trading is currently
allowed only for settlement on the next Moscow business day.
    \3\ In this case, the tomorrow rate and overnight ruble interest
rate used would be average rates calculated from the daily survey
results. The federal funds rate would be obtained from Telerate.
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    In the event that the CME were unable to complete both daily
surveys on the last trading day, the CME would calculate the final
settlement price based on two surveys, performed under the same
procedures, conducted on the Moscow business day following the last
trading day. If the CME were also unable to complete two surveys on the
second day, then the final settlement price would be based on the
survey results from the most recent business day prior to the last
trading day on which two surveys were successfully completed.
    The CME proposes to implement the proposed amendments to the cash
settlement provisions immediately upon Commission approval.
Specifically, the amendments would apply to all currently listed
contract months with open interest. The last such contract is the June
1999 contract. The CME delisted existing contract months with no open
interest on October 7, 1998, and has suspended the listing of
additional contract months. The Commission would review pursuant to
Commission Regulation 1.41 any proposal by the CME to list additional
months in the Russian ruble futures contract.
    The Commission requests comment on the proposed changes and the
proposal to apply those amendments to existing positions and the
currently listed contact months. The Commission specifically requests
comment on whether the survey procedure will result in a cash
settlement price that is reflective of the underlying cash market and
otherwise meets the standards of the Commission's Guideline No. 1.\4\
In that regard, the Commission notes that the CME survey procedure is
designed to obtain an exchange rate for same-day settlement during the
afternoon MICEX session and that trading for same-day settlement is not
currently permitted during that MICEX session. The Commission also
requests comment on whether the CME procedure will result in a cash
settlement price that is not readily susceptible to manipulation or
distortion in light of the degree of liquidity of the Russian ruble
market. Specifically, will the procedures used by the CME, including
setting the cash settlement price based on two surveys conducted at
random times, tend to prevent market participants from influencing the
cash settlement price? Finally, in the current environment and given
the proposed cash settlement provisions, can the Russian ruble contract
be used for hedging or price discovery?
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    \4\ The Commission's Guideline No. 1 (17 CFR Part 5, Appendix A
Sec. (a)(2)(iii)) requires, for cash settled contracts, that the
cash price series must be reflective of the underlying cash market
and be reliable, acceptable, publicly available, and timely and not
readily susceptible to manipulation.
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    Copies of the proposed amendments will be available for inspection
at the Office of the Secretariat, Commodity Futures Trading Commission,
Three Lafayette Centre, 1155 21st St., NW, Washington, D.C. 20581.
Copies of the proposed amendments can be obtained through the Office of
the Secretariat by mail at the above address or by phone at (202) 418-
5100.
    Other materials submitted by the CME may be available upon request
pursuant to the Freedom of Information Act (5 U.S.C. 552) and the
Commission's regulations thereunder (17 CFR Part 145 (1987)), except to
the extent they are entitled to confidential treatments as set forth in
17 CFR 145.5 and 145.9. Requests for copies of such materials should be
made to the FOI, Privacy and Sunshine Act Compliance Staff of the
Office of the Secretariat at the Commission's headquarters in
accordance with 17 CFR 145.7 and 145.8.
    Any person interested in submitting written data, views, or
arguments on the proposed amendments, or with respect to other
materials submitted by the CME, should send such comments to Jean A.
Webb, Secretary, Commodity Futures Trading Commission, Three Lafayette
Centre, 1155 21st St., NW, Washington, DC 20581 by the specified date.

    Issued in Washington, DC, on October 23, 1998.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 98-28983 Filed 10-28-98; 8:45 am]
BILLING CODE 6351-01-M
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