UNITED STATES OF AMERICA

Before the

COMMODITY FUTURES TRADING COMMISSION

___________________________________________
)
In the Matter of ) CFTC Docket No. 99-5
)

THE ANDERSONS, INC.,

) ORDER INSTITUTING PROCEEDINGS
) PURSUANT TO SECTIONS 6(c) AND 6(d)

Respondent.

) OF THE COMMODITY EXCHANGE ACT
) AND MAKING FINDINGS AND IMPOSING
) REMEDIAL SANCTIONS
)
___________________________________________ )

I.

The Commodity Futures Trading Commission ("Commission") has reason to believe that The Andersons, Inc. ("Andersons" or "Respondent") has violated Sections 4(a) and 4c(b) of the Commodity Exchange Act, as amended (the "Act"), 7 U.S.C. �� 6(a) and 6c(b) (1994), and Commission Regulation 32.2 promulgated under the Act, 17 C.F.R. � 32.2 (1998). Therefore, the Commission deems it appropriate and in the public interest that a public administrative proceeding be, and hereby is, instituted to determine whether The Andersons, Inc. engaged in the violations set forth herein and to determine whether any order should be issued imposing remedial sanctions.

II.

In anticipation of the institution of this administrative proceeding, Respondent has submitted an Offer of Settlement ("Offer") which the Commission has determined to accept. Without admitting or denying the findings herein, Respondent acknowledges service of this Order Instituting Proceedings Pursuant to Section 6(c) and 6(d) of the Commodity Exchange Act and Making Findings and Imposing Remedial Sanctions ("Order"). Respondent consents to the use of the findings contained in this Order in this proceeding and in any other proceeding brought by the Commission or to which the Commission is a party.1

III.

The Commission finds that:

A. SUMMARY

From January 1, 1994 through at least December 31, 1995 (the "relevant time period"), Andersons' commercial grain marketing program included Convertible Hedge to Arrive ("HTA") contracts that constituted illegal futures contracts, in violation of Section 4(a) of the Act. Andersons also offered contracts that included option features that under certain circumstances could result in additional grain delivery obligations, in violation of Section 4c(b) of the Act and Regulation 32.2. 2 Andersons stopped offering these types of contracts late in 1995.

B. RESPONDENT

The Andersons, Inc. is an Ohio corporation, which has its headquarters at 480 W. Dussel Drive, Maumee, Ohio 43537. Prior to January 2, 1996, Respondent was an Ohio limited partnership known as The Andersons. On January 2, 1996, The Andersons merged with its general partner, The Andersons Management Corp., an Ohio corporation. The surviving entity, The Andersons Management Corp., then changed its name to The Andersons, Inc. (For purposes of this Order, The Andersons, Inc., its subsidiaries and divisions, and The Andersons shall hereinafter be referred to as "Andersons"). Andersons operates fourteen grain elevators in Ohio, Indiana, Michigan and Illinois. Andersons' Grain Division purchases corn, soybeans and wheat, among other agricultural products, from farmers (also referred to as "producers" or "customers") and sells or merchandises grain to processors. The Andersons partnership was registered with the Commission as a futures commission merchant from at least March 1977 until it withdrew its registration on March 31, 1988. 3

C. FACTS

1. Andersons' Marketing of Convertible HTA Contracts

Throughout the relevant time period, certain producers serviced by Andersons sold cash crops to local grain elevators, including those operated by Andersons, under arrangements known as "Convertible HTA contracts." 4 In practice, these contracts provided the producers with an effective means to discharge their delivery obligation to Andersons by liquidating the contracts for cash with no delivery of grain to or from an Andersons facility required. In certain cases, Andersons had no connection to or relationship with the contemplated delivery point. Although Andersons actually received (or made) deliveries on some of these contracts, in certain situations in which those contracts were entered into, no delivery to or from Andersons took place. In those situations, contracts were settled through a cash payment, there was no expectation of delivery to or from Andersons and the contracts were being used to shift risk.

