[Federal Register Volume 63, Number 43 (Thursday, March 5, 1998)]
[Notices]
[Pages 10861-10862]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-5631]
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COMMODITY FUTURES TRADING COMMISSION
Proposed Merger of the Coffee, Sugar & Cocoa Exchange, Inc. and
the New York Cotton Exchange
AGENCY: Commodity Futures Trading Commission.
ACTION: Notice of proposed merger of the Coffee, Sugar & Cocoa
Exchange, Inc. and the New York Cotton Exchange and of proposed rule
amendments to implement the merger.
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SUMMARY: The Coffee, Sugar & Cocoa Exchange, Inc. (``CSCE'') and New
York Cotton Exchange (``NYCE'') (CSCE and NYCE are referred to
collectively as the ``Exchanges'') have submitted proposed rule
amendments, incident to a plan of merger, to the Commission pursuant to
Section 5a(a)(12)(A) of the Commodity Exchange Act (``Act''). Acting
pursuant to authority delegated by Commission Regulation 140.96, the
Division of Trading and Markets (``Division'') has determined to
publish the proposal for public comment. The Division believes that
publication of the proposal is in the public interest and will assist
the Commission in considering the views of interested persons.
DATES: Comments on the proposed merger must be received by April 6,
1998.
FOR FURTHER INFORMATION CONTACT: Thomas Smith, Attorney, Division of
Trading and Markets, Commodity Futures Trading Commission, Three
Lafayette Centre, 1155 21st Street, NW, Washington, D.C. 20581.
Telephone: (202) 418-5495; or electronic mail: tsmith@cftc.gov.
SUPPLEMENTARY INFORMATION:
I. Description of Merger Agreement
By letter dated February 5, 1998, the Exchanges submitted to the
Commission, pursuant to Section 5a(a)(12)(A) of the Act, proposed rule
amendments to implement a plan of merger.1 The proposed
merger would be effected in two stages: the first stage (``Initial
Merger'') and the second stage (``Secondary Merger'').
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\1\ The proposed merger and rule amendments were unanimously
adopted, respectively, by the CSCE Board of Managers and the NYCE
Board of Managers at separate meetings held on December 4, 1997. The
Exchanges' respective memberships approved the merger on December
22, 1997.
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The Initial Merger, which the Exchanges plan to implement by June
30, 1998, would involve the Exchanges' reorganizing under the control
of a common parent corporation, the Board of Trade of the City of New
York, Inc. (``NYBT'').2 Following the Initial Merger, CSCE
and NYCE would continue to exist as separate corporate entities, and
all contract designations and self-regulatory functions would remain
intact at the respective exchange. The members of CSCE and NYCE would
retain their respective trading rights in CSCE and NYCE as provided by
the Exchanges' rules until the time of the Secondary Merger. The
Secondary Merger would not occur until notes being issued in the
Initial Merger, as described below, were paid in full. At the time of
the Secondary Merger, CSCE and NYCE would merge with NYBT, and CSCE and
NYCE would no longer exist as separate corporate entities.
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\2\ The NYBT is a corporation organized under the New York Not-
for-Profit Corporation Law (``NPCL'') and was formed to act as a
holding company for the Exchanges.
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II. Terms of the Merger Proposal
Pursuant to the Initial Merger, full members of the Exchanges would
relinquish their ``member'' rights as that term is defined in the NPCL
(i.e., voting, participation in governance or distribution rights), and
NYBT would become the sole member of CSCE and NYCE. In return, full
CSCE members would receive: (1) a Class A Full Membership in NYBT; (2)
a cash payment of $14,300; (3) a fully transferable, non-interest
bearing note for $85,700 issued by NYBT and payable in six annual
installments of $14,283.33; and (4) a non-voting membership (to be
denoted a ``Class B Membership'') in CFFE Regulatory Services, LLC
(``CFFE Regulatory'').3
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\3\ CFFE Regulatory will be the sole member of Cantor Financial
Futures Exchange, Inc. (``CFFE'')--an exchange that recently
submitted to the Commission an application for designation as a
contract market in US Treasury bond, ten-year note, five-year note
and two-year note futures contracts. See 63 FR 5505 (February 3,
1998). CFFE was formed pursuant to an agreement between NYCE and a
subsidiary of Cantor Fitzgerald, LP, an interdealer broker in the US
Treasury securities market, whereby Cantor Fitzgerald would provide
the use of its electronic trading system for the trading of the
various proposed US Treasury futures contracts.
