03-31778. Chicago Mercantile Exchange: Proposed Amendments to the Live Cattle and Feeder Cattle Futures Contracts Increasing the Maximum Daily Price Fluctuation Limit to $0.030 per Pound

AGENCY:

Commodity Futures Trading Commission.

ACTION:

Notice of availability for public comment of the proposed amendments to the Chicago Mercantile Exchange's live cattle and feeder cattle futures contracts increasing the maximum daily price fluctuation limit to $0.030 per pound.

SUMMARY:

The Chicago Mercantile Exchange (CME or Exchange) has requested that the Commission approve the subject proposed amendments for the live cattle and feeder cattle futures contracts. The proposals were submitted pursuant to the provisions of section 5c(c)(2) of the Commodity Exchange Act (Act) and Commission Regulation 40.5. The proposals will increase the maximum daily price fluctuation limits for the affected futures contracts to $0.030 per pound from $.015 per pound above or below the previous trading day's settlement price.

The Director of the Division of Market Oversight (Division) of the Commission, acting pursuant to the authority delegated by Commission Regulation 140.96, has determined that publication of the Exchange's proposed amendments for comment is in the public interest, and will assist the Commission in considering the views of interested persons.

DATES:

Comments must be received on or before January 8, 2004.

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, DC 20581. In addition, comments may be sent by facsimile transmission to [phone] or by electronic mail to [e-mail]. Reference should be made to “CME Live Cattle and Feeder Cattle Price Limit Amendments.”

FOR FURTHER INFORMATION CONTACT:

Please contact John L. Bird, Jr. of the Division of Market Oversight, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581, [phone]. Facsimile number: [phone]. Electronic mail: [e-mail].

SUPPLEMENTARY INFORMATION:

Background

The CME's live cattle and feeder futures contracts currently restrict price fluctuations in any one day to not more that $0.015 per pound above or below the previous trading day's settlement price. The contracts' existing terms also provide for the expansion of the maximum daily price fluctuation limits to $0.03 per pound if prices for two specified contract months move up or down the $0.015 per pound maximum daily price fluctuation limit over two consecutive trading days. The maximum daily price fluctuation limits can be further expanded to $0.05 per pound if prices for two specified contract months move up or down the $0.03 per pound daily price limit for two consecutive trading days. These expanded maximum daily price fluctuation limits revert to the next smaller daily price limit on the next business day if futures prices for the two specified contract months fail to move up or down the maximum daily price fluctuation limit during a given trading day.

The proposed amendments will increase the permitted daily price fluctuation to $0.030 per pound. The amendments also will delete the above-noted provisions or expanding the maximum daily price fluctuation limits. The Exchange intends to implement the amendments with respect to all existing and newly listed futures contract months immediately following approval by the Commission, and following notification of market participants.

In support of the proposed amendments, the Exchange states the following:

In the 25 trading sessions (between October 15 and November 24, 2003), at least one of the front two contract months in the even month cycle of Live Cattle Futures have experienced 1.5-cent limit settlements on 15 occasions. * * * Similarly, during those same 25 trading sessions the front two contract months in Feeder Cattle futures have experienced 1.5-cent limit settlements on 10 occasions.

The addition of expanded price limits in Live Cattle, and more recently in Feeder Cattle * * * was designed to address the problem of lock-limit sessions due to a sustained price move in a particular direction. However, in recent weeks both markets have been volatile, but within relatively broad ranges. This has prevented the Live Cattle expanded limits from being triggered in a timely fashion, and prevented those expanded levels from being sustained for more than a single day. The Exchange believes the same problem would have occurred in Feeder Cattle had expanded limits been in effect.

In regard to public comment on the proposed amendments, the CME states that:

Although the Commission has already posted this proposal on the CFTC Web site, the Exchange has learned that market participants are generally unaware of both the proposal and the ability to comment. To allow a full and open exchange of views on this matter, the Exchange believes it needs to be published in the Federal Register, and that those interested parties should be given a 15-day comment period to respond.

The Division is requesting comment on the proposals. The Division is particularly interested in views based on data and analysis that indicate whether or not implementation of the proposed amendments would be consistent with the requirements of the Commodity Exchange Act, as amended by the Commodity Futures Modernization Act of 2000. In this regard, the Commission historically has applied a policy that maximum daily price fluctuation limits adopted by exchanges should not be overly restrictive in relation to price movements observed in the underlying cash market.

Commenters who previously filed comments with the Commission via the Commission's web site need not re-file such comments as the Commission considers all comments filed with it in the course of reviewing proposed amendments, regardless of the method by which they are filed with the Commission.

Copies of the Exchange's proposed amendments will be available for inspection at the Office of the Secretariat, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581. Copies of the proposed amendments can also be obtained through the Office of the Secretariat by mail at the above address or by phone at [phone].

Other materials submitted by the CME in support of the request for approval may be available upon request pursuant to the Freedom of Information Act (5 U.S.C. 552) and the Commission's regulations there under (17 CFR part 145 (2000)), 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 Secretariat at the Commission's headquarters in accordance with 17 CFR 145.7 and 145.8.

Any person interested in submitting written data, views, arguments, or analysis pertaining to the proposed amendments 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 Street, NW., Washington, DC 20581 by the specified date.

Issued in Washington, DC on December 19, 2003.

Michael Gorham,

Director, Division of Market Oversight.