In particular, seed corn producers, 5 who were obligated to deliver their crops to seed corn companies, often entered into Andersons Convertible HTA contracts for the sale of roughly three times (or more) of their anticipated seed corn production to Andersons. These producers were not planning to deliver to Andersons (or to anyone else in the quantities described) the corn pledged in their Convertible HTA contracts with Andersons. The producer was required by the contract terms to notify Andersons at the time the price was set with the seed corn company. In practice, some Convertible HTA contracts remained open long after the crop was contractually committed to the seed corn company, and the price was set. Typically, after delivery and/or pricing with the seed corn company, these Convertible HTA contracts were closed out with Andersons by cash payment. The payment amount was computed by multiplying the contract quantity by the difference between the HTA reference price and the Chicago Board of Trade ("CBOT") corn futures contract price for the agreed delivery date of the contract. 6

Similarily, livestock producers who grew corn to feed to their livestock entered into Convertible HTA contracts as a way to hedge the cost of the animal feed in the event that the producers' corn production was insufficient to feed the animals. Delivery by Andersons was not required. These contracts could be, and often were, closed through a cash settlement if, for example, the producer chose not to take delivery of the corn from Andersons. When that occurred, in practice, the livestock producer notified Andersons that his livestock business had taken delivery of corn grown by another corn producer (often himself) and would not buy corn from the Andersons. Andersons then closed the Convertible HTA delivery contract. Andersons calculated the cash difference between the HTA reference price and the current value of the CBOT corn futures contract corresponding to the agreed delivery date and multiplied it by the contract quantity. Andersons then sent the producer a check or an invoice reflecting settlement of the contract.

2. Option Feature Contracts Creating Additional Grain Obligations

During the relevant time period, Andersons also offered producers so-called "option feature contracts" which included short option features that, under certain circumstances, could result in additional grain delivery obligations for the producer. Andersons paid premiums to producers as part of the underlying contract price for the right to establish the price on grain committed under unpriced HTA contracts by the dates and at the prices stated on the contracts ("call features").

In addition, Andersons' HTA option feature marketing strategies included contracts referred to in promotional literature as "Min/Max" contracts, some of which were HTA contracts with option feature components. HTA option feature components were most commonly referred to by producers as puts and calls and by Andersons as put and call option features.

Each option feature pricing contract was established as an amendment to a specific existing HTA contract. In some instances an individual HTA contract might be tied to two short call features or a combination of a put feature and one or two short call features. 7 The months, strike prices and premiums on the HTA option feature amendments to contracts corresponded to those for exchange-traded options. This enabled Andersons to hedge option feature contracts with exchange-traded options in its own name, to the extent it chose to do so. When the exercise price was reached in the futures markets for Andersons' short option position, the exchange-traded option was exercised against Andersons. Andersons then exercised the option feature of its HTA contract and created a new delivery contract for the producers, as had been agreed to by Andersons and the producer at the time the option pricing feature on the contract was established. Andersons notified the producers that a new contract had been created requiring delivery of additional grain at the price level established by the option feature. In the absence of exercise, no additional grain delivery obligation was created for the producer.

Andersons presented contracts which utilized call option features to producers as an opportunity to receive higher prices for their grain - - sometimes marketed as "enhancements" - -by adding the call feature premiums to the prices Andersons paid to producers for grain under these contracts. The more bushels of grain a producer committed to sell on a contingent basis under the call option features contracts, the greater the price the producers received on the underlying contract. When call option features expired, no additional obligations accrued to the producers. In 1995, Andersons had customers with HTA contracts who utilized call option features equal to one or two times the number of bushels in their underlying HTA.

Under Andersons' Min/Max contracts, producers paid premiums to Andersons as part of the underlying contract price for the right to establish the price on grain ("put features") committed under unpriced HTA contracts by the dates and at the prices stated on the contracts. The producer recouped all or part of the purchase price of the put features by selling one or two call features at higher prices for each put feature with the same expiration date.

Andersons presented these put features as a mechanism for a producer to establish a floor price for grain on an unpriced HTA contract. This could be achieved at little or no discount to that contract's final pricing if the producer sold two call features, which would offset the cost of the put feature for that contract. If the cash market price was greater than the put feature exercise price near the time of expiration, but less than the call feature exercise price, a producer could let the put feature expire and sell its grain under the existing HTA contract, for which the delivery price had not yet been determined, at the higher market price. If the call features were exercised by the Andersons, producers were obligated to deliver grain in the agreed quantities at the call feature exercise price. In those situations where the producer sold two or more short call features on an unpriced contract, the exercise of these option features created new and additional delivery contracts.

