[Federal Register Volume 61, Number 241 (Friday, December 13, 1996)]
[Notices]
[Pages 65550-65551]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-31720]
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COMMODITY FUTURES TRADING COMMISSION
Chicago Mercantile Exchange: Proposed Amendments to the Frozen
Pork Bellies Futures and Options Contracts Converting the Futures
Contract to a Cash Settled Contract From a Physical Delivery Contract,
and Conforming Amendments to the Options Contract
AGENCY: Commodity Futures Trading Commission.
ACTION: Notice of availability of the terms and conditions of proposed
and amended commodity futures contracts.
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SUMMARY: The Chicago Mercantile Exchange (CME or Exchange) has
submitted amendments to its frozen pork bellies futures contract that
would replace the contract's existing physical delivery provisions with
a cash settlement system based on cash prices for fresh pork bellies.
The proposed amendments also would revise the futures contract's
trading months, speculative position limits, maximum daily price
fluctuation limits and last trading day.
In accordance with Section 5a(a)(12) of the Commodity Exchange Act
and acting pursuant to the authority delegated by Commission Regulation
140.96, the Acting Director of the Division of Economic Analysis
(``Division'') of the Commodity Futures Trading Commission
(``Commission'') has determined, on behalf of the Commission, that the
proposed amendments are of major economic significance. On behalf of
the Commission, the Division is requesting public comment on the
proposal.
DATES: Comments must be received on or before January 13, 1997.
ADDRESSES: Interested persons should submit their views and comments to
Jean A. Webb, Secretary, Commodity Futures Trading Commission, Three
Lafayette Centre, 1155 21st St. NW, Washington, DC 20581. In addition,
comments may be sent by facsimile transmission to (202) 418-5521, or by
electronic mail to secretary@cftc.gov. Reference should be made to the
CME frozen pork bellies futures contract.
FOR FURTHER INFORMATION CONTACT: Please contact Fred Linse of the
Division of Economic Analysis, Commodity Futures Trading Commission,
Three Lafayette Centre, 1155 21st St., NW, Washington, DC 20581,
telephone 202-418-5273, or electronic mail: flinse@cftc.gov.
SUPPLEMENTARY INFORMATION: The existing terms of the frozen pork
bellies futures contract provide for physical delivery of 40,000 pounds
of frozen pork bellies meeting specified quality, packaging and weight
requirements. Delivery is at CME-approved public cold storage
warehouses. The contract also currently specifies a maximum daily price
fluctuation limit of $.030 per pound, which is applicable through the
last trading day of each expiring contract month. In addition, the
contract's existing terms specify that trading ends on the business day
immediately preceding the last three business days of the contract
month. Trading is currently conducted in the contract months of
February, March, May, July and August.
The contract's current terms also provide for net long or short
speculative position limits of 1,000 contracts in all contract months
combined and 800 contracts in any individual non-spot contract month.
The contract's existing spot-month speculative position limits are 150
contracts in any expiring contract month (except May) as of the close
of business on the last trading day preceding the first business day of
the contract month and 100 contracts in any expiring contract month
(except May) as of the close of business on the sixth business day
following the first Friday of the contract month.1
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\1\ For the May contract month, the contract's existing
speculative limits are 200 contracts as of the close of business on
the last trading day prior to the first business day of the contract
month and 150 contracts as of the close of business on the sixth
business day following the first Friday of the contract month.
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The proposed amendments would delete all physical delivery
provisions of the futures contract. These provisions would be replaced
by terms specifying mandatory cash settlement of all open positions at
the expiration of trading in a contract month. The proposed cash
settlement price would be the weighted average price for all negotiated
transactions for 12-14 pound, 14-16 pound, and 16-18 pound, skin-on,
fresh pork bellies, as reported by the U.S. Department of Agriculture
Federal-State Market News Service in the National Carlot Meat Report
during the last five trading days of each expiring contract month.
Under the proposed amendments, trading in the futures contract
would terminate on the second-to-last Friday of the contract
month.2 The proposed amendments would provide for trading in the
contract months of January, March, May, July, August, September, and
November. In addition, the proposed amendments would specify that no
maximum daily price fluctuation limit would apply to trading in an
expiring contract month during the last five days of trading.
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\2\ If a holiday falls on the second-to-last Friday or on any of
the four weekdays prior to that Friday, trading would end on the
first prior Friday that was not a holiday or so preceded by a
holiday
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The proposed amendments will delete the contract's existing
speculative limit for all contract months combined. Under the proposed
amendments, the contract's spot-month speculative position limits for
each listed month would be set at 400 contracts as of the close of
business (COB) on the last trading day prior to the first business day
of the contract month, 200 contracts as of COB on the business day
immediately preceding the last ten trading days of the contract, and 40
contracts in the expiring month as of COB on the business day
immediately preceding the last five trading days of the contract. The
speculative position limit for any individual non-spot contract month
would continue to be 800 contracts.
The proposed amendments also will modify the rules of the option
contract to conform to the proposed changes to the futures contract and
will change the last trading day for the option contract from the first
Friday of the delivery month to the business day immediately preceding
the last five trading days for the underlying futures contract.
In addition, the proposed amendments would rename the contracts as
the ``fresh pork bellies'' futures and options contracts.
In support of the proposed amendments, the CME indicates that the
proposal to eliminate physical delivery of frozen pork bellies and
provide for mandatory cash settlement based on
[[Page 65551]]
cash prices for fresh pork bellies is intended to reflect changes in
cash market practices. The CME indicates, specifically, that the
quantity of frozen pork bellies being placed into cold storage is
declining because more pork bellies are being utilized as fresh pork
bellies. The CME notes that, as a result of this trend, the demand for
pork bellies is becoming less seasonal and is tending to follow more
closely the production of that commodity. The CME submits that,
therefore, the industry has less need for a contract to hedge a
seasonal, stored commodity, and a growing need to hedge forward
contracts for fresh pork bellies on a year round basis.
With respect to the proposed cash settlement provisions, the CME
indicates that physical delivery of fresh pork bellies would be very
difficult due to the fact that such bellies are highly perishable and
thus are not merchantable for much more than 72 hours. The CME believes
that cash settlement is the only feasible method of settling futures
positions, since there could be many problems and/or delivery failures
with a physically delivered fresh pork bellies futures contract. The
CME also indicates its belief that the proposed cash settlement price
would not be susceptible to manipulation or distortion.
The CME proposes to make the amendments effective with respect to
newly listed contract months only, following Commission approval.
On behalf of the Commission, the Division is requesting comment on
the CME's proposals. In particular, the Division is seeking comments
regarding the extent to which the proposed cash settlement prices will
reflect the underlying cash market and the susceptibility of the
proposed cash settlement price to manipulation or distortion.
Copies of the terms and conditions will be available for inspection
at the Office of the Secretariat, Commodity Futures Trading Commission,
Three Lafayette Centre, 1155 21st St., N.W., Washington, D.C. 20581.
Copies of the terms and conditions can be obtained through the Office
of the Secretariat by mail at the above address or by phone at (202)
418-5097.
Other materials submitted by the Exchange may be available upon
request pursuant to the Freedom of Information Act (5 U.S.C. 552) and
the Commission's regulations thereunder (17 C.F.R. Part 145 (1987)),
except to the extent they are entitled to confidential treatment 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 terms and conditions, 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., N.W., 20581 by the specified date.
Issued in Washington, DC, on December 10, 1996.
Blake Imel,
Acting Director.
[FR Doc. 96-31720 Filed 12-12-96; 8:45 am]
BILLING CODE 6351-01-P