Pursuant to the Initial Merger, each NYBT Full Member would
receive, in exchange for $100, a Class B Membership in CFFE
Regulatory. In aggregate, the CFFE Regulatory Class B Memberships,
which would be distributed solely to Full Members of NYBT, would
represent 90 percent of the economic interest of CFFE Regulatory.
The remaining 10 percent of the economic interest in CFFE Regulatory
would be held by NYCE in the form of a Class A Membership. NYCE will
be the sole voting member of CFFE Regulatory.
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Full NYCE members would receive: (1) a Class B Full Membership in
NYBT; (2) a cash payment of $3,600; (3) a fully-transferable, non-
interest bearing note for $21,400 issued by NYBT and payable in six
annual installments of
[[Page 10862]]
$3,566.67; and (4) a Class B Membership in CFFE Regulatory.
In addition to the above, holders of NYBT Class A Full Memberships
would have the right to trade CSCE futures and option contracts. Owners
of NYBT Class B Full Memberships would have the right to trade NYCE
futures and option contracts.4 NYBT Class A and NYBT Class B
Full Members, however, would have equal trading rights in any new
contracts that were submitted by NYBT, or either of the Exchanges or
any of their affiliates, and approved by the Commission for trading
subsequent to the Initial Merger, with certain limited exceptions.
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\4\ Furthermore, NYBT Class B Full Members also would retain
their trading privileges in the Citrus Associates of the New York
Cotton Exchange, Inc. (``Citrus''), now an affiliate of NYCE.
Pursuant to a reorganization plan approved by NYCE and Citrus,
members of Citrus will relinquish their ``member'' rights as that
term is defined in the NPCL, and NYCE will become the sole member of
Citrus. Citrus Class A members, all of which are NYCE members, will
retain their Citrus trading privileges, and Citrus associate members
will retain those rights set forth in the By-Laws and Rules of
Citrus. Citrus memberships will not be exchanged for NYBT
memberships. It is anticipated that the reorganization will become
effective prior to the Initial Merger. Citrus and NYCE have not yet
submitted proposed rule amendments implementing the NYCE-Citrus
reorganization to the Commission for review and approval.
NYBT Class B Full Members also would retain their associate
memberships (Class A Memberships) in New York Futures Exchange, Inc.
(``NYFE''), a wholly-owned subsidiary of NYCE. Memberships in NYFE
will not be converted or exchanged for memberships in NYBT. Pursuant
to the By-Laws and Rules of NYCE and NYFE, full NYCE members are
authorized to apply for Class A Memberships in NYFE, and NYFE
members are authorized to apply for Cotton Associate Memberships in
NYCE. These rights of associate memberships will be unaffected by
the merger.
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The proposal also provides that CSCE associate memberships would be
converted to NYBT Class C Associate Memberships, NYCE FINEX licenses
would be converted to NYBT Class D Associate Memberships, and NYCE
FINEX-Europe permits would be converted to NYBT Class E Associate
Memberships. Each NYBT Associate Membership would maintain the right to
trade the same futures and option contracts that it currently is
permitted to trade under the Exchanges' rules.
The Secondary Merger would take effect promptly after the full
payment of the NYBT notes. Pursuant to the merger plan, CSCE and NYCE
would merge with NYBT in accordance with the provisions of the NPCL,
and CSCE and NYCE would no longer exist as separate corporate entities.
The NYBT Class A and NYBT Class B Memberships would be merged into one
class of full NYBT memberships which would have the trading rights
previously held by both Class A and Class B Memberships and identical
governance rights. The trading privileges of NYBT Associate Members
would not be affected by the Secondary Merger.
III. Request for Comments
The Commission requests comments from interested persons concerning
any aspect of the proposed merger of CSCE and NYCE that commenters
believe raise issues under the Act or Commission regulations, including
any antitrust implications under Section 15 of the Act.
Copies of the proposed rule amendments, and related materials, are
available for inspection at the Office of the Secretariat, Commodity
Futures Trading Commission, Three Lafayette Centre, 1155 21st Street,
NW, Washington D.C. 20581. Copies also may be obtained through the
Office of the Secretariat at the above address or by telephoning (202)
418-5100.
Any person interested in submitting written data, views, or
arguments on the proposed merger or proposed rule amendments should
send such comments, by the specified date, to Jean A. Webb, Secretary,
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st
Street, NW, Washington D.C. 20581; transmitted by facsimile to (202)
418-5521; or transmit them electronically to secretary@cftc.gov.
Issued in Washington, D.C., on February 27, 1998.
Alan L. Seifert,
Deputy Director.
[FR Doc. 98-5631 Filed 3-4-98; 8:45 am]
BILLING CODE 6351-01-P