3. Events of 1995 and 1996

In late 1995 and early 1996, grain prices rose sharply. The market became inverted in February 1996, so that prices in nearby contract months were higher than prices in the deferred months. Short call features on contracts that resulted in additional grain delivery obligations in the 1995 crop year proved disastrous for certain producers because of a number of related conditions. First, due to weather conditions, certain of Andersons' producers harvested far less than they had anticipated. Second, because of unusually high corn prices, short call features on certain producers' contracts resulted in additional contract delivery obligations, which could not be satisfied with the producers' production for that year. In fact, in certain instances, short call option features caused some producers to be obligated to Andersons to deliver a multiple of the quantities of their initial HTA contracts. Because of this shortfall, Andersons and certain of these producers agreed to amend these delivery obligations on the contracts by rolling the delivery period of these contracts forward into the next crop year. However, each roll in an inverted market reduced the contract price to be paid by Andersons by the dollar amount of the spread between the two contract months.8

When the 1995 HTA contracts that resulted from the exercise of short option features were rolled from month to month into the next crop year, in the inverted market producers suffered severe financial losses that would be deducted from the value of future production. This chain of events created severe financial difficulties for certain of Andersons' customers who received less than their production costs for their crops and were required to settle their obligations by incurring debt or making cash payments.

D. VIOLATIONS OF THE ACT AND COMMISSION REGULATIONS

1. ANDERSONS ENGAGED IN THE OFFER AND SALE OF ILLEGAL

FUTURES CONTRACTS IN VIOLATION OF SECTION 4(a) OF THE ACT

Section 4(a) of the Act makes it unlawful for any person to offer to enter into, enter into, execute, confirm the execution of, or conduct any business for the purpose of soliciting, accepting orders for, or otherwise dealing in, futures contracts not traded on a designated contract market. There is no definitive list of factors that will identify when a contract is a futures contract and when it is not. The transaction must be viewed as a whole with a critical eye toward its underlying purpose, CFTC v. Co Petro Marketing Group, Inc., 680 F.2d 573, 581 (9th Cir. 1982), without regard to whatever self-serving labels the instrument might bear, CFTC v. American Metal Exchange Corp., 693 F. Supp. 168, 192 (D.N.J. 1988). See also CFTC v. National Coal Exchange, Inc., [1980-1982 Transfer Binder] Comm. Fut. L. Rep. (CCH) � 21,424 at 26,055 (W.D. Tenn. 1982) ("[s]ubstance rather than mere form must be accorded full legal significance" in evaluating whether a contract is a futures contract). In general, futures contracts are contracts for the purchase or sale of a commodity for delivery in the future at a price or pricing formula that is agreed upon when the contract is initiated. In addition, futures contracts are undertaken principally to assume or shift price risk without transferring the underlying commodity. While futures contracts generally provide for delivery, delivery can be avoided by mechanisms such as offset, cancellation and cash settlement.

During the relevant time period, Andersons' grain marketing contracts included Convertible HTA contracts which had all of the above-described characteristics of futures contracts and were thus illegal futures contracts not offered on a designated contract market, in violation of Section 4(a) of the Act, 7 U.S.C. � 6(a) (1994). The Convertible HTAs were contracts for the purchase or sale of a commodity for delivery in the future at a price or pricing formula that was agreed upon when the contract was initiated and undertaken principally to assume or shift price risk without delivery either to or from Andersons of the underlying commodity. Most significantly, the contract provided an effective means of liquidating the contract for cash. Co Petro, 680 F.2d at 579-81; American Metals Exchange, 693 F. Supp. at 192. In addition, the contract was offered, entered into and structured as a means of capturing price movements in the futures markets, not as a vehicle for delivery of grain to Andersons. See CFTC v. Noble Metals International, Inc., 67 F.3d 766, 772 (9th Cir. 1995); In re Stovall, [1977-1980 Transfer Binder] Comm. Fut. L. Rep. (CCH) � 20,941 at 23,777-23,779 (CFTC Dec. 6, 1979). Indeed, the contract even was offered to some parties who had no practical ability to deliver. The Convertible HTA contract provided producers with an effective means of discharge that was, in practice, used to liquidate the contract for cash with no required delivery to or receipt of grain by Andersons. Instead, an Andersons customer notified Andersons that he did not want to make or take delivery to Andersons. Andersons simply calculated the amount of profit or loss that would have resulted from the closing of its hedge position for the contract and issued a check or an invoice to the producer. Thus, Andersons' Convertible HTA contract customer, "like customers who trade on organized exchanges, could deal in commodity futures without the forced burden of delivery." Co Petro, 680 F.2d 573, 580.

