99-27734. Proposed Amendment To Convert the Kansas City Board of Trade's Western Natural Gas ``Flat Price'' Futures Contract to a ``Basis'' Future Contract

[Federal Register Volume 64, Number 205 (Monday, October 25, 1999)]
[Notices]
[Page 57442]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-27734]


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COMMODITY FUTURES TRADING COMMISSION


Proposed Amendment To Convert the Kansas City Board of Trade's 
Western Natural Gas ``Flat Price'' Futures Contract to a ``Basis'' 
Future Contract

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of availability of proposed amendments to contract terms 
and conditions.

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SUMMARY: The Kansas City Board of Trade (KCBT or Exchange) has 
submitted proposed amendments to its western natural gas futures 
contract related to the pricing of the contract. The proposed 
amendments were submitted under the Commission's 45-day Fast Track 
procedures which provides that, absent any contrary action by the 
Commission, the proposed amendments may be deemed approved on November 
26, 1999--45 days after the Commission's receipt of the proposals. The 
Acting Director of the Division of Economic Analysis (Division) of the 
Commission, acting pursuant to the authority delegated by Commission 
Regulation 140.96, has determined that publication of the proposals 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 9, 1999.

ADDRESSES: Interested persons should submit their views and comments to 
Jean A. Webb. Secretary, Commodity Futures Trading Commission, Three 
Lafayette Centre, 21st Street, NW Washington, DC 20581. In addition, 
comments may be sent by facsimile transmission to facsimile number 
[phone], or by electronic mail to [e-mail]. Reference 
should be made to the proposed amendments to the KCBT western natural 
gas futures contract.

FOR FURTHER INFORMATION CONTACT: Please contact Joseph B. Storer of the 
Division of Economic Analysis, Commodity Futures Trading Commission, 
Three Lafayette Centre, 21st Street NW, Washington, DC 20581, telephone 
[phone]. Facsimile number: [phone]. Electronic mail: 
[e-mail]

SUPPLEMENTARY INFORMATION: The existing terms of the western natural 
gas futures contract provide for prices to be quoted in dollars and 
cents per MMBtu. The proposed amendments will convert the existing 
``flat price'' futures contract to a ``basis'' futures contract, in 
that prices would be quoted as a differential to the New York 
Mercantile Exchange's (NYMEX's) Henry Hub delivery natural gas futures 
contract. An additional amendment would reduce the hub fee charged for 
physical deliveries by the operator of the WAHA Hub, the delivery point 
on the contract, from the current two cents per MMBtu ($.02) to one 
quarter of one cent ($.0025) per MMBtu.
    According to the Exchange:

    The idea of a basis contract was developed because it 
represented the way in which the gas commercials and marketers used 
our gas futures product. Since the inception of natural gas trading 
at the KCBT, the overwhelming majority of trades done on this 
exchange were versus offsetting trades at the New York Mercantile 
Exchange (NYMEX) in order to lock in a basis differential between 
east and west.
    However, over the past 18 months, the natural gas market has 
experienced lower volatility and the basis between east and west has 
been for the most part narrower than normal. This has caused basis 
trade to migrate to the over-the-counter market. Part of the reason 
for this is because the OPT market can package the basis trade into 
one transaction. In an east/west futures basis trade, you have two 
markets in which you must execute transactions, NYMEX and KCBT. With 
the reduction of volatility and narrow basis differential, business 
at the KCBT has diminished greatly, creating wider bid/ask spreads 
and making it more expensive for market participants to do basis 
trades in the futures market versus the OTC market.

    With regard to the proposed change in the hub fee applicable to 
physical deliveries of natural gas current rules specify that it is the 
seller's responsibility to pay this fee when physical delivery of gas 
is made. According to the KCBT, after consultation with the WAHA Hub 
operator the operator and the Exchange determined that the proposed 
$.0025 cent fee was more representative of current conditions at the 
WAHA Hub cash market.
    The Division requests comments on the proposed amendments and their 
effect that the usefulness of the revised contract for hedging.
    Copies of the proposed amendments will be available for inspection 
at the Office of the Secretariat, Commodity Futures Trading Commission, 
Three Lafayette Center, 21st Street, NW, Washington, DC 20581. Copies 
of the proposed amendments can be obtained through the Office of the 
Secretariat by mail at the above address, by phone at [phone], 
or via the Internet on the CFTC website at www.cftc.gov under ``What's 
New & Pending''.
    Other material submitted by the KCBT in support of the proposal 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 
treatment set forth in 17 CFR 145.5 and 145.9. Request for copies of 
such materials should be made to FOI, Privacy and Sunshine Act 
Compliance Staff of the Office of 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 KCBT, should send such comments to Jean A. Webb, 
Secretary, Commodity Futures Trading Commission, Three Lafayette 
Centre, 21st Street NW, Washington, DC 20581 by the specified date.

    Issued in Washington, DC, on October 19, 1999.
John Mielke,
Acting Director.
[FR Doc. 99-27734 Filed 10-22-99; 8:45 am]
BILLING CODE 6351-01-M