DIVISION OF 

ECONOMIC ANALYSIS 

COMMODITY FUTURES TRADING COMMISSION 

2033 K STREET, N.W., WASHINGTON, D.C. 20581 

(202) 254-6265 FACSIMILE 

Of I- I 

July 17, 1991 

Paul J. Draths 

Vice President and Secretary 

Chicago Board of Trade 

LaSalle at Jackson 

Chicago, Illinois 60604 

Dear Mr. Draths: 

" By letter dated June 25, 1991, the Chicago Board of Trade 

( "CBT") requested that the Commodity Futures Trading Commission 

("Commission") consider a request to review its continued 

enforcement of the single-month speculative position limit in 

soybean oil for positions which are part of an inter-crop year 

spread. Subsequently, the CBT provided additional information by 

letter dated July 2, 1991 and in telephone conversations with 

Commission staff. 

··. In particular, the CBT letter of June 25, 1991; requests that 

the Commission 

not take any disciplinary or enforcement 

action against either the CBOT 1 under Sections 

5a(8), 6(a), 6b, and 6c of the Commodity 

Exchange Act ••• and CFTC Rule 1.53, or any 

of its members, member firms or public 

customers, under Sections 6(b), 6(c) and 6c of 

the .CEA, for the period commencing upon 

receipt of this letter by the Commission 

through August 31, 1991, regarding trading.in 

the · CBOT Soybean Oil futures contract in 

excess of current inter-crop speculative 

spread position limits provided such trading 

is in compliance with intra-crop spread 

position limits • • • • 

Commission Rule 150.2 provides for speculative position limits 

in the CBT soybean oil contract in the amount of 54 0 units of 

60,000 pounds in the spot month or in any single month and 1,620 

units in al+-months combined. 17 C. F. R. §150. 2. In addition, 
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Commission Rule 150.3 provides that 

(t]he position limits set forth in §150.2 of 

this part may be exceeded to the extent such 

positions are: 

( 1 ) • • • 

(3) Spread or arbitrage positions between single months of a futures contract 

traded on the same board of trade outside of 

the spot month, in the same crop year; Provided however, That such spread· or 

arbitrage positions, when combined with any 

outright positions in the single month, do not 

exceed twice the single-month position limit 

for the futures contract set forth in §150.2 

of this part. • • • 

17 C.F.R. §150.3 (1991). CBT Rule 425.01 mirrors Commission Rules 

150.2 and 150.3. 

The CBT letter of June 25, 1991, represents that such relief 

is intended to enhance liquidity in Soybean 

Oil futures while reducing the anticompetitive effects of current position limit regulations through the end of the current crop year. 

Moreover, the CBOT' s request is consistent 

with recent amendments to the speculative 

position limits in agricultural futures and 

options which were approved by the CBOT 

membership and are currently pending before 

the Commission. • • • This no-action request 

is precipitated by the fact that approval of 

the proposed regulation amendments may not be 

finalized until long after current 

inter.:..crop spread trading has ceased in 

Soybean Oil futures. Therefore, this matter 

requires immediate attention. 

• Insofar as the deleterious 

effects of inter-crop year spread limits will 

disappear in August 1991 as the September 1991 

Soybean Oil futures contract becomes the spot mont~, no-action relief is ought only through 

August 31, 1991. It must be emphasized that 

neither this no-action request or the 

Exchange's pending rule submission seek to 

modify current CBOT and CFTC regulations for 

futures/futures spreads involving the spot month. 

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Current speculative spread position limits in Soybean Oil futures place severe 

restrictions on trading in the key months of 

July, August and September 1991 versus the 

October 1991 contract (the first listed month 

of the new crop year) and additional deferred 

months. Unlike other commodities, soybean oil 

is storable well beyond one year and does not 

fall into an old crop/new crop category •••• 

[T]his no-action request simply will make 

inter-crop year spread limits consistent with 

current intra-crop year spreads. 

The exemption from the individual month speculative position limits was promulgated by the Commission in response to a petition 

for rulemaking of the New York Cotton Exchange. 53 ~· ~ 

41563, 41566 (October 24, 1988). In adopting an inter-month spread exemption, the Commission was sensitive to the possibility that 

unusually large inter-month spread positions had the potential to 

disrupt the market when the individual l~gs of the spread involve · separate crop years. See Id. at 41565. This potential arises 

where the pricing characteristics of the commodity differ between 

crop years sufficiently so that the spread position acts more as 

two unrelated outright positions rather than as an offsetting 

position. Accordingly, the inter-month spread exemption was 

limited to months in the same crop year. 

The CBT has represented that current conditions in the soybean 

oil market are contrary to the above conditions. In particular, the unusually high stocks of soybean oil being carried over from 

the old crop year into the new has removed any pricing differential 

between old and new crop years other than customary carrying 

charges, so that the crop years are, in fact, indistinguishable. 

Moreover, the CBT Soybean Oil contract provides for delivery of 

warehouse receipts, which are also currently at high levels. 

The limitation of the inter-month spread exemption to months 

in the same crop-year was premised on the observed probability that 

the relationship between old and new crop years is one of scarcity 

versus abundance.. The actual conditions of the soybean oil market 

at this time are not consistent with the assumption underlying the 

limitation on the inter•month spread exemption to months in the 

same crop year. Accordingly, this limitation does not address a 

problem which exists in this particular market at this time. 

For the above reasons, and based upon the CBT' s 

representations, the .Division of Economic Analysis will not 

recommend to the Commission any enforcement action against the CBT 

under Sections 4a, Sa(8), 6(a), 6b and 6c.of the Commodity Exchange 

Act, (7 u.s.c. §§6a, 7a(8), 8(a), 13a, and 13a-1), or its rules 

thereunder, or against any trader under Sections 4a, 6(b) 6(c) and 

6c of the Commodity Exchange Act, (7 u.s.c. §§6a, S(a), 13a and 

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13a-1) or any of its rules thereunder, for exceeding the individual 

month speculative position limit in the CBT Soybean Oil contract to 

the extent that such positions are spread or arbitrage positions 

between single months of the CBT Soybean Oil futures contract 

outside of the spot month; provided however, that such spread or 

arbitrage positions, when combined with any outright positions in 

the single month, do not exceed 1,080 contracts. This no-action 

position is limited in its effect to the period from its date of 

issuance until August 31, 1991. 

The above position is based upon the CBT's representations in 

its letters of June 25, and July 2, 1991, and in telephone 

conversations with the staff. Any different, omitted, or changed 

facts or conditions might require a different conclusion. This 

position does not excuse compliance by the CBT or any individual ~rader with any other provision of the Commodity Exchange Act or 

Commission regulations, nor does it address trading requirements, 

particularly under Part 150 of the Commission~ s rules i in any other 

contract market, or in the CBT Soybean Oil market for any other 

period of time. It should also be noted that this position is.that 

of the Division of Economic Analysis, and is not binding upon the 

Commission or any other division or office of its staff. 

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