The contract did not qualify for exclusion from the requirements of Section 4(a) as a "sale of any cash commodity for deferred shipment or delivery" pursuant to the exclusion in Section 1(a)(11) of the Act for "cash forward contracts." "The exemption . . . is a narrow one. It originated in the 1921 Act . . . to meet a particular need: it allowed a farmer to sell part of the next season's harvests at a set price to a grain elevator or miller. . . . The exemption clearly encompassed only those contracts which promised the actual delivery of grain at a specified time in the future." NRT Metals, Inc. v. Manhattan Metals (Non-Ferrous) Ltd., 576 F. Supp. 1046, 1050 (S.D.N.Y. 1983) (citations omitted). As the Commission stated in its Statutory Interpretation Concerning Forward Transactions, [1990-1992 Transfer Binder] Comm. Fut. L. Rep. (CCH) � 24,925 at 37,367 (CFTC Sept. 25, 1990), "[t]he underlying postulate of the exclusion is that the Act's regulatory scheme for futures trading simply should not apply to private commercial merchandising transactions which create enforceable obligations to deliver but in which delivery is deferred for reasons of commercial convenience or necessity."

The Convertible HTA contract did not meet these standards for exclusion. Delivery to Andersons was neither deferred nor avoided in order to accommodate commercial convenience or necessity. The ability to avoid delivery to Andersons routinely, and simply capture the price movements in the futures markets, set the contract apart from forward contracts under which producers are obligated to deliver certain quantities of grain to the elevator at certain times. See Co Petro, 680 F.2d 573, 580; American Metal Exchange Corp., 693 F. Supp. 168, 192 (D.N.J. 1988).

2. ANDERSONS VIOLATED SECTION 4c(b) OF THE ACT AND REGULATION 32.2

BY ENGAGING IN ILLEGAL AGRICULTURAL OPTIONS TRANSACTIONS

Section 4c(b) of the Act, 7 U.S.C. � 6c(b) (1994), and Regulation 32.2, 17 C.F.R. � 32.2 (1998), prohibit the short option feature call contracts and many of the Min/Max contracts offered by Andersons in which a new delivery obligation could have been created. A commodity option "confers upon the holder the right to buy . . . or to sell . . . either a specified amount of a commodity or a futures contract for that amount of a commodity within a certain period of time at a given price." CFTC v. U.S. Metals Depository Co., 468 F.Supp. 1149, 1154-55 (S.D.N.Y. 1979); CFTC v. Crown Colony Commodity Options, Ltd., 434 F.Supp. 911, 913-14 (S.D.N.Y. 1977). Section 4c(b) of the Act provides that "no person shall offer to enter into, enter into or confirm the execution of, any transaction involving any commodity regulated under this Act which is of the character of, or is commonly known to the trade as, an `option,' ...contrary to any rule, regulation, or order of the Commission prohibiting any such transaction. . . ." 7 U.S.C.

� 6c(b). Except when such transaction is undertaken on a designated contract market pursuant to Part 33 of the Commission's Regulations, 17 C.F.R. Part 33(1998), "[n]o person may offer to enter into, confirm the execution of, or maintain a position in, any transaction in interstate commerce involving wheat, . . .corn . . .[or] soybeans . . .if the transaction is or is held out to be of the character of, or is commonly known to the trade as, an "option" . . . "put", [or] "call" . . .." 17 C. F. R. � 32.2. Certain of Andersons' contracts utilizing short call features, as well as certain of its Min/Max contracts, violated these proscriptions.

The Commission's guidance on forward contracts has never permitted contractual arrangements that involved producers selling options. Andersons' marketing program offered the opportunity for producers to engage in several contract types that included option components or option features that had the potential to create, and did create additional delivery contracts when exercised. Some of Andersons' customers simultaneously utilized put features and call features to recoup the price of the put features. Others sold call features to "enhance" the price of an existing HTA contract. Certain of Andersons' short call option features had the potential to create and did create additional delivery contracts when exercised. 9

Both Andersons' short call option feature contracts and its Min/Max contracts in which the calls created potential additional delivery obligations have all of the characteristics of commodity options. British American Commodity Options Corp. v. Bagley, 552 F.2d 482 (2nd Cir. 1977). Therefore, these forms of Andersons' option feature contracts violated Section 4c(b) of the Act and Regulation 32.2.

IV.

