DIVISION OF 

TRADING AND MARKETS 

Re: 

Dear 

COMMODITY FUTURES TRADING COMMISSION 

2033 K STREET, N.W., WASHINGTON, D.C. 20561 

(202) 254-6955 

(202) 254-3534 FACSIMILE 

June 9, 1992 

Request for Relief from 

Regulation § 32.2(a) 

This is in response to your letter dated April 20, 1992, to 

the Division of Trading and Markets (the "Division") of the 

Conunodity Futures Trading Conunission (the "Conunission"). By your 

letter, you request on behalf of 1, Inc., (" ") 

that the staff confirm that it will not recommend that the 

Commission take any enforcement action against if it offers 

and sells options on agricultural commodities to certain commercial 

couunterparties as more fully described below. 

Based upon the representations made in your letter, we 

understand that the facts are as follows·. is a commodity 

merchant and processor having total assets and net worth in excess 

of $ It engages in a wide variety of physical and 

derivative commodity transactions throughout the world. In the 

past, 's activities were concentrated in energy commodities, 

but it has recently entered the agricultural commodity business. 

In connection with its agricultural commodity business, 

seeks to engage in the same type of agricultural commodity 

transactions as it now engages in for energy commodities. 

Specifically, proposes to engage in large, customized risk 

reduction and risk management transactions with qualified trade 

member counterparties. Such transactions would include swap, spot 

and forward transactions, and provided the relief requested herein 

is granted, agricultural option transactions. 

You represent that 's proposed agricultural options (the 

"Options") would fully comply with the requirements of the 

Commission'q trade option rule enumerated in Regulation 32.4,11 except insofar as they would be options involving 

agricultural commodities. Specifically, would offer the Options only to persons who will represent to that they are, 

11 Commission rules and regulations referred to herein are found 

at 17 C.F.R. Ch. I (1991). 
Page 2 

and who reasonably believes are, processors, commercial 

users of, or merchants handling, the agricultural product that is 

the subject of the Option or the products or byproducts thereof, 

and who are offered or entering into the Option transaction solely 

for purposes related to their business as such. Although Regulation 32.4(a) also includes producers of the relevant commodity and 

its byproducts as permissible offerees, represents that it 

will not offer or sell the Options to producers of agricultural 

products. 

In further support of the requested relief, you represent that 

the Option transactions will be undertaken subject to the following 

limitations: 

(a) Options will be offered only to agricultural processors, 

manufacturers and merchants with assets in excess of $10 million 

and/or a net worth in excess of $5 million who otherwise qualify as 

permissible trade option offerees under Rule 32.4(a); 

(b) each Optio~ yill be customized to meet the specific needs 

of the counterparty;- and · 

(c) the minimum transaction size will be 1,000,000 bushels 

(or the equivalent for those agricultural commodities not measur~d 

in bushels). 

As you are aware, the Commission has proposed rule amendments 

which would, among other things, repeal Rule 32.2, which generally 

prohibits option·transactions involving agricultural commodities, 

and amend R~l/ 32.4 (a) to permit trade options on agricultural 

commodities.- You state that the relief requested should not 

be withheld pending the Commission's determination whether to adopt 

the proposed rule amendments because needs to act expeditiously in order to make available a particular transaction to an 

agricultural commodity processor which has a time-sensitive need to 

cap its cost of an agricultural product for a seven-year period. 

You al9o note that your request seeks narrower relief than 

would be effected by a complete repeal of the prohibition against 

agricultural trade options and that the requested relief would 

permit to "facilitate agricultural price protection programs 

to an extent not now possible through the use of exchange-traded 

options." In addition, you note that is well qualified on 

ll For example, the terms of the Options could provide for annual 

average pricing or have long durations, i.e., up to 10 years, 

depending on the risk management needs of the counterparty. 

11 See 56 Fed. Reg. 43560 (Sept. 3, 1991). 
Page 3 

the basis of financial resources and professional expertise to 

offer and manage the proposed Options. 

Based upon the pertinent facts as represented, the staff will 

not recommend that the Commission take any enforcement action for 

violations of Rules 32.2 and 32.4 based solely upon 's offer 

and sale of the Options to qualified processors, manufacturers and 

merchants of agricultural products and byproducts with assets in 

excess of $10 million and/or a net worth in excess of $5 million, 

as specified above and in your letter of April 20, 1992. 

The position we have taken herein relates solely to 's 

offer and sale of the Options as described herein and in your 

letter of April 20, 1992, and is based upon the representations 

that you have made to us. Any different, changed or omitted facts 

or conditions might require us to reach a different conclusion. 

This position does not excuse from complying with any 

otherwise applicable provisions of the Commodity Exchange Act or 

the regulations promulgated thereunder. In this connection, we 

request that you notify us immediately in the event that the 

activities of change in any way from those as represented to 

us. It also should be noted that this position is that of the 

staff and is not binding upon the Commission. 

Ve.ry ·.trul/YOt1rS 1 1// ! ·} ? ,/ 

l/; ... / ;.: ' ' // (/ '• I I · ...... ,_/~···<-"···-· I .· I '"('•-''•·""• ,• v I " A. •.• 

~drea M. Cor6or~n 

Co-Chairmen 

Task Force on Off-Exchange 

Instruments