[Federal Register Volume 61, Number 156 (Monday, August 12, 1996)]
[Notices]
[Pages 41774-41775]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-20446]
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[[Page 41775]]
COMMODITY FUTURES TRADING COMMISSION
MidAmerica Commodity Exchange: Proposed Amendments Converting the
Live Hogs Futures Contract From a Physical Delivery Contract to a Cash
Settlement System
AGENCY: Commodity Futures Trading Commission.
ACTION: Notice of proposed contract market rule changes.
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SUMMARY: The MidAmerica Commodity Exchange (``MCE'') has submitted
proposed amendments to its Live Hogs futures contract that would
convert the delivery provisions of that futures contract from a
physical delivery contract to a cash settlement system. 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 and that publication of the proposed
amendments would be in the public interest. On behalf of the
Commission, the Division is requesting comment on this proposal.
DATES: Comments must be received on or before September 11, 1996.
ADDRESSES: Interested persons should submit their views and comments to
Jean A. Webb, Secretary, Commodity Futures Trading Commission, Three
Lafayette Centre, 1155 21st Street, NW, Washington, D.C. 20581.
Reference should be made to the proposed amendments converting the MCE
live hogs futures contract to cash settlement.
FOR FURTHER INFORMATION CONTACT: Frederick V. Linse, Division of
Economic Analysis, Commodity Futures Trading Commission, Three
Lafayette Centre, 1155 21st Street, N.W., Washington, D.C. 20581,
telephone (202) 418-5273.
SUPPLEMENTARY INFORMATION: The existing terms of the live hogs futures
contract provides for physical delivery of 20,000 pounds of live hogs
meeting specified quality and weight requirements at MCE-approved
public livestock yards at seven delivery points located in six
different states. The contract's existing terms also specify that
trading ends on the business day immediately preceding the last five
business days of the contract month.
The proposed amendments will delete all physical delivery
provisions of the futures contract. These provisions will be replaced
by terms specifying cash settlement of all open positions at the
expiration of trading in a contract month. The cash settlement price
will be based on the cash market value of hogs during the last two
trading days of expiring contract months. Specifically, the proposed
cash settlement price will equal the two-day weighted average of the
mid-point of the price range for U.S. No. 1, No. 2, and No. 3 grade
barrows and gilts in the 220 to 260-pound weight range in the Iowa-
Southern Minnesota region, as reported by the U.S. Department of
Agriculture (USDA) in its Midwest Direct Hog report. The Iowa-Southern
Minnesota region is defined by the USDA as the state of Iowa and the
Southern two tiers of counties in Minnesota. The final cash settlement
price will be determined in four steps. First, the midpoint of the
price range for U.S. 1, 2 and 3 barrows and gilts in the 220 to 260-
pound weight range at country points for each of the last two trading
days will be calculated and rounded to the nearest whole cent. Second,
the volume percentage for each of last two trading days will be
calculated by dividing the volume of hog receipts on each such day by
the total volume of receipts for the two-day period. Third, each day's
calculated midpoint price is then multiplied by that day's calculated
volume percentage to determine the weighted value for that day. Fourth,
the daily weighted values for the two-day period are summed and rounded
to the nearest whole cent to determine the final cash settlement price.
The Exchange's proposal also will change the last trading day to
the tenth business day of the contract month from the sixth to the last
business day of the contract month.
According to the MCE, physical delivery through public livestock
yards no longer reflects dominant cash market practice. The MCE
indicated that the number of hogs sold for slaughter from Midwestern
public stockyards has been steadily declining, and totaled just
1,383,000 sales in 1995, while the number of hogs sold directly to
packers by producers and other market intermediaries from interior
country points in the Iowa-Southern Minnesota region has been steadily
increasing, and equaled 28,424,000 in 1995. The MCE further indicates
that, as a result of the decline in the importance of sales through
public livestock yards, the usefulness of the live hogs futures
contract as a price discovery and risk management tool has been
adversely affected. The MCE believes that by changing the pricing basis
for the MCE live hog contract from Midwestern public stockyards to the
Iowa-Southern Minnesota direct hog market will enable the contract to
better reflect the cash market for slaughter hogs in the Midwest. The
Exchange submits that specifying a cash settlement procedure to replace
the physical delivery settlement mechanism will simplify the settlement
procedure for the contract and facilitate greater use of the contract
by hedgers.
The MCE proposes to make the amendments effective, following
Commission approval, with respect to all newly listed contract months
beginning with the February 1997 contract month. No currently listed
contract month or existing position would be affected by the proposed
amendments.
On behalf of the Commission, the Division is requesting comment on
the proposed amendments. In particular, the Division is seeking comment
regarding the extent to which the proposed cash settlement price will
reflect the underlying cash market and the susceptibility of the
proposed cash settlement price to manipulation or distortion.
Copies of the proposed amendments will be available for inspection
at the Office of the Secretariat, Commodity Futures Trading Commission,
Three Lafayette Centre, 1155 21st Street, N.W., Washington, D.C. 20581.
Copies of the amended terms and conditions can be obtained through the
Office of the Secretariat by mail at the above address or by telephone
at (202) 418-5100.
The materials submitted by the MCE in support of the proposed
amendments 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)). 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 CFR 145.7 and 145.8.
Any person interested in submitting written data, views or
arguments on the proposed amendments should send such comments to Jean
A. Webb, Secretary, Commodity Futures Trading Commission, Three
Lafayette Centre, 1155 21st Street, N.W., Washington, D.C. 20581 by the
specified date.
Issued in Washington, D.C. on August 6, 1996.
Blake Imel,
Acting Director.
[FR Doc. 96-20446 Filed 8-9-96; 8:45 am]
BILLING CODE 6351-01-P