OFFER OF SETTLEMENT

Andersons has submitted an Offer of Settlement in which, without admitting or denying the findings herein, it: acknowledges service of this Order and admits the jurisdiction of the Commission with respect to the matters set forth herein; waives: (1) service of a complaint and notice of hearing; (2) a hearing; (3) all post-hearing procedures; (4) judicial review by any court; (5) any objection to the staff's participation in the Commission's consideration of the Offer; and (6) all claims which it may possess under the Equal Access to Justice Act, 5 U.S.C. � 504 (1994) and 28 U.S.C. � 2412 (1994), as amended by Pub. L. No. 104-121, �� 231-32, 110 Stat. 862-63, and Part 148 of the Commission's Regulations, 17 C.F.R. �� 148.1, et seq., relating to or arising from this action; and (7) any claim of Double Jeopardy based upon the institution of this proceeding or the entry in this proceeding of any order imposing a civil monetary penalty or any other relief; stipulates that the record basis on which this Order is entered consists solely of this Order and the findings to which it has consented in the Offer, which are incorporated in this Order; and consents to the Commission's issuance of this Order, which makes findings, as set forth above, and orders Andersons to cease and desist from violating the provisions of the Act and the Commission Regulation it is found to have violated, to pay a civil monetary penalty of $200,000, whereby if payment is not made in accordance with the requirements of this Order, the Order shall be vacated and the proceeding reinstated as to Andersons, and to comply with its undertakings: (a) to maintain its newly-established procedures whereby a committee co-chaired by its President of the Agriculture Group and its Vice President of the Grain Division has the responsibility to review all new proposed types of HTA contracts and any type of contract involving option features it plans to offer to producers for the legality of such contracts under the Act and Commission Regulations; and (b) not to take any action or make any statement denying, directly or indirectly, any statement in this Order or creating, or tending to create, the impression that the Order is without a factual basis.

V.

FINDINGS OF VIOLATIONS

Solely on the basis of the consent evidenced by the Offer, and prior to any adjudication on the merits by the Commission, the Commission finds that during the relevant time period, Andersons violated Sections 4(a) and 4c(b) of the Act, 7 U.S.C. �� 6(a) and 6c(b) (1994), and Commission Regulation 32.2 promulgated under the Act, 17 C.F.R. � 32.2 (1998).

VI.

ORDER

Accordingly, IT IS HEREBY ORDERED THAT:

1. Andersons shall cease and desist from violating Sections 4(a) and 4c(b) of the Act, 7 U.S.C. �� 6(a) and 6c(b) (1994), and Commission Regulation 32.2, 17 C.F.R. � 32.2 (1998);

2. Andersons shall pay a civil monetary penalty in the amount of Two Hundred Thousand Dollars ($200, 000) within ten (10) days of the date of the Order and make such payment by electronic funds transfer to the account of the Commission at the United States Treasury or by certified check or bank cashier's check made payable to the Commodity Futures Trading Commission, and addressed to Dennese Posey, Division of Trading and Markets, Commodity Futures Trading Commission, 1155 21st Street, N.W., Washington, D.C. 20581 under cover of a letter that identifies Andersons and the name and docket number of the proceeding. A copy of the cover letter and of the form of payment shall be simultaneously transmitted to Geoffrey Aronow, Director, Division of Enforcement, Commodity Futures Trading Commission, 1155 21st Street, N.W., Washington, D.C. 20581. If payment is not made in accordance with the requirements of this paragraph, the Order shall be vacated and the proceeding reinstated as to Andersons; and

3. Andersons shall comply with its undertakings: (a) to maintain its newly-established procedures whereby a committee co-chaired by its President of the Agriculture Group and its Vice President of the Grain Division has the responsibility to review all new proposed types of HTA contracts and any type of contract involving option features it plans to offer to producers for the legality of such contracts under the Act and Commission Regulations; and (b) not to take any action or make any statement denying, directly or indirectly, any statement in this Order or creating, or tending to create, the impression that the Order is without a factual basis; provided, however, that nothing in this provision affects Andersons' testimonial obligations, or its right to take contrary factual or legal positions relating to any proceeding to which the Commission is not a party. Andersons will undertake all steps necessary to assure that all of its agents, attorneys and employees understand and comply with this agreement.

Unless otherwise specified, the provisions of this Order shall be effective on this date.

��� By the Commission.

---------------------------------------------------------
Jean A. Webb
Secretary to the Commission
Commodity Futures Trading Commission
�� Dated: January 12, 1999 --------------------------------------------------------


Notes:

1 Respondent does not consent to the use of the Offer or Order, or the findings in the Order consented to in the Offer, as the sole basis for any other proceeding brought by the Commission other than a proceeding to enforce the terms of this Order, nor does it consent to the use of the Offer or this Order, or the findings in the Order consented to in the Offer, by any other person or entity in this or any other proceeding. The findings made in the Order are not binding on any other person or entity in any other proceeding.

2 The Commission does not express any opinion on the question of what obligations, if any, may exist and be enforceable as between the parties to any particular contract. The Commission views those issues as possibly affected by factors outside of the issues it addresses in this Order. The Commission takes no position on the relative equities between the parties to any particular contract.

3 Andersons has a wholly-owned subsidiary known as The Andersons Investment Services Corp. ("AISC") which is a guaranteed introducing broker ("IB") of Iowa Grain, Co., a futures commission merchant ("FCM"). AISC was not involved with the conduct which underlies this Order.

4 Andersons used the same one page, two-sided form for all of its HTA contracts, including purchase and sale Convertible HTA contracts and contracts with option features. The specifics of each contract were noted on the front side of the document in a shorthand understood by both parties.

5 Seed corn producers get special seed from seed corn companies, which they plant pursuant to the companies' specifications. In some cases, one of these specifications is that the plants are harvested in such a way so as to generate fewer bushels of corn per acre than might otherwise be produced on irrigated ground in the same growing areas. The price the seed corn company pays is a multiple of the actual yield, to compensate producers for this differential in production.

6 When producers entered into Convertible HTA contracts (agreeing to deliver grain to the Andersons at some future date), Andersons generally established short exchange traded futures positions or established options positions (sold calls or bought puts) at the CBOT in its own name to hedge its obligations to the producers.

7 As generally defined in futures and options market terminology, a call option confers the right to buy and a put option confers the right to sell a quantity of a commodity (in this case grain) deliverable at a certain time for a specified price known in these transactions as the exercise price. The exercise price of these options is the price at which the commodity underlying the call or put feature can be purchased (if a call) or sold (if a put). A person who sells or is short a call feature has the obligation, if the call is exercised, to sell the commodity for the agreed exercise price.

8 In the terminology of Andersons, when it was rolled, the underlying contract was "unpriced," then rolled and "repriced" with a futures reference price in a later delivery month. In general, when contracts were rolled, Andersons hedged its obligation to the producer by buying back its short position at the CBOT and establishing a new short position at the CBOT with a later expiration month. Pursuant to the contracts, when contracts were rolled, gains and losses on the closing of the exchange-traded futures positions, as well as service fees, were credited to or debited from the delivery prices.

9 The Commission's Office of General Counsel and Division of Economic Analysis have recognized that certain types of forward contracts having option characteristics are not considered prohibited option transactions. Office of General Counsel Interpretative Statement, "Characteristics Distinguishing Cash and Forward Contracts and 'Trade' Options," 50 F.R. 39656 (Sept. 30, 1985) and Division of Economic Analysis Interpretative Letter 96-23, "Request for Guidance Regarding Producer Option Contract" [1994-1996 Transfer Binder] Comm. Fut. L. Rep. (CCH) � 26,646 (March 14, 1996). However, the fact that Andersons' contracts could and did create additional delivery obligations distinguishes these contracts from the examples of permissible forward contracts recognized in this staff guidance.


Dissenting Opinion of Commissioner Barbara P. Holum in the Matter of The Andersons, Inc.

I dissent from the Commodity Futures Trading Commission's Order instituting administrative proceedings against The Andersons, Inc. (Andersons) In my opinion, the hedge-to-arrive (HTA) contracts offered by the Andersons do not constitute illegal off-exchange futures contracts, but instead fall within the forward contract exclusion.

Neither futures nor forward contracts are defined in the Commodity Exchange Act (Act), but have been defined through case law and various Commission interpretations and policy statements. Thus, there is no bright line test to determine whether a transaction is a futures or forward contract. Instead, the transaction must be viewed in its entirety to determine the underlying purpose. Congress generally exempted from the Act's regulatory scheme commercial, merchandizing transactions in a physical commodity in which delivery was delayed or deferred for commercial convenience or necessity. The courts and the Commission have looked for evidence of the transactions' use in commerce, examining whether the parties to the contracts are commercial entities that have the capacity to make or take delivery and whether delivery routinely occurs under the contract.

Andersons' HTA contracts were not offered to the general public, but rather were limited to commercial counterparties. Furthermore, the HTAs in this case included a contractual obligation to deliver. The evidence does not support a finding that the cancellation or deferral of delivery in this case was not limited to reasons of commercial convenience or necessity. For these reasons, I cannot find that the HTA contracts in this case constitute illegal off-exchange futures contracts.

Although I would not object to settlement of a Commission Enforcement action in the ordinary course, I do not agree that the complaint should be issued. Therefore, I must dissent from the acceptance of the settlement.

Commissioner Barbara P. Holum ���������������� Date: January 12, 